How to Not Buy a Car

Full disclosure: I am a recovering car addict. I’ve done almost all the unspeakable’s. I’ve taken out multiple car loans, owned a gas-guzzling 4×4 SUV, owned more than 1 car at a time (at one point I owned 5 cars individually…ugh), and bought expensive European luxury/sports cars. My only saving grace is that I’ve never bought a brand new car. But, around this time last year, I had an epiphany after reading a FI blog post about the cost of car ownership. Ironically it was about a week after I had purchased the car pictured below. Stupid Car Purchase

This car is my claim to shame.

  1. Who in the hell needs a street legal race car?
  2. At the time that I got this car, I was motivated more by looking rich than actually being rich. I imagined how wealthy and cool I must’ve looked to other people. What a jackass.
  3. It’s more fun to drive a slow car fast than drive a fast car slow. So save your money and get a slow car.

I did everything someone shouldn’t to get an unnecessary impractical death-trap. My wife and I owned a 2012 VW TDi that we bought with cash, and there was no way to get a loan on the car pictured above because it is technically a kit-car. So I did what any idiot would…I took out a loan on a car that I already owned, put a significant amount of our savings with it, and I even put a couple thousand on a credit card (albeit to get the bonus points for meeting minimum spend on a travel card but we will go through this in a later post) all to get this ridiculous car. I won’t lie to you, this car was fun, but not as much fun as being free from the constraints of debt and the requirement to work to afford all your materialistic junk. And, I’m hopeful that the freedom of not having to work will be better than getting bugs stuck in my teeth. Luckily, I sold the car shortly after I bought it, and didn’t lose any money on the deal.

So, I have vast personal experience on practically every way to not buy a car. And, luckily for the audience, I’m here to apply my expertise and tell you all the ways you shouldn’t buy a car.

  • Do Not: take out a car loan. Affording a $400 monthly car payment is not buying the car, you are asking someone else to buy the car and you’ll pay them back over the course of a few years. Think about it this way, interest should be working for you, not against you. When you pay your car loan, your interest is paying the bank. Giving them profits, paying for their building and the wages of the people there. When you invest this amount, the interest gained is your profits, paying your expenses for years to come. Just think about how weird the concept of a car loan is: you are agreeing to pay more for a car than it’s worth. I’m going to buy this car that is worth $25k now and I’m going to pay $27k for it. And by the time I pay it off, it’ll be worth less than half of what I’ve paid.
  • Do Not: buy a brand new vehicle. I genuinely don’t even think I need to expound on this, but I will for the sake of argument. Let’s say you buy a brand new car for $33k (FYI: According to USA Today, the average new car is $33,560). Literally the second you drive off the lot you already lost nearly $4 grand. A new car loses 11% of its value the second it becomes a used car. Your $33k car is now worth $29,370 before you even made it to the red-light.
  • Do Not: buy an SUV or pick-up truck. All the readers that own SUV’s and trucks have suddenly gotten really defensive and won’t listen to reason from this point forward. But, hear me out. How many people are typically in your SUV every time you drive? More likely than not, it’s just you in it. And in the off case that you have 5 people in your car every time you leave the house, don’t most cars have 5 seats? Truck drivers, are you loading up your truck bed full of stuff every day? Are you towing something daily? No? Then why in the hell are you driving this monstrosity that is eating away at your finances? A 2005 Chevy Tahoe gets an average of 14 mpg, and if you drive the DOT average of 13,400 miles per year, gas alone will cost you over $2,250.
  • Do: buy a small, economical car. All the truck drivers just rolled their eyes. Guys, why do we base so much of our masculinity in cars? This isn’t only limited to the caveman mindset of men, I worked with a girl who said she needed an SUV because she enjoyed looking down on all the other cars…..seriously? I prefer hatchbacks because the utility of them is excellent. Can I fit 5 people in my car? Can I lay the seats down and fit a futon in the back? Can I still get 30+ mpg? A small hatchback checks off all these boxes. You remember the fuel cost for the Tahoe earlier? A 2007 Honda Fit will cost you a couple bucks over $950 for the same yearly mileage. You’re telling me that I can drive a “girly” car and save $1300 a year? Sign me up!
  • Do: think of your car as what it is: an appliance. It’s sole purpose is and should be to get you from point A to point B as efficiently as possible. You don’t see people going out and buying fancy parts to put on their washing machines, do you? People don’t go out and take out a loan to buy an over-sized luxury European dishwasher. Then why do we do these things with cars?

Why do we place so much of our identity in what we drive? Once you quit caring about what you drive, it’s an incredibly freeing phenomenon. I don’t care if my car gets dinged by a door in the parking lot. I don’t care if I scratch the paint while putting bikes on my bike rack. Now, I’m not saying you need to go to a destruction derby to find your next car. I’m just pointing out that there are compromises that can be made in appearance for the sake of saving thousands of dollars. My goal with my car is to get me to where I need to go. If my $2,000 used Nissan Versa gets me to work at the same rate as your $22,000 Ford Fusion then what did you spend that extra $20 thousand on? Pearl paint? Leather seats? Bluetooth streaming? No thanks. Invested, my $20k will make me $1400 in one year. While your $20k sunk in your car will only be worth $16k by the end of the year. In 5 years my $20k will be worth over $28,000, but inversely your $20k has plummeted 63% down to $9,400. Take a good look at your car and where you are placing your value and your hard earned money. Are you sacrificing your future for heated seats and push-button start?

 

 

If you want more information, and a deeper in-depth break down of cost ownership check out this podcast from the guys over at ChooseFI, and this old article from Mr. Money Mustache.

6 thoughts on “How to Not Buy a Car

  1. I’m going to push back on the blanket car loan advice. It depends on the interest rate you can get. You said, “Invested, my $20k will make me $1400 in one year.” Exactly. If you make more on investment interest than the interest on the car loan, the loan makes sense. (But yes, that assumes you have the cash to invest.)

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    1. I’ll agree that there is a possibility of making more money by investing the amount you would pay for a car instead of putting one lump sum on a car purchase. But that’s also assuming that if you are already maxing tax advantaged accounts (401k and Roth) that you have an after tax investment account that you would put that lump sum into, which is a tiny fraction of the population. I would also argue that getting a car loan would prompt many people to purchase more car than they can afford, and that insurance costs are more on a financed car because you are forced to have full coverage. To me there are too many stipulations and extenuating circumstances for a car loan to be sound financial advice.

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  2. Many times those five seats don’t fit five people especially when you have car seat. I can’t even reach/see the belts in my middle seat with our two car seats in our Corolla.

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    1. Ginger, I appreciate your feedback. However, according to a study done by the Pew Research Center, you are in the minority if you need three car seats in one car. Their analysis showed that 63% of families have 1-2 children. My advice isn’t to be taken as blanket advice that applies to everyone, but I can say that it definitely applies to the majority. It should be used as a catalyst for reflection. If you leave the house everyday with 5 passengers, then by all means, get a van. Just don’t buy a vehicle that is overkill for your situation.

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