The Finance Fiend

Getting Financial Freedom by 35!

Consumer Ed 101: So you want a car April 23, 2009

Filed under: Uncategorized — rebeccainspired @ 10:10 am
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Contrary to what many Americans believe, a car is not vital.

In some places they are actually unnecessary. I remember talking with a classmate in high school, he was planning on going to college in California, and he knew that the high tuition prices would make it hard to have a car as well.  He also knew he wouldn’t use the car much.  The campus he was going to had a bus system, a grocery store, and housing.  He knew it made more sense to rent a car for a weekend at $50/day than to pay for the upkeep of a car every day.

So how much does a car cost?

1. Insurance this can cost anywhere from a dollar a day (for collision only) and up to five dollars a day for full coverage. It may cost even more in other parts of the country and based on your risk, I am basing these numbers on my experience in the Midwest.

2. The price of the vehicle. Whether you buy your car outright, or buy something on payments you need to account for that price.  New cars start at around $10,000 for the small models, while larger cars start in the $30,000 range.  Even if you want a new car there are wide ranges in price.  There is also the option of buying used (an option I fully support). A two year old car will retail for less than 50% of the new price. When we bought our2 year old car, it was about $8,000 from a private seller (we bought it spring of 2007 and it was an ’04 model).  With all the car info they gave us, they had the invoice from the purchase of the car, and they had spent almost $30,000 for it when it was new with their extras.  If you are buying a new car every two years, you should realize you are spending thousands of dollars for that.  Trade in prices are nowhere near as good as selling to a private individual either. Also, remember that if you get a lien on your car you are paying extra money to the lender.

3. Vehicle repairs. All cars need maintenance, and some cars need repairs.  Repairs are more common with older vehicles and vehicles with high miles because they have been used so much.  Know when a repair is worth it.  When I was younger (and more foolish) I bought a car from my brother for $400.  He knew the breaks needed fixed, and told me it should cost a few hundred dollars.  When I went in for repairs they told me it would be $1200.  I repaired it, but it wasn’t the best decision as the clutch went out 3 months later. Know when a car is sucking money away from your budget.

4. Gasoline. Currently gas prices are rather low, they have been hovering around $1.90 for a few months, but that won’t last. Prices may stay this way for a few more weeks, months, or even years. You may find a car you like, but if it gets 10 miles to the gallon its not the best for commuting.  If you are buying a truck for hauling things, do you need the large one, or will a smaller truck work just as well? Gasoline isn’t a one time purchase, and it may be worth it to buy a more expensive car to get better mileage.

So you still want a car?

Don’t forget your other options! Many places it makes more sense to use public transport.  If you think 45 minutes if your time is too much when you could drive and get there in 20, don’t forget the other costs of a vehicle. How much is that 25 minutes worth to you? You can earn, what a few more dollars to drive.

Don’t forget your transit costs can be tax free. In Obama’s Economic Recovery plan, they have increased the amount of money you can put into a pre-tax ‘transit account.’  If your employer offers this, it can allow you to take the up to $230/month for train and bus passes.  You won’t be seeing any special tax breaks for driving yourself to work, and you can probably buy passes for your other family members as well as yourself.  Do your kids take transit to school? or to grandmas? They may have a less expensive monthly pass, but you can also get that $20 untaxed.

Its the green thing to do. So you hate that being ‘green’ is so trendy?  Well keep this in mind, in my town the public buses run on a set schedule.  Empty or full, they will drive from downtown to the movie theater to the hospital and even to work.  That is a lot of wasted fuel if no one is on the bus except the driver.

You won’t be late. Buses may get behind schedule, but not by much.  As long as you catch the bus you can expect to get to work at around the same time every day. And, its not just the poor working class that take the bus.  In our town all of the buses hub at a location downtown.  Parking downtown costs a lot, and can be hard to find.  Its easier for the banker or merchant to take the bus than spend extra time and money finding parking.

So before you buy that second vehicle, or trade yours in for a new model, consider your options.  You might just be glad you did.

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