Post by ACD on Mar 4, 2008 17:33:39 GMT -5
Face it I was there, you were there, our kids will be there soon. You've just graduated college or high school and landed that first job. For the first time you have some money. One of the greatest temptations is to go out and buy a new car heck you deserve it right? Mom and Dad have new cars and you want to live at the standard they do or better. So impatient are many of us that we go to the dealership pick the car that we believe will make us a hit with the opposite sex. We take advantage of the no money down financing first time buyer hype and leave with our new prize. So there we are with our new ride. $375 a month (US average) for 72 months. Oh and then there's insurance.. young men under 25 and single know all about that! And of course if you live in a state like Maine there's excise tax when you go to register it. You man up and pay and for the first 3 years everything is fine just oil changes maybe a couple tires. Then at 60,000 miles (hey you're young and got places to go..20K miles a year is nothing!) an electronic sensor fails in the transmission. It costs $800 to fix. Of course the part was only $124 but they had to remove and partially dissassemble the tranny to replace it. Then all is well for another year but now you need brakes, oh and the front struts will need replacing before you can get an inspection next month. It continues like this and you still have 3 years of payments left. Let's say you make it and even curtailed your mileage a bit as you got older. After the car is paid off it has 125,000 miles, a couple dings, and needs about $1200 in work for another state inspection sticker. What to do? Why go buy another car of course! Repeat as necessary. In my personal experience (yes I am an idiot) It was often cheaper (monthly) in my mind to get a new car when repairs got high. This led to negative equity trade-ins which mean you already are in the hole before you make a deal on a new car.
What I should have done....
Find a freshly inspected "beater" car for $1000. Drive it 6 months while putting $375 a month in a car savings account. This gives me $2250 plus I should be able to sell the other car for $750 at least. Then I go buy a $3000 car. Drive that for a year and keep paying myself payments. In 12 months I have $4500. I can sell the car I have for $2500 and buy a $7000 car. Then in a year a $10,000 car. The next year a $14,000 car. Then a $17,000 car. Then $20,000. So in the same seven years I now have a nearly new premium vehicle. (New is just stupid buy a two year old car at best, let someone else eat the depreciation!) I have gotten a better car every year instead of watching one wear out. I have paid no interest and have in fact earned some. Taxes were lower because you only get taxed on what you improved by. The old car's sale price is a credit. Reliability presumably increased every upgrade reducing repairs. Insurance was cheaper because at first with the cheap car you only needed liability insurance. As the cars got more valuable your rate for full coverage likely lowered do to age and marital status. Don't be me. Reverse finance your car and beat the system.
What I should have done....
Find a freshly inspected "beater" car for $1000. Drive it 6 months while putting $375 a month in a car savings account. This gives me $2250 plus I should be able to sell the other car for $750 at least. Then I go buy a $3000 car. Drive that for a year and keep paying myself payments. In 12 months I have $4500. I can sell the car I have for $2500 and buy a $7000 car. Then in a year a $10,000 car. The next year a $14,000 car. Then a $17,000 car. Then $20,000. So in the same seven years I now have a nearly new premium vehicle. (New is just stupid buy a two year old car at best, let someone else eat the depreciation!) I have gotten a better car every year instead of watching one wear out. I have paid no interest and have in fact earned some. Taxes were lower because you only get taxed on what you improved by. The old car's sale price is a credit. Reliability presumably increased every upgrade reducing repairs. Insurance was cheaper because at first with the cheap car you only needed liability insurance. As the cars got more valuable your rate for full coverage likely lowered do to age and marital status. Don't be me. Reverse finance your car and beat the system.
