Author Topic: Car total loss check - invest vs. buy used  (Read 1473 times)

cbee6390

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Car total loss check - invest vs. buy used
« on: January 16, 2017, 03:05:17 PM »
Unfortunately a few weeks ago I was the victim of a car accident that totaled my vehicle - fortunately I was unharmed.

I have a very good insurance company and they are paying out about $9,500 for the total loss.

Regardless of whether I *need* a car or could reduce car usage (which I am trying to do), I was wondering if this group could help me decide which is the better option financially:

- My parents' preference (they had given me the old car and still...ermm... share their opinions about my financial decisions - I'm 26):  they want me to use most of the total loss check to buy a used 2008-2011 Toyota Camry or Prius, or other very reliable car (Honda Accord, etc) such as those listed on the MMM site here - http://www.mrmoneymustache.com/2012/03/19/top-10-cars-for-smart-people/.

- Another option: put the entire total loss check in my Wealthfront account (which is a spread of Vanguard ETFs - I don't plan to touch it for a number of years if not retirement. account currently has 35K in it. Also have a 401K and a Roth IRA ranging between $5K-10K.)  Then, without a car, I would probably end up spending about $2,000 on ride share trips (Uber, Lyft) per year (est. $40/week or 4-5 rides per week). I have an excellent salary so this isn't a burden. (Meanwhile I would also obviously work on reducing car/rideshare use and biking instead.)

- A third option: put most of the total loss check in Wealthfront and buy a much older used car, e.g. 2003-2004 year, for say, $3K. I don't have experienced buying used cars and don't know if this is advisable. 

- Other options...?

Very curious to hear your recommendations.

Addition/edit: I have no debt and my net-worth is around $145K in savings/checking/retirement etc. Very low monthly expenses. $90K pre-tax salary. I also don't plan to pursue early retirement. (I like making smart financial decisions but do it more out of desire to save for the future - I'm not looking to retire at 40 or anything like that. I am fortunate to love my job / love my profession and hope to work til 65 or beyond.)
« Last Edit: January 16, 2017, 03:09:20 PM by cbee6390 »

2Birds1Stone

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Re: Car total loss check - invest vs. buy used
« Reply #1 on: January 16, 2017, 03:50:46 PM »
I like the second option if you can make it work.

Ride the bike, use rideshare in poor weather.

skeptic

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Re: Car total loss check - invest vs. buy used
« Reply #2 on: January 17, 2017, 04:54:59 AM »
Second option (mainly rideshare) seems best for your situation.

$2,000/year is less than the total cost of ownership for almost any car.

As a bonus: you'll actually pay the full cost of each trip when you take it, so you'll have an incentive to reduce trips and do more biking or other awesome means of transport when it makes sense. As opposed to how most car paying is structured, where you pay a lot in built-in costs (buying it/car payments/depreciation/insurance/ and then only pay a relatively low cost (the gas... and perhaps parking) for each trip, which psychologically encourages you to use it more.

Congrats on already setting yourself up to need a car so little that $2,000/year in ridesharing will cover you.

boarder42

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Re: Car total loss check - invest vs. buy used
« Reply #3 on: January 17, 2017, 05:17:03 AM »
wealthfront takes a larger cut than i would like ... i'd just put it in VTSAX with vanguard and call it a day.

405programmer

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Re: Car total loss check - invest vs. buy used
« Reply #4 on: January 17, 2017, 08:25:29 AM »
I was in a similar position as you in mid 2015. I received ~$9000 for a total loss on my car that was a gift from my parents several years earlier. I looked at approximately 30 used cars at dealerships and private parties and found one that was mechanically sound with sun damaged paint for under 3K. Then used the rest of the insurance check to max my IRA in one transfer. No regrets at all on the purchase of a "beater" car. You have to be willing to do some of your own work on older cars but if you're the a little bit handy it's definitely a great way to go! For reference I have a 2007 4 door Chevy Cobalt. It will probably be less reliable than many cars on the smart list but I challenge you to find a Toyota with under 100K miles for less than $3K.

Whichever option you choose if you do so rationally with a long term goal in mind you'll be fine! Congrats on the killer salary at such a young age!

AZDude

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Re: Car total loss check - invest vs. buy used
« Reply #5 on: January 17, 2017, 09:38:30 AM »
I would vote for the third option. Buy some used PoS, but do your best to only use it when absolutely necessary. A trial run for not having a car. If after a few months you are cool with not having a car and that PoS is just sitting there unused, sell it. Those kinds of cars generally do not lose value(because a running car has a minimum value no matter what it looks like).

dandypandys

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Re: Car total loss check - invest vs. buy used
« Reply #6 on: January 17, 2017, 09:43:59 AM »
I would got for one on the smart list :) But try to go a long while before you do, just to experience non-carness.