Buying and Keeping a Car
A car is a very big investment. Make sure you buy
the right one for the right reasons.
Contrary to what the TV commercials try to tell you, the best way to think of a car is simply as a hunk of metal you can use to get from one place to another as inexpensively as possible.
This “hunk of metal” way of thinking helps us block out all the slick commercial messages about “total horsepower,” “acceleration,” “moon roof,” “cruise control,” “appeal to the opposite sex,” and so on. Instead, it allows us to concentrate on how much a particular hunk is going to cost us—in total—to get us from one place to another for some number of years.
When viewed from this “hunk of metal” standpoint, which of these two example hunks do you think would come out on top?
Hunk A
Purchase price:
$1,000
$1,000Yearly maintenance: 750
Miles per gallon: 15
Annual registration: 100
Hunk B
Purchase price: $2,500
$2,500Yearly maintenance: 300
Miles per gallon: 25
Annual registration: 150
To figure out which of these would be a better financial deal overall, you would also need to determine approximately how many miles a year you will be driving and what the per gallon cost of gas will be. Let's assume that gas is $3.60 a gallon and that you will drive about 4,000 miles a year. By multiplying these two numbers and dividing this result by the miles per gallon that each hunk gets, the yearly gas cost of each hunk can be determined. Adding in the yearly gas cost for both gives the following results:
Hunk A
Purchase price: $1,000
$1,000Yearly maintenance: 750
Yearly gas cost : 960
Annual registration : 100
TOTAL $2,810
Hunk B
Purchase price: $1,500
$1,500Yearly maintenance: 300
Yearly gas cost: 576
576Annual registration: 150
TOTAL $2,526From the above, we see that on a yearly basis, Hunk B has a $284 lower cost than Hunk A, even though it has a higher purchase price and a higher registration fee. Hunk B's lower maintenance cost and better gas mileage helps it win out over Hunk A on a total yearly ownership basis.
And this is just during the first year. In the second year, the situation would look like this:
Hunk A
Yearly maintenance: $750
Yearly gas cost: 960
960 Annual registration: 100
TOTAL $1,810Hunk B
Yearly maintenance: $300
Yearly gas cost 576
576Annual registration 150
TOTAL $1,026 Again, Hunk B wins out--this time by $784! And depending on future gas prices and other factors, you could expect to save more or less the same amount of money each and every year you owned Hunk B instead of Hunk A.
The basic point to make in this example is that you absolutely have to take the total cost of ownership into account when trying to figure out which car to buy (as well as in deciding whether you should buy any car at all).
The necessary fact-finding and calculating can take some time, but it’s time very well spent. In our example, if you didn't do the homework but just walked onto the car lot and said "I'll take Hunk A over there” you would have just lost yourself $1,068 over a two-year period, by comparison to Hunk B.
Conclusion
A “car of your own” needs to be thought of as a long term project. You should plan to walk, bicycle, and/or use the bus as your primary means of transportation for some time to come, while you save up a substantial down payment and also make sure you can manage the other car ownership costs and responsibilities involved.
When you do eventually get to the car-buying point, you should at all costs avoid making an "impulse" purchase. Instead, you should take the time and effort needed to determine the total ownership cost of whatever cars you are considering. This should be a major factor in making your final decision.
