Vehicles
“My car kept breaking down and I had no other choice but to get a new one, but it’s better on gas so I’ll be saving in the long run.” Let’s deconstruct this common sentiment.
“My car kept breaking down…”
Every vehicle will break down at some point regardless of price, that’s a given. Maybe you do have a lemon, maybe it’s just old but either way vehicle repairs need to be part of the budget. You may not need a repair each month, but the heat will probably go out in the winter and the A/C will quit in the summer so plan ahead. Brakes and tires are just large erasers so they need to be planned for as well. Unless you can afford it, getting a vehicle repaired at a dealership is generally far more expensive than a local mom and pop shop. If you drive a 10 year old vehicle and it needs a new part, the dealership will replace it at full cost plus labor. A smaller independent shop recommended by someone knowledgeable, can provide enough of a cheaper band aid fix to keep it going long enough to save up for another one. They will often be more open to bargaining and cash deals.
“…I had no other choice but to get a new one…”
Ah yes, the classic definition of catastrophizing. You always have a choice. Even if you do have a piece of junk that needs to be put out of its misery, reliable vehicles can be found for less than $30,000 (regardless of what the slick sales guy says). Vehicles are our ticket to independence and when it’s taken away emotions run high. People get desperate and desperate people make stupid decisions. Just before moving to east, I was T-boned and my SUV was totalled. It was old anyways and in constant need of repairs. I was so fed up that as soon as I got here, I walked right into the dealership and walked out with a brand new Tacoma…and a $700 per month lease (fleece) payment for the next four years. A year in, I was regretting it. After four years, I gave the keys back and vowed to ride a bicycle before ever having a vehicle payment again.
“…but its better on gas so I’ll be saving in the long run.”
Getting good gas mileage is important but not important enough to impulse finance a brand new car. The math on gas savings is tough to do, but it never works out to get a car payment to save on gas, regardless of what the slick sales guy told you.
Car companies and dealerships are some of the best social engineers on the planet (maybe second next to timeshares). Greed, ego, guilt, shame and fear are their tools. With an experienced salesperson every word and action is calculated. Two years ago I bought a truck from a dealership. Here’s the synopsis of the transaction (actual cost has been changed a bit):
Slick: OK man, how we feeling about this truck?
Me: Yeah, it’s good I guess. What’s the total price with taxes and everything?
Slick: $27,000
Me: Hmmmm, I would do $20,000 cash today I suppose.
Slick: Gosh I dunno, have to get the manager…
Slicks Manager: Hey Mark, don’t I know you from somewhere? Anyways, that’s a pretty aggressive offer. I might be able to do $500 off but even then we’re losing money.
Me: Well I’d hate to see a car company lose money (LOL).
2 Hours of Tactics, Stalling and Bizarre Complicated Math Models Later…
Manager: Alright fine $22,000 cash, just head over to Joey to get the keys.
Joey: Ok bro, for the warranty, I can get you bumper to bumper for the next 60,000kms for $5000.
Me: No thanks.
Joey: Uh, how to you plan to pay for repairs?
Me: With money. Ya see Joey, this is only a good deal for me if I’m expecting to pay more than $5000 in the next 60,000kms.
Joey: Just trying to help you out bro (rolls his eyes). Now, for rustproofing we have a gadget that attaches to the battery and the frame and prevents rust from starting, its only $1500!
Me: No thanks.
Joey: Well what do you do for rust?
Me: Usually Krown.
Joey: How much is that?
Me: About $100 a year I think.
Joey: Did I say $1500? I meant $500, that’s five years’ worth of Krown!
Me: No thanks. I had to bitch and haggle for hours to get thousands off the price of the truck. You just knocked off $1000 in 30 seconds. That tells me I could get this thing on Amazon for $250. Isn’t the frame a few different pieces of metal separated by rubber anyways?
Joey: Well that was me trying to help you out (mutters something under his breath).
Me: Sorry, I guess I’m a bad customer. (Took the keys and left). Googled the gadget…$250 on Amazon exactly…
Now I’m not saying car companies are evil, but they are businesses not charities. In this example they let me have the truck for less because they hoped I would bite on the extras like decals, rustproofing, mag wheels, warranties, roll bars and other things where the profit margins are much higher. Never trade in an old vehicle when buying a new one. They will try to bamboozle you with numbers but they need to resell it for more than they paid for it. Sell old vehicles independently.
A great rule of thumb is to not have vehicles (things with motors and wheels and things that you pull behind them) that add up to more than half your household income even if paid for. This ensures you don’t have too much tied up in things going down in value. If you make $100,000 a year gross, your vehicles shouldn’t be more than $50,000. You also need to pay cash so that might mean starting a bit lower in car. A $5000 car can be sold for about $5000 10 months later. If you saved $500 per month for 10 months and sold the car you could buy a $10,000 car for cash. See? Waiting for two marshmallows later. If you are currently following my plan to get out of debt and have a vehicle payment, you might be wondering if you should keep it or sell. Three good questions to ask are:
- Can you be completely debt free including the car in under two years?
- Will the value of all your vehicles stay under half of your household income?
- Do you like the car enough to keep it?
If you have too much in vehicles, sell them. Most likely you will be in a negative equity situation (i.e.: the car is worth $20,000 and you owe $30,000). Even then, sell the cars and drive beaters until you’re out of debt. Use the anger and humiliation as fuel to get out of the mess sooner, then you can save up and drive whatever you want!
marksdailydollar.com 