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The best car she never bought

Posted Feb 22 2008, 12:19 PM by Karen Datko
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Blunt Money's first job after graduate school paid $42,000, so what was one of the first things she did? She went shopping for a new car. "Why was I doing this?" she writes. "When it came right down to it, I didn't know. It just seemed like what people did. Get a better job? Get a better car!"

It was 1999, and the car she test drove was a BMW Z3, which, she recalls, cost about $40,000 at the time. Sounds crazy, but not totally out of line with current car-buying practices. A 2007 MSN Money article said that, according to Edmunds.com, car buyers on average put a measly $2,400 down, finance $24,864, and pay $479 a month. To make matters worse, the most popular loan is for more than five years, dragging those interest payments out longer than people reasonably should.

So what did Blunt Money do?

She realized she really liked her nine-year-old car. She also recognized the financial burden she would assume. After all, the price of that new car was nearly equal to her gross annual income. (By the way, experts recommend spending no more than 20% of household income on car payments.)

"What if something happened and I had to pay for the car without the same income?" she writes. "I didn't want to be working for a thing. Or to potentially have to choose between things like somewhere to live or something to drive."

Good decision. A divorce and the dot-com bust soon altered her life. She writes, "It's the best car I never bought."

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Comments

 

I gasped when I read "experts recommend spending no more than 20% of household income on car payments" - my first thought was "what experts, the experts at GM?"  All the financial experts I've ever read recommend... zero percent.

Dangerman (Posted 02.22.08 10:41 PM ) Report Abuse

Want to buy a car?  Figure out the monthly payment and put it in the bank each month,  after several months if it hasn't cramped your living, you can afford a car.

Robert Snyder (Posted 02.23.08 10:38 AM ) Report Abuse

Since car loan interests are no longer deductible, the wise thing is to put the monthly car payment into a separate account until the total car price is accumulated. Go to a Dealer and pay in full. You will be amazed how quickly the transaction progresses and with how little fuss.

When you compare the costs the difference is net savings! If you know, that it will take you longer than one year to save the total amount, invest the money in a safe, interest-bearing account. Compound interests will measurably shorten the time needed to come up with the needed amount.

The "good feelings" are priceless!  

Peter Hofer (Posted 02.23.08 12:05 PM ) Report Abuse

Cars are the worst investment you can make-------wait 90 days before buying any car. You will be suprise -----it won't be nearly as important at that point

bob henneman (Posted 02.23.08 12:28 PM ) Report Abuse

One of the best pieces of financial advice I ever received with regard to buying cars I received from a auto sales district manager:

"Financially speaking, the best car to get is always the one you already own."

Looks like Blunt Money experienced it first hand.

Beyond Paycheck to Paycheck (Posted 02.23.08 1:08 PM ) Report Abuse

You should not put yourself in the  financial position of having to make a monthly car payment ( lease OR loan). You'll be prepared for the Unexpected events sure to come into your life, and you'll be able to sleep well at night  by eluding the slavery that DEBT smothers you with.    

The Voice of experience (Posted 02.23.08 2:16 PM ) Report Abuse

Boy, are you people rich or something? Saving the money till you can buy a car outright? Now I totally agree with that if you can afford it. However, if someone has a low paying job and an already crappy car that has expensive repairs that need to be done then a new car is a better option.

With that said I don't understand how people look at cars as a "statement". If you are going to buy a car buy the most dependable car for your price range. Don't buy that new car to upstage the Joneses. The fact is they are probably in a lot of debt they don't talk about. With the current economy don't be too surprised to see that foreclosure sign. It's not worth it.

Don't Be Stupid (Posted 02.23.08 7:14 PM ) Report Abuse

Buying a car outright has nothing to do with how much you make. It all has to do with smart planning. If you always pay for your car first, and then each month you own the car, you put money into a savings account to buy your next car, u MAKE interest instead of paying interest for your cars. If you take out a car loan all the time you are spending MORE money (that you claim you don’t have from being poor) that if you paid for it up front.

The money out of your monthly budget is the same, but prepaying, and then saving for the next car saves you money or gets you a better car than taking out a loan, and then paying it back.

Ryan (Posted 02.23.08 7:53 PM ) Report Abuse

Cruise the assisted living and retirement homes. Look for for sale signs on cars. Everyone quites driving eventually. Like new cars, little use. Cars now all look alike, age makes no difference. You are buying milage. Recently saw a 93 model that looked like new with under 15,000 miles. Mantain its apperance. Drive it as long as you trust it. I have run two vehicles over 12 years. Car ownership does not have to be expensive.

Frugal (Posted 02.23.08 8:38 PM ) Report Abuse

Paying for a car, in full, with cash is certainly not a bad idea.  However, a better idea may be to take a car loan and invest your money.  For instance, if you can obtain a low interest car loan for say 5% and invest your money in a good stock index fund with a return of  8 %,  then you will come out ahead investing the money rather than sinking it into a big depreciable asset.  Of course, you need to look at all the variables such as taxes and investment unpredictability before pursuing such an option.

Contrarian View (Posted 02.23.08 9:29 PM ) Report Abuse

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