The Butler Project

Back in October of 2006, when Ford announced it would no longer be making the Taurus,  Saturday Night Live’s comment was, “Now, people in their 30’s will have to find another way to announce to the world that they have given up on their dreams.”

While a lot of people bought the Taurus, it did always fall short in the style category.

What does your car say about you?  What do you imagine people think as they see you climbing in or getting out of your car?  Do  you hope your car tells the world you’re successful and smart?

Does It Matter?

Maybe, maybe not, you’ll have to decide that for yourself, but one thing that matters to all of us (whether you want to think about it or not) is the bottom line of owning a car: How much will it cost, and how will you pay for it.

Your Plan

How does a car purchase fit into your financial planning?  Are you preparing for it by socking away a car payment each month in your savings account?  Or is your plan to sell some stock or other asset to come up with the money?  Will you take out  a loan and “figure out” how to pay for it as the need arises?

If there is one thing I’ve noticed about the millionaires we’ve interviewed, it is that they don’t like debt.  They think about their finances and plan more than the typical person how to make and how to spend their money.  They stay out of debt.

What does this say about buying a car?  It’s pretty much all about what you can afford.  How much car can you afford?

A Car Is Not a Good Investment

We all know cars depreciate–they lose some of their value every day, at an average of 15-20% each year, even more the first year.  That means that a car that was worth $24,000 new will lose approximately $4800 of it’s value the first year you drive it.  Would you invest in an investment that was guaranteed to lose 15 to 20% every year?  I think not.

A car is an expense. And not just the purchase price, everything about a car is an expense.  When you’re planning how to pay for a car, remember after you buy the car you pay tax, license, and registration, you fill the tank with gas, you pay for insurance, repairs, and maintenance.  You pay to wash it; you pay to park it.

I’m not telling you this to depress you, I’m telling you this to open your eyes to the way a car fits into your financial plan.  Avoiding unpleasant thoughts, like all the extra expenses associated with a car is the way we get ourselves into debt and other financial troubles in the first place.  Taking the time to examine your feelings and the total cost of ownership is actually the way to take control of your finances instead of being controlled by them.

So, Think About It

How will  you pay for the car?  Will you go into debt?  Will you really go into debt to lose a guaranteed 15 to 20% of your money each year?  Ouch.  You don’t have to go into debt.  You could be saving money each month in anticipation of your next purchase.  You could find ways to spend less and choose a less expensive car to drive.

There Are Ways To Make Purchasing A Car Smarter

Here’s how one of the millionaire couples featured in The Millionaire Next Door does it: As farmers in cotton country, they shop for quality, late model, used Japanese cars every 2 to 3 years.  They find they can get better prices in the city from private owners, they drive those cars for two or three years and then sell them in their rural community for close to the price they paid.

Why Japanese cars?  It seems they hold their value well and require few repairs during those first 5 to 6 years.  This millionaire couple lets someone else drive the worst of the depreciation off the car and then finds cars that will sell well in their area when they are done.

You too could figure out a system where you’re not taking the brunt of the cost of owning a car.  The Internet is full of information to help you. Sites giving new and used car prices abound.  Edmunds.com has listed cars by depreciation rates.  There is great cost of ownership information at the Internet Autoguide.  Many auto insurance sites will give you a quote if you’ll give them your specifics.  Use that information to find out which car models you’re considering cost the most or the least to insure.  Cars that cost less to insure typically cost less to repair.

Points to remember:

• Don’t be defined by what you drive.  Get a car you like, but don’t let your emotions take over the car buying process.  Driving more car than you can afford might look good on the outside, but having control of your finances feels good inside and out.
• A car is not generally a good investment.  You can, however, find ways to minimize your depreciate costs through researching depreciation rates, insurance costs, and total costs of ownership.
• Take the time to plan how you will pay for your next auto.