Monday, August 1, 2011
Is it better to constantly repair my old car, or buy a new one?
And there you have it, this reasoning is in my opinion one of the most used and most widely excepted reasons for purchasing a new car. In the end this reasoning is nothing more than a justification for over spending.
This reasoning is why the average car payment in the united states is up around $480, this reasoning is also why poor people remain poor, or in this instance lower middle class stay lower middle class. Until American's change the way they view the coveted new car, their finances simply will always be riddled with debt and payments.
I'm here to tell you that you can BREAK FREE from this slavery to debt mentality and break the justifications that cause this behavior.
On the surface this sounds reasonable, after all who wants to shell out $1500 for a transmission especially when this cost is unexpected and the timing could be detrimental. However when you step back and take a look at the numbers you will see that PAYING TO HAVE YOUR OLD CAR PERIODICALLY FIXED IS ALWAYS CHEAPER THAN CAR PAYMENTS!!!
The reason I say this is two fold :
1. When you add up your monthly payment, lets say you buy an "economical" car and your payment is "only $300 well south of the average, how much are you paying annually? Well simple math says that $300 x 12 = $3600. While it is certainly possible that in any given year your maintenance costs for your old car may come close to this amount, it is nearly impossible that you would incur these costs year in and year out. For example if this year you were forced to put $2000 into a new transmission for your old car, that transmission will likely come with a warranty, and it will likely be good for many years to come. The truth is you will always save more money by simply fixing your car than you would having a car payment.
2. The depreciation costs on a new car are ASTRONOMICAL ! As soon as you roll off the lot you just lost a big chunk of change. New cars typically loose 30% of their value within the first 3 years. If you buy a $20,000 car ("economical model") than you will loose at least $6000 in value in the first 3 years. It's highly unlikely your maintenance costs on your old car will come any where close to this figure.
So now you have two solid reasons to hang onto that clunker and ride it out for a couple more years. If the maintenance simply becomes too much of a hassle factor stick to a strict budget, set aside a couple hundred dollars a month and save up for a reliable used car , one that you can pay cash for. This type of planned budgeted purchase will put you into a much stronger position financially and will put you one step closer to financial security.
Please share your comments about this subject, I'm eager to hear about your car purchasing choices!