The Money Mustache Community
Learning, Sharing, and Teaching => Ask a Mustachian => Topic started by: flyingaway on November 12, 2016, 11:13:32 AM
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Two months ago, we had three cars. Since my son is in college, so I donated one car. Then another car was totaled two weeks ago. We now have one car and are considering to buy a new car. I am thinking about the annual cost to own a car. Assuming the car is purchased with $30,000 to drive for 10 years.
(1) $3,000 annualized cost of the car;
(2) $1,500 insurance, with a teenager at a nearby college counted
(3) $ 400 registration fees
(4) $ 450 parking at my work place
(5) $ 700 gas
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$6,050
If I instead invest the $30,000 in an index fund, I will get $1,500 a year, assuming 5% return (opportunity cost). So the total saving of not owing a car is: $7,550 per year.
I teach at a college, and usually go to work two or three times a week during semesters. I can take city buses for free. The challenge is to wait for a bus in the winter. We do have snows.
My question: (1) Is my cost analysis correct? (2) I am financially independent (and self-defined semi-retired) and $7,500 a year is not a problem. On one hand, I do think a car is not absolutely necessary and my previous cars had low mileages when they were destroyed or donated. On the other hand, I can afford it, and most of my friends have luxury new cars. It does feel better to have a car. Should I buy a new car? (not interested in an old car).
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The car will be worth [quite a bit] more than $0 after ten years. Also, you left out maintenance/repairs.
A used car will be a much better value.
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If you're trying to compare yourself to your friends with luxury new cars (you shouldn't) then a $30k new car isn't going to cut it. You'll only get a Camry or Accord for that. But your money goes so much farther if you just go a few years old. Look at all the 2012 model bling you can buy for $30k:
http://www.autotrader.com/cars-for-sale/vehicledetails.xhtml?listingId=409828245 (BMW 528i)
http://www.autotrader.com/cars-for-sale/vehicledetails.xhtml?listingId=439007471 (Mercedes E350)
http://www.autotrader.com/cars-for-sale/vehicledetails.xhtml?listingId=442126922 (Audi A6)
http://www.autotrader.com/cars-for-sale/vehicledetails.xhtml?listingId=396753195 (Lexus LS 460)
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Two months ago, we had three cars. Since my son is in college, so I donated one car. Then another car was totaled two weeks ago. We now have one car and are considering to buy a new car. I am thinking about the annual cost to own a car. Assuming the car is purchased with $30,000 to drive for 10 years.
(1) $3,000 annualized cost of the car;
(2) $1,500 insurance, with a teenager at a nearby college counted
(3) $ 400 registration fees
(4) $ 450 parking at my work place
(5) $ 700 gas
---------------------------------------------------
$6,050
If I instead invest the $30,000 in an index fund, I will get $1,500 a year, assuming 5% return (opportunity cost). So the total saving of not owing a car is: $7,550 per year.
I teach at a college, and usually go to work two or three times a week during semesters. I can take city buses for free. The challenge is to wait for a bus in the winter. We do have snows.
My question: (1) Is my cost analysis correct? (2) I am financially independent (and self-defined semi-retired) and $7,500 a year is not a problem. On one hand, I do think a car is not absolutely necessary and my previous cars had low mileages when they were destroyed or donated. On the other hand, I can afford it, and most of my friends have luxury new cars. It does feel better to have a car. Should I buy a new car? (not interested in an old car).
You want to spend $30k on a car only to commute on snowy days? That's what a "winter beater" is for (or Taxi/Uber/Carpooling). And define "old" when it comes to a car? there are plenty of 5-8year old cars with low miles that look and drive like new that you can pick up for half the cost or less than one brand new.
The car will be worth [quite a bit] more than $0 after ten years. Also, you left out maintenance/repairs.
A used car will be a much better value.
I think the car will definitely be worth $0 after 10 years without maintenance :P
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On the other hand, I can afford it, and most of my friends have luxury new cars. It does feel better to have a car. Should I buy a new car? (not interested in an old car).
Seems like you've already made up your mind on this. You've left yourself the choices of new car which you admit you won't need all the time, or nothing.
As far as your math problem, are you paying cash or getting a loan? If a loan, then your annualized costs change quite a bit with the added interest. Your opportunity costs of buying the car go up over time since your investment compounds. It's not a straight $1500/year. It's a little more than that every year assuming you're not spending it.
RWD is right. $30k is not a new "luxury" car. That will just get you a car. If money and math is a genuine concern here, then you should leave yourself open to the possibility of a used car. There's really no logical way to justify a brand new car for less than part-time use.
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I am not saying that I want a luxury car. But I certainly do not want a used car, I had some very bad experience with my first car, which was a used one.
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I am not saying that I want a luxury car. But I certainly do not want a used car, I had some very bad experience with my first car, which was a used one.
You won't even consider a 1-year old used car that still has most its original factory warranty? For example, this 2015 Toyota Avalon with only 1,400 miles that is 70% the cost of new:
http://www.autotrader.com/cars-for-sale/vehicledetails.xhtml?listingId=442437180
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I'd heavily push you to buy a used car. I've owned at least 5 used cars (and never spent more than 3500 dollars on any of them). Sure I've had a few problems that even cost me a few 1000 bucks at times, but I built in some things to make me feel great about owning a used car:
1. I buy full AAA insurance (I live in canada so its technically called CAA but same difference). I got the policy that includes long distance towing and will provide a rental car and hotel if your car breaks down on a trip. It only costs 100$ a year and there are no worries if you are driving long distance in a used car that a breakdown will cause you much of a problem.
2. Think about how many used cars you can buy for that 30,000 dollar price tag. Its amazing. I like to buy in the 1,500 to 3,500 range, but if I wanted to be a total baller and get something I didn't want to worry about I'd move up to the 5,000-7,000 range and take the car in to the mechanic regularly (every 6-12 months) for maintenance/inspection.
3. I know people who bought BRAND NEW cars that have had more problems than my 10 year old used car. At least if you have an old car you have tons of extra budget for repairs, or if you are sick of it you just sell it for a bit of a loss and get something else. In my opinion a well cared for used vehicle is often very reliable, since someone else has spent the time to iron out all the kinks.
4. When you buy a cheap car you can replace them fairly often. As studies have shown the fun and lustre of a new car wears off quite fast and it just becomes "normal" after a short few months. Also you might realize you made a mistake and the particular style of car you bought actually doesn't fit your needs. With cheap cars switching is just that much cheaper and the depreciation factor is so much lower.
If you are the type of person that needs a very "nice" car, you'd be amazed at what you can find in the 8-12K range. Just do your homework and take the vehicle to a garage, buy your AAA insurance incase there is a problem, and budget a few extra thousand for emergencies and you will retire a lot faster and be a lot happier in the end. At least I would.
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Also, why is your only option a 30K new car? We bought our Honda Fit new (for a variety of reasons, it made more sense than used in the market/location we were in at the time) for about 15K, 5 years ago.
And yeah, you're missing maintenance/repairs/new tires/snow tires.
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Following because I am going to have to do the same calculation. My wheels are a 2005 dodge grand caravan with 225000km on it. I bought it used in Dec 2013 for $3000. I only need the van capacity about ten times a year. (a load of building materials, kids or family). It gets driven 8000km per year, about four-five times a week for one longer trip and four short trips. Most often I am picking up a single kid or two and a pile of groceries. At this point every time I hop in the van I think about the convenience cost of this particular trip. I ask myself if I was to replace this van with a newer model, what would I be paying for the convenience of jumping into this vehicle for this errand? But man, thinking about not having a vehicle sitting there in the driveway waiting for me to have an urge to run an errand is pretty terrifying. I am so accustomed to the convenience and perceived freedom. I am almost at the point of telling myself to get over it but then my son is 15 and is pretty keen on learning to drive. So having a beater vehicle around for him and I to share and then in a few more years for my daughter to learn on kind of throws a wrench in my thinking.
Another aspect of my uncertainty of moving to a one car family is around personal security. I am not sure if this is because I am just afraid or more typical female perspective. At night I am not 100% comfortable walking and taking transit in my area. I used to live in much more urban area and would come home at all hours of the night without a worry. Here it is darker and the streets are nearly empty. Last night we were out to look at the moon at 8pm and only saw two people walking, two cyclists and five cars in the forty minutes we were out on the street.
MMM has really destabilized my thinking about cars but I haven't reached any personal conclusions yet.
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(1) $3,000 annualized cost of the car;
(2) $1,500 insurance, with a teenager at a nearby college counted
(3) $ 400 registration fees
(4) $ 450 parking at my work place
(5) $ 700 gas
---------------------------------------------------
$6,050
So you are never going to change the oil, put on new tires, brake pads, or other repairs? Good luck with that.
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(1) $3,000 annualized cost of the car;
(2) $1,500 insurance, with a teenager at a nearby college counted
(3) $ 400 registration fees
(4) $ 450 parking at my work place
(5) $ 700 gas
---------------------------------------------------
$6,050
So you are never going to change the oil, put on new tires, brake pads, or other repairs? Good luck with that.
That's what makes the car worth 0$ at the end. ;)