Have you found yourself making excuses for why you “need” to buy something?

An easy way to get over the hurdle of handing over our cold hard cash is to pretend the purchase is a necessity. Something you need. Not a want.

It’s important to differentiate the two. The stuff we want can be delayed or gone without to save money. Needs cannot.

It Turns Out – Not Everybody Agrees With Me About Everything

A few weeks ago, I published “Does Your Car Cost You Millions?” Most commenters agreed that driving new or large vehicles can be hazardous to your financial health.

The point of that post wasn’t to say new cars should be off limits. But I did say they’re a luxury. Various alternatives can get you to work or wherever else your vehicle takes you. One commenter had an alternative viewpoint.

My reply to his feedback is so core to the Winning Personal Finance philosophy, that I felt a full post reply was necessary.

Used Cars Cost Less

Adam said “I agree with your post but I think you have significantly underestimated a few key factors that come along with an older vehicle. First, the cost of maintenance… You only briefly mentioned not keeping an older car when the cost of repairs outweighs the cost of the vehicle. The cost of repairs can be hefty, before you decide it’s no longer worth repairing.”

Buying used cars and driving them through their useful life will, on average, cost much less overall than buying new cars every five years or so. Yes, there could be one off examples of a used car not working out.

At Winning Personal Finance, we don’t worry about one off examples. We look at statistical probabilities.

Take it from an outside source. In this article, US News and World Report said

“The biggest problem with choosing a new vehicle is that you will typically pay a whole lot more for the car when it is new than you would for a comparable used model. And the higher costs don’t stop with the price. Because its value is higher, you’ll also have to pay much more in sales tax. The check that you write to your insurance company will be bigger as well.”

Here is a personal point of comparison between new car depreciation and used car repairs. According to Edmonds, a 2018 Altima is expected to depreciate $5,758 in its first year of ownership. I’ve been driving a 2006 Altima since 2008. In that timespan of about 10 years, I’ve spent less than $3K on repairs.

None of them inconvenienced me in a traumatic way. All were able to be fixed in one day or less. When considering the same make and model, used cars almost always cost less than new over the long term…even when you factor in repairs.

Deciding when a car is “done” may not always be an easy decision since you have to predict when the repair costs will start to exceed that car’s value. Yes, you could pay “hefty” repair costs. But only if you expect the repair to produce a positive return on your investment. If the repair isn’t worth it, you can sell the car for parts and move on.

Saving Money Buys You Time

Adam said “with the repairs comes your time. You may have to take time off from work to get your car repaired. How much is your time worth?…For someone who relies on their vehicle for work, it’s a bigger concern to not have it available.”

I’m glad that Adam touched on the amount of extra time necessary to repair used cars. Yet, he didn’t mention the time saved by spending less on your cars overall.

Remember that time is money. The more money you accumulate, the less you will need to work in the future.

Another way to use your money to buy time is to deploy it to do things you don’t want to do yourself. Think of things like mowing the lawn or cleaning the house or doing your taxes (I like doing my taxes but I’m weird like that). By saving money in one area, you are buying yourself time elsewhere.

Think about that for a second. By buying used, a consumer may lose a few days every so often to repair their car. In exchange, they’d have thousands of extra dollars to use as they wish in the future.

The idea behind financial independence is to have enough money that you don’t have to work and can do anything you want with that time.

Also, If you are replacing your car every 2-5 years, you’re probably spending an awful lot of time shopping for a car. Well, at least I hope you are.

Cars are big, expensive purchases, so significant research and negotiating time should go into each decision. By driving your car for many years instead of just a few, you save this time as well.

Trading A Few Days Now For Years Later

It’s true that if your older car needs a repair, it may cost you a day here and there. If you’re a CEO type making thousands of dollars a day, it would make sense for you to make sure your transportation is as reliable as possible. In that case, maybe a heavily used car is not for you.

Still, most of us can take a rideshare back and forth to work in an emergency. If a young person chooses to drive used cars instead of new and invests the savings, the money saved is likely to allow them to retire years earlier. If they don’t want to retire early with that money, maybe there is something else that’s a higher priority to them than driving a new car.

In the initial post, I calculated that Bernie spent $2.1M of age 65 dollars on his vehicles in the first 12 years of his career. I know that was comparing a new car every 5 years to not spending anything on transportation – which is a bit of a reach. Still, it points out how much potential there really is to save.

If Bernie could save half that amount, he’d have a extra $1.05M just for changing his transportation choices for 12 years.

Let’s pause there. What would you do with an extra MILLION dollars? What are you willing to give up to have that amount?

Do you think at age 65, you’ll look back on the car you drove in your 20s and think, “man, I wish I drove a nicer car back then instead of having this extra $1M today and all the options in life that that money brings me.”

There Are Advantages to New Cars

Adam said “my other thought is safety. You cannot compare a 10 year old car to a new car in terms of safety. And I do not think that’s something you can put a monetary value on. Even a 2-3 year old car cannot compare to a new car in terms of safety. Your post seems to leave it very black and white but I think the safety factor cannot be stressed enough and that makes the waters a little more grey.”

I’ve never said that there are no advantages to buying and driving new cars. These advantages are obvious. There are luxury upgrades in comfort and technology in addition to the safety ones. If you’re on track to reach your financial goals, want a new car and can afford one, all power to you. Go for it.

I’m in agreement with Adam’s point about safety. Every year, new safety features are added to cars. In this case, newer is generally better.

The safety difference between a new car and a very old car (think before modern seatbelts and airbags) can be significant. While, the difference between a new car and a slightly used car may exist, the incremental gains are probably much less significant depending on what new features were added in those years.

Still, it’s important that we don’t let fear prevent us from winning. I’d be willing to take on an extra 1 in 100 million chance of dying in a car crash in exchange for the option to retire 10 years earlier. I made the numbers in this example up, so don’t go quoting it as real… but I think you get my point.

We Take Risks Every Day

We all take small risks every day in life and we need to balance them. Driving a two-year-old car might be a little more risky than a new one.

Avoiding getting into a motor vehicle altogether would eliminate most risks of being in a car crash. (I say most because you could always get hit by a car while walking on the sidewalk or crossing the street.)

I’m not going to avoid risk to the extreme of never getting into a car, are you? I don’t want to be the person who never leaves his house because I’m scared of germs. I love skiing and it’s not without risk either, yet I have no intention of stopping.

Needing To Work Can Be Risky Also

I’d argue having less savings and needing to work longer could be a health risk. Think about how stress from work can have an impact on a person.

I started this blog in part because of the stress from losing one job, having a challenging new one and becoming a one income family. Those life events left me wanting to control my own destiny so I never need to rely on a paycheck.

Even if you don’t find your job stressful today, what are the chances it stays like that until you reach a traditional retirement age of 65? What if you save nothing and can’t retire until you’re 75 or…ever? Only you can decide if the marginal extra safety gains from a newer vehicle are worth that cost.

I’m not telling you what to decide. I will say that I personally would not trade hundreds of thousands of dollars (accumulated over the long term) for a negligible percentage increase in my vehicles safety rating.

Investing Can Be Risky Too

One more anecdote: you can’t invest in the stock market without acknowledging that doing so has risks. Even so, I’m not going to stop investing either. In fact, not investing is the risk that scares me more than the risk of my investments losing value.

After all, the stock market always goes up over time, and I still have a lot of time (I hope). In conclusion, newer cars are generally safer, but the difference could be marginal depending on the age of the used car. At what cost is that that incremental safety gain worth it?

Need to Weigh the Pros and Cons

In the end, like with any financial decision, you need to weigh the costs and the benefits. The purpose of my original post was to open readers eyes to how much new or large cars cost over time.

I’d like my readers to second guess a significant decision such as buying or leasing a car. A consumer should really think through what is best for them given their financial situation. I want my readers to have millions (or at least whatever they deem to be enough) by the age of 65 (or younger) and not be forced to work for years extra just to drive a car that’s a few years newer.

Thanks again for your comment Adam. I really enjoy having debates like this. It’s refreshing to read alternative perspectives on the topics from my posts.

Readers:

What do you think of Adam’s points about the increased maintenance, repair time and safety of used cars?

Have you ever tricked yourself into thinking a want was a need?

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