The other day at the hair salon, the topic turned to
cars.
Since I’m on the hunt for a new car (thanks to a recent
unfortunate fender bender), my ears perked up.
Everyone was all aquiver because one of the youngest
stylists had just gotten a new car. Evidently, it was a Lexus and it
was a beauty.
“So is your boyfriend still getting on you about buying it?”
someone asked her.
The boyfriend, apparently, did not see the financial wisdom
of this purchase.
“Oh yes,” sighed this 20-year-old who had been styling hair
for less than six months. “But I just told him to lay off. If he
couldn’t get over it, I’d rather be on my own in my Lexus than
have him by my side in a Pinto.”
Everyone roared with laughter.
“I know,” sighed a guy a couple of chairs down from me. “I
was nuts about my Bronco when I bought it. But I’m six
thousand upside down on it now and can’t stand to look at it.
I’ve got to find something new.”
Everyone nodded and “hmm”ed in sympathy.
At this point, my internal debt alarm was reading off the
charts. But before I could begin my mental sermon, though, one
image flashed through my mind and stopped me cold. It was me
in a shiny silver convertible VW bug with my hair flying in the
wind.
My two salon mates had made some whopper poor
decisions, true. But I can relate to where those decisions
probably originated: a desire for fun. That VW was the car of my
high school dreams — and I still salivate when I see
one.
When it’s time to auto shop, no one jumps for joy to go
check out the decade-old Chevys. But I’m not in high school
anymore, as much as my Freudian id would like to convince me
otherwise. I need transportation and I need to be a good
steward. So how can I reconcile the two?
Stop!
First, I need to honestly assess my need for a car.
I really like the Motley Fool web site’s first
piece of advice for car shoppers: “Don’t do it!” I thought that was
original — and right on the money.
The fact is most of us don’t need a newer car. We may want
it, but we don’t need it.
This became very clear to me at a recent mechanic visit. We
were contemplating replacing our 10-year-old Maxima (yes, the
one that would fall victim to the fender bender) because, after
all, it was 10 years old.
Much to our surprise, the mechanic reported that our
engine was in excellent condition and would probably still run
another 100,000 miles. Since the car was paid off, that could
mean at least five to eight more years without a car payment.
Sweet!
“Does your car have in excess of 200,000 miles?” Crown
Ministries asks. “If not, chances are the present car is still in
good shape.”
Before heading to the car lot, the Motley Fool site
recommends that you ask yourself these two questions: Do I
really need a vehicle change? Why?
Many of us will give an enthusiastic “You bet!” to the first
question, but pause when we get to the second. Unless our
transmission is sitting on the garage floor, it’s probable that we
could put off the purchase — and the incredible expense
— of a car for at least a year, if not more.
If you are a two-car family, you might even ask yourself if
you could get by with one car. It may seem frightfully 1950s, but
when you consider how much money you pay to have one of
those cars (if not both) sit in a parking lot all day, you might be
motivated to get creative with transportation alternatives.
Avoid the Black Hole
But since my car is now sitting in an auto graveyard, the
option of doing nothing is not an option for me. So here’s where
I need to remember a great piece of financial advice from my
past: “Have a nice home. Drive old cars.”
I first heard this advice on the radio when I was newly
married. I can’t remember who said it, but I do remember that
the man believed it was his key to financial freedom. His little
phrase was simple and it stuck with me.
The gist is that homes usually (emphasis on the “usually”)
appreciate, or increase in value. They are generally a good
investment. (Though one that should be approached with caution.)
Cars are not. They depreciate. A lot. And quickly. They are
the black hole of the budget. A lot of money goes in and it never
comes out.
On average, new cars lose more than 20 percent of their
value the first year, 15 percent the second and so on, according
to The Motley Fool web site. After two years, a $20,000 new car
will be worth only $13,000. Seven thousand dollars of value
gone — almost $300 a month.
Further, if you financed that $20,000, you’ll probably owe
more than your car is worth (remember Mr. Two-Seats-Down?)
for several years.
Despite this, Americans are spending more than ever on
their cars. We’ve doubled our transportation spending since the
1960s — from 10 percent of the family budget to almost
20 percent. Some of this can be attributed to the rise in two-
career families. But much of it can also be attributed to our
desire for buying newer, fancier cars more often.
According to Crown Ministries, “The average family, during
its lifetime, is going to put more money into automobiles than
they will put into their homes.” That means that our car
decisions are extremely important.
Since I know my next car is going to lose value —
rapidly — why not purchase accordingly? All the “how to
haggle that sneaky car salesman down with brilliant negotiating
tactics” advice in the world is not going to save me as much
money as simply choosing to buy a cheaper used car. As my
radio man said: “Drive old cars.”
Cash on the Barrel
Now that I’ve decided what kind of car I’m going to buy, I
have to decide how I’m going to pay for it.
The one thing that many Christian financial experts agree
on — and that most people feel they could never do
— is to pay cash for cars.
In theory, it sounds great. Who would want to borrow
money and pay interest to buy something whose value is sinking
faster than the Titanic? But in reality, many Christians scoff at
the idea. Yeah, like I could save up enough to pay cash for
the entire price of a car.
I was definitely one of the scoffers when I bought my first
car. I wanted something nice. Honestly, I felt I deserved
something nice. The only way to do that was to borrow the
purchase price. So I bought a car and financed it, leaving me
with four years of serious payments.
As parenthood approached, my husband and I went on a
massive debt killing
program and paid the car off. Suddenly, the solution
became very clear. Instead of moving on up the auto ladder, we
decided to continue making our car payment — but to
simply make it to ourselves. Each month, as we fought the urge
to covet our neighbor’s new Dodge Durango, our savings
account grew.
Now that our Maxima has gone to Nissan heaven, we can
buy without borrowing. Not an Escalade, mind you. But another,
dependable older car. Then, we’ll continue the “pay ourselves”
process so we can pay cash for our next vehicle as well.
Even beyond saving the interest charges, paying cash will
probably also save you money.
I find that when I finance something, I’m less particular
about the cost. Oh, why not pay a thousand to have the
yard sodded? That only adds a few dollars to my mortgage
payment! Instead of concentrating on the thousand, I’m
concentrating on the monthly payment.
But when I’m paying cash, I’m much more likely to watch the
pennies. Five hundred more dollars just for leather? I’ll
take the cloth, thank you very much!
It’s easy to spend too much money on a car. But considering
how much cars cost and how quickly they lose value, we need to
make the effort to buy smart. That’s what I’m off to try to do.
Wish me luck.
Copyright 2006 Heather D. Koerner. All rights reserved.
