I’ve been ranting about cars this week. Wednesday I talked about how much a car payment actually costs you over your life. Hint: it’s millions of dollars. Yesterday I pointed out how cars lose much of their value in the first two years. Today I want to give you a new way of thinking about buying cars.
Buy used cars with cash.
The two biggest mistakes people make here are (1) buying too much car and (2) keeping the car too long. They’re related.
If you don’t have a huge pile of cash that you’re willing to drop on a used car, then you should buy a less expensive one and move up. Save a $2,000 and buy a “beater”. Save six months and move up to a $3,000 car. Wait another six and move up again. Depending on how much you make and how much you care, you’ll be driving a $15,000 used car in no time. That’s a really nice used car by the way.
You’ll have minimized losses on depreciation, and you’ll never have made a payment.
What most people do is hold on to used cars for years and years. That’s when they start breaking down and now you’re dumping money into repairs that you could have spent on a replacement.
Why does my idea work so well? Used cars aren’t dropping much value in 6 months. You get most of your money back out. Once you’ve hit your goal (whatever level of car that is), the sweet spot is to buy 2 year old cars and sell them when they’re about 4 (that’s the timeframe that cars seem to lose the least value). You can easily save the difference in that time and move into another 2-year old car.
One disclaimer: this doesn’t work at dealerships.
Go private party or expect to spend a lot more money (they’ve got to pay for all those screaming ads on the radio after all). There’s bothing saying you have to play fair either. Buy cars at auction and MAKE money on them six months later…
If you’d like to learn about other ways to think differently about money, you should join the Intentional Academy. It’s free. Sign up using the form at the top of this page.