I'll get straight to it. This post has nothing to do with real estate. But, it's #FinanceFriday and I want to spread the knowledge I wish I had in 2014. Over the last four years of my life, I spent over $31,000 and learned a ton when it comes to understanding the HUGEEEEE difference between a performing asset and a depreciating one.
In March of 2014, I was sitting on top of the world. I remember driving across the Richmond Bridge on a clear afternoon, stereo blasting, sunroof open, and a 300 horsepower engine purring beneath me.
I just bought a BMW 335i 2-door coupe. It was glorious. It was fast. It was sexy. And wow, it was A HUGE step up from my 1995 Toyota Camry (in hindsight, damn I miss that car).
Little did I know, I just made the worst financial decision of my life.
Let's break it down.
4 Years of Registration: $800
4 Years of Insurance: $3,600
New Tires: $965.53
Oil Changes: $600 (you can't get that cheap $30 change from Jiffy Lube with a BMW)
Premium Gas: who knows??? A crap ton. I'll estimate $2,000
Clearly, I poured a ton of money into this car. All while only driving 12,000 over those 4 years (avg 3,000 per year). So basically, I traded a downpayment on a house (remember, I invest in the Midwest) for a car I barely used.
Fast forward to March of 2018.
I officially paid off my car (YAY for no car payments!!!).
And then I sold it IMMEDIATELY.
Breaking down the simple math:
Car acquisition and expenses: $31,604.58
Sold For: $7,000
Net Loss: $24,604.58
THAT. IS. PAINFUL. TO. LOOK. AT.
Especially when I already had a paid off 1995 Toyota Camry I bought for $3,500.
Now, I get it. Some people actually need a car whether it's for their work commute, to load up on groceries, or to drive the kids down to soccer practice, etc. but, I'm still going to beg you to listen to me:
If you require a car, buy something affordable that's within your needs. Most importantly, pay for it in cash and don't pay that damn interest. Toss ego aside. Don't think about how people will perceive you with a "less sexy," but more affordable/economical/functional car.
If you want to improve your financial outlook and future, these are the types of decisions you'll have to make. It's all for the long-term.
So, if you're looking for a car, or you're reading this post with a nice Mercedes in the driveway, it's time to evaluate your situation. Here are some amazing tips (from the help of Mr. Money Mustache) that'll help you find and be efficient with your next car:
1. Don't borrow money to buy a car
According to Mr. Money Mustache, around 73% of new cars in the US are financed. YIKES. Here's the problem with that: after years of owning the car, it's very likely it'll be worth less than you owe due to depreciation. That's clearly the definition of a terrible financial situation to be in.
Also, who likes paying interest? No one. Who likes paying a monthly bill that cuts into your cash flow? No one. Be smart and pick up a car in cash for $3k-$6k that'll last you years and allow you to have a higher savings rate.
2. Buy a car that suits your needs the MOST
Your car should be optimized to fit YOUR NEEDS, while burning the minimal amount of gas. If 90% of your drives include you and one passenger...there's NO NEED for a 7-seater SUV. If you live in the middle of an urban city, don't even think about getting that full-sized pickup truck.
3. Cars aren't for that quick 1/2 mile trip to the store
Every time you start up your car, put it in drive, and head to the store 2 minutes down the road, you're really helping out depreciation. Depreciation REALLY loves every time you press that gas pedal. Next time, consider walking, or hopping on your bike for those quick trips. Everything counts!
4. You don't look ridiculous driving that small car, but you do look ridiculous paying for that oversized car every month.
Screw your insecurities, say "bye bye" to your concerns about style. Here's a great quote from MMM, "Your job is to pick the (car) that enhances your life the most, and unless you are already financially independent, you'll get a lot more enhancement from getting some cash in your 'stash than you will from having 20" wheels and three rows of leather seating."
5. Cars cost you money PER MILE
Because a lot of people aren't thinking long-term, folks assume that since their car is just sitting in the driveway, they should be used with reckless abandon. WRONG! Bottom line: the more you drive, the more you're burning gas, oil, tires, the engine, and YOUR CASH! Become aware of your car use, and minimize it!
Best used cars under $10,000 according to US News and World Report
1. 2010 Toyota Prius
2. 2009 Honda Fit
3. 2011 Honda Civic
4. 2013 Honda Fit
5. 2012 Honda Civic
6. 2012 Honda Fit
7. 2011 Toyota Prius
8. 2012 Scion xB
9. 2009 Scion tC
10. 2009 Scion xB
11. 2009 Toyota Prius
I'm beginning to see a theme...
With that, I'll leave you a few articles from Mr. Money Mustache about cars that are sure to leave you with some value and entertainment. Leave a comment below! What's been your WORST financial decision EVER?
How to Come Out Way Ahead When Buying a Used Car
Curing Your Clown Like Car Habit
New Cars and Auto Financing: Stupid or Sensible?
Peace and happy investing!