Author Topic: The 1/10th rule for car buying  (Read 20218 times)

MrsPete

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Re: The 1/10th rule for car buying
« Reply #50 on: May 19, 2016, 07:25:47 PM »
This is a dumb rule, buy a car that makes sense, which usually means efficient, reliable, low miles, and the right amount of space for you, and pay as little as possible.
Yeah, I agree.  A young person just out of school might end up spending more than the 10%, but that person should work towards getting out of that situation as soon as possible.  An older, established person should never spend 10% of everything he owns -- one dollar out of every ten -- on a depreciating asset that could be destroyed in a moment.

Personally, I just did the math, and my car is worth a little less than .02% of my net worth -- and that's assuming that it's still worth what I paid for it eight years ago. 
« Last Edit: May 19, 2016, 07:38:52 PM by MrsPete »

researcher1

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Re: The 1/10th rule for car buying
« Reply #51 on: May 19, 2016, 09:09:21 PM »
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You accuse people of stacking the deck in the favor of the 5k car, when you manipulate the numbers in your comparison to make the difference smaller than it is likely to be.
What numbers did I manipulate?
The average person drives 13,476 miles/year according to the U.S. Dept of Transportation.  The average person also buys another vehicle well before 200K miles. 
Using this information, the scenario I laid out is quite reasonable.

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Also why would I compare two of the exact same model cars just with different years? So long as the car is relatively safe, known to be reliable and has the same size to me it is an apples to apples consideration...

This is simply following your premise of comparing two of the exact same models, I would not be limiting myself to one and only one type of car when searching for a new car and would thus open a whole new level of savings on top of the ones I calculated above.
If you don't understand why it is important to keep the cars the same when doing a new vs. used tradeoff analysis, then you have no hope of understanding any of this.
Would it be fair to compare a new $14K Nissan Versa to a used $20K Lexus sedan?  Of course not.  Just as it makes no sense to compare a new Civic with a used shitbox.  Apples and oranges.

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I drive about 10k miles a year and I expect my car to last to 200.000 miles. This is of course on average, but over my lifetime at 10 years per car I expect to go through at least 5 cars in my life so some will underperform the 200k, but some will outperform it.
That's perfectly fair.  If you happen to drive far fewer miles than most, and keep cars far longer, then those are the figures you should use when making a comparison.  I drive around 15K miles/year and keep cars until ~175K miles, so my calculations will be different.

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Also new cars fail too, actually new cars on average fail more than slightly older cars following the bathtub curve https://en.wikipedia.org/wiki/Bathtub_curve. By buying an older car I am likely to avoid what commonly is referred to as a lemon. Now my used car could have some serious failure, but if my 5k car fails which can also happen with new cars too you are out 18k investment, I'm out 5k.
This is your weakest argument yet. 
New cars come with warranties, so you are NOT out $18K.  There is also something called a Lemon Law...you should look it up.
Also, what are the chances of buying a new car and getting a "lemon"?  Now what are the chances of buying a 10yr old car with over 100K miles and getting a lemon, where you have NO warranty/lemon law protection?

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Now if someone starting at 18...for 50 years we are talking about up to about $150.000 ...you could come out with almost 50% more money for a regular retirement...

You mention needing to have that 5k available instead of having it invested due to the risk of short term losses, but I can afford to buy another 5k car using my emergency stash and just build it up again afterwards.
Why is it OK for you to dip into your "emergency stash" to buy a $5K car, but it's not OK for me to do the same with a new car?
I have a wife/kids/house, so I keep a healthy amount in liquid savings.  I buy new cars using this stash and just build it up again afterwards, just like you do with a $5K car.
Yet when I do it, you bring up investing that money for 50 years!?!?  Why aren't you running these same calculations for the $5K you are spending on a car?

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The gist of it is you keep moving the goalpost to try to justify why you like buying new cars. Go ahead and buy a new car, it will not take money out of my pocket, but don't argue that it is the financially smarter decision.
I've never once argued that it was a financially smarter decision, I said the "10% rule" was stupid.  In fact, my own example specifically showed the new car costs more. 
However, my point was that the savings from buying used doesn't necessarily outweigh the benefits of a new car.

alsoknownasDean

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Re: The 1/10th rule for car buying
« Reply #52 on: May 19, 2016, 09:12:19 PM »
What about three year old cars then? If a car's initial depreciation is 14%pa, and drops to 8% after three years, then buying the 3 year old car still gets 80% of the expected life for under 80% of the cost.

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researcher1

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Re: The 1/10th rule for car buying
« Reply #53 on: May 20, 2016, 07:29:17 AM »
What about three year old cars then? If a car's initial depreciation is 14%pa, and drops to 8% after three years, then buying the 3 year old car still gets 80% of the expected life for under 80% of the cost.

I'd have to research what a 3 year old Civic would sell for to run the numbers and see what the cost would be. 
However, I think most people responding to this thread are fixated only on the dollars being spent, and not on other important factors...
  • The $5K car does NOT have 4 wheel disc brakes, ABS, side curtain air bags, or electronic stability control.  Do these safety items have ZERO value to people?  You wouldn't pay some amount extra to have these features in a car that your wife and kids are in?

    This car has had 3 owners and been in 2 accidents.  Would you pay more to have a car with 0 previous owners and 0 accidents?

    Many people are idiots in terms of how they drive and maintain their vehicles.  Is there no added value in buying a car with no wear/tear, no missed oil changes, no abusive driving, ect?

    With a used car, you will be churning through cars nearly 3x more frequently.  Isn't there some value in not having to get rid of your old junker, finding another decent 10yr old car, and avoiding the tags/tax/title/registration hassle.

    You also have the obvious benefits of getting a car with a full warranty, 100K few miles, and the reduced maintenance costs that go along with it
    .[/i]
Most people here apparently place no value on these items.  For me, it is worth the extra ~$300 per year to buy a new car, and eliminate the issues noted above.
Keep in mind, $300 is roughly the cost of a 2 night hotel stay, 1 airline flight, a night out for a concert (dinner, drinks, tickets).
Do those advocating the $5K car also refuse to do any of these activities?



ooeei

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Re: The 1/10th rule for car buying
« Reply #54 on: May 20, 2016, 07:33:36 AM »
Why in the world would $8k not count?  If you're saying $8k is so little it doesn't matter, I'm not sure I agree there.  $8k invested over 40 years at 5% (remember, you repeat this process numerous times in your life) works out to $56,319.  Maybe that's negligible for you, but I don't think I'd go as far as saying it's generally not worth considering.

I never said $8K "didn't count."  Please re-read my post.

This sounds suspiciously like you're saying $8k is so small you shouldn't care about it.  Maybe I misinterpreted.  What does it mean then?


Lastly, who actually allocates & invests funds like this? We are only talking about ~$8K available for stock market investing. This would simply be a part of the money everyone should keep in liquid savings, set aside for things like living expenses, unexpected expenses (house/car/medical), ect.

If we were talking $25K-$50K, you might have an argument with opportunity cost.  But $8K should not have a substatial impact on your decision.

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Let me ask you a question.  Do you keep any money in a safe, liquid saving account?  You know, in case you need to buy a car, replace your roof, buy a refrigerator, cover your expenses if you lose your job?  Do you have at least $8K in such an account? 

If so, according to your logic, you are an idiot and losing out on $56K over 40 years. 

There is a reason you should not invest every available penny beyond your monthly expenses.  I keep many multiples of $8K in my liquid fund.  When I buy a new car, my liquid fund gets partially depleted, then I gradually build it back up.  The funds I use to buy a car do not come from assets I would otherwise invest.

Yes I keep about $5k in a liquid account, it's for emergencies, not large purchases every 5 years.  My personal situation doesn't matter that much since we're discussing your hypothetical example though.

My point was, buying the new car instead of the old one costs additional money that could be invested.  If you normally have $50k or whatever in your emergency fund, yeah you could buy a new car easily without depleting it, but you still have to pay back an extra $8k (or whatever the number is) into it compared to the person who bought the used car.  That $8k could be invested in the stock market instead of a car. 

Two people with identical emergency funds of $30,000:

Person A:  Buys $16,000 car.  Emergency fund is now $14,000.  The next $16,000 he makes goes to replenish the fund.

Person B:  Buys $5,000 car.  Emergency fund is now $25,000.  The next $5,000 he makes goes to replenish the fund, then the next $11,000 he makes is invested.

Person B invested an additional $11,000 into the stock market compared to person A, even though they both paid out of their emergency funds and rebuilt them with regular income. 

Yes, in 5 years (per your example) person B has to lay out another $5k.  Yet now his $11,000 savings has grown to $14,039 @5%, so when he buys the second car he's down to $9,039 in savings (he may take it out of his emergency fund again, but this is his net savings).  Add another 5 years of 5% interest and it's up to $11,536 by the time he buys the third car for $5k, which brings it down to $6,536.  5 years later it's up to $8342.  Now we're at the point where Person A also has to buy a new car, so we start over.  I understand that the stock market isn't perfect and predictable, but over a lifetime it should average out to something like that (actually more if you use historical data).  Sometimes it will have lost money, other times it will have gained more.  Over 15 years person B has an additional $8342 compared to person A based purely on opportunity cost, and they both have cars with 175k miles on them. 

Keep in mind this scenario assumes that neither person is able to sell their car for any $.  If we assume a car with 175k miles sells for $1000, then person B has an additional $2,000 (plus interest) since he sold 3 cars and person A only sold one.  This also assumes you drive to 175k miles.  If you went to 200k, each car gets an additional 2 years of life.  For person A this means they get an additional 2 years out of their car.  For person B they get an additional 6 years because each of their 3 cars gets that extra 2 years. 

Now, you may have some different numbers, or buy really crappy cars and take them to really expensive repair places, but it's not that hard to work out who gets the better FINANCIAL deal in this situation.  You may get a great deal on a new car and it changes the numbers, then again you could get a great deal on a used one too.  You may drive a car to 220k miles because it's working great, or maybe you can't stand driving one past 150k.  It all depends, but generally used is stacked more in your favor assuming you don't just blow the savings on other stuff instead of saving it.

The safety features are the same except for a small window at the beginning and end of your car buying career.  Person A buys a new Honda Civic every 10 years.  Person B buys a 10 year old Honda Civic every 10 years.  Person B could literally buy Person A's cars from him and use the exact same safety features, except for the first 10 year stretch where he has to find another one.  Yes, person B has a 10 year lag time, the same way someone born in 1990 does compared to someone born in 2000 if they both buy new cars their whole lives.  Is the person born in 1990 really in that much more danger? 

ooeei

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Re: The 1/10th rule for car buying
« Reply #55 on: May 20, 2016, 07:36:02 AM »
What about three year old cars then? If a car's initial depreciation is 14%pa, and drops to 8% after three years, then buying the 3 year old car still gets 80% of the expected life for under 80% of the cost.

I'd have to research what a 3 year old Civic would sell for to run the numbers and see what the cost would be. 
However, I think most people responding to this thread are fixated only on the dollars being spent, and not on other important factors...
  • The $5K car does NOT have 4 wheel disc brakes, ABS, side curtain air bags, or electronic stability control.  Do these safety items have ZERO value to people?  You wouldn't pay some amount extra to have these features in a car that your wife and kids are in?

    This car has had 3 owners and been in 2 accidents.  Would you pay more to have a car with 0 previous owners and 0 accidents?

    Many people are idiots in terms of how they drive and maintain their vehicles.  Is there no added value in buying a car with no wear/tear, no missed oil changes, no abusive driving, ect?

    With a used car, you will be churning through cars nearly 3x more frequently.  Isn't there some value in not having to get rid of your old junker, finding another decent 10yr old car, and avoiding the tags/tax/title/registration hassle.

    You also have the obvious benefits of getting a car with a full warranty, 100K few miles, and the reduced maintenance costs that go along with it
    .[/i]
Most people here apparently place no value on these items.  For me, it is worth the extra ~$300 per year to buy a new car, and eliminate the issues noted above.
Keep in mind, $300 is roughly the cost of a 2 night hotel stay, 1 airline flight, a night out for a concert (dinner, drinks, tickets).
Do those advocating the $5K car also refuse to do any of these activities?

I'd rather spend the $300 on a trip somewhere every couple of years than having a new car.

As for safety, I'll get all of those features in 5-10 years.  Did you freak out 10 years ago when you didn't have those features?  Was driving just TOO dangerous back then?

As for the hassle, if you save $300/year over 15 years, that works out to $4500 + interest.  If each car selling/buying takes 6 hours (a high estimate), you're being paid $250+/hour for the trouble. 
« Last Edit: May 20, 2016, 07:40:47 AM by ooeei »

ketchup

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Re: The 1/10th rule for car buying
« Reply #56 on: May 20, 2016, 08:02:19 AM »
Keep in mind, $300 is roughly the cost of a 2 night hotel stay, 1 airline flight, a night out for a concert (dinner, drinks, tickets).
Do those advocating the $5K car also refuse to do any of these activities?
There are a lot of things I'd rather spend $300 on.  I would also prefer spending the $300 to be optional.  Baking $300/year into your fixed expenses is different from choosing to spend $300 on something optional once a year, or twice a year, or every two years.

If your point is "$300 isn't that much money, so why not just pay it?" that's pretty silly.  I could make the same argument for buying a bag of chocolate chip cookies three times a week for a year.  It would only be a few hundred dollars a year too, so why not?  Silly.  If the options are "spend more" or "spend less", and any downsides of the "spend less" option aren't worth the differential to me, why would I spend more?

neo von retorch

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Re: The 1/10th rule for car buying
« Reply #57 on: May 20, 2016, 08:02:47 AM »
I do agree with researcher1 that the MMM ideology (both the blogger and common in the forums) on car costs can be inflated. There's the problem with conflating most people with those that run the numbers, or just have excellent self-control. The risk is to consider things like leasing so you always have "new" and "latest safety features" or you buy new (with a loan) and when your loan ends at 60 months... you run out and buy new again. Obviously we're not comparing that to driving very old cars (and research1 is definitely not suggesting leasing or buying new every five). Keeping a new car for 10-15 years is pretty reasonable, and does not have to be a huge increase in expenses. My insurance did not change much at all when I went from a 2013 CX-5 (in 2014, two years old) to a 2008 Fit (6-7 years old) but I did drop collision, which helped. With a new car, assuming you pay cash up front, how long would you pay for collision (if at all; would you self insure right from the start?)

My wife bought a brand new 2010 Corolla, and plans to drive it to ~150K, at which point, we'll probably buy another new car. By then, we'll be far enough along on our path to FIRE to seriously consider "whatever car she really wants" which might even be a truck, assuming there's something right-sized and efficient enough to replace a 12 year old Corolla. I plan to take my 2008 Fit to 150K (like the Corolla, it has 82K on it now - I'm expecting to put 5-8K on it per year) and then I might buy a new car at that point. But that's 8+ years from now. Not sure what I'll want to do at that point.

All this to say... I don't base my car buying decisions on the 1/10th rule :) I try to balance emotion (I like to enjoy my commutes and trips to see family; driving can be a joy or a chore for me, and I really prefer it be a joy) with financial wisdom.

neo von retorch

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Re: The 1/10th rule for car buying
« Reply #58 on: May 20, 2016, 08:05:11 AM »
If the options are "spend more" or "spend less", and any downsides of the "spend less" option aren't worth the differential to me, why would I spend more?

Emphasis mine :)
You answered your own question. We put different values on those benefits researcher1 listed - safety equipment, knowing a car's history, etc.

alsoknownasDean

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Re: The 1/10th rule for car buying
« Reply #59 on: May 20, 2016, 08:36:20 AM »
The other thing with new cars is which new car is bought.

There's a great deal of difference between 'I bought a base model smaller car that's brand new, but last year's model. I got it for a really good price after haggling', and 'I decided to get the SUV, I really like the leather seats and the big V6 engine, and it's only $499 per month over 84 months!'

One is a reasonably Mustachian way to buy a new car (buy only as much car as you need, etc), while the other is a far more expensive proposition.

LawMMMan

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Re: The 1/10th rule for car buying
« Reply #60 on: May 20, 2016, 10:43:17 AM »
People make choices, if you want to have the nicest of everything...ie home, car, clothes, hobbies, etc, then you'd better be making a truck load of $(and ok with your decisions).  Otherwise you need to list out your priorities.  Too many people finance at 60 or 72 or 84 months to make a payment affordable.  It's crazytown!  Buy something within your means that is reliable and decent on the earth that also fits your individual needs.  Try to save up and pay cash if possible.  Does someone who makes 500k a year really need a 50k vehicle, NO.  Can they afford it, probably yes. 

Lastly, while I think paying cash is ideal, I have a sub 1% loan on my used (2011 awd sedan).  Can I pay it off, yes.  But I'll pay it over the term of the loan (38 months left) with inflated dollars and I'll keep it in good shape.  Not the greatest purchase of all time but it's reliable and somewhat fun to drive.

researcher1

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Re: The 1/10th rule for car buying
« Reply #61 on: May 20, 2016, 06:16:02 PM »
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This sounds suspiciously like you're saying $8k is so small you shouldn't care about it.  Maybe I misinterpreted.  What does it mean then?
My point was, buying the new car instead of the old one costs additional money that could be invested.

I really don’t understand why this is so hard for you to follow.  I’ve said this multiple times…the additional funds you keep quoting are NOT dollars that I would otherwise invest.
I have automatic investments set up (401K, Roth IRA, HSA, Taxable account) that invests funds on a weekly or bi-weekly basis.  That is the money allocated for investments.
The remainder of the money is spend on short or long term expenses and placed in FDIC insured accounts.  This is where the money for things like new cars, vacations, house repairs, ect. come from.

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Yes I keep about $5k in a liquid account, it's for emergencies, not large purchases every 5 years.
So you have and emergency fund, and you presumably don’t worry about the interest you’re losing over the next 50 years because it is not invested, correct?
You apparently also have other accounts for large purchases every 5 years.  What type of account do you put this money in, since that is too short a time period for investing?

My point is, you have a pool of funds that you DO NOT INVEST.  Yet I'm sure you don't calculate the lost interest from not investing this money.  Or the lost interest from buying a $5000 car instead of a $500 car.

I have a wife and kids, own two cars, own a home.  It would be insane to immediately invest every spare dime I have laying around.  My liquid fund is necessarily much larger than your $5K.  I hold this money for when I have to buy a new car, put a new roof on the house, take the family on a vacation, braces for the kids, ect. 

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The safety features are the same except for a small window at the beginning and end of your car buying career…
What in the hell are you talking about?  I re-post a comment I made earlier and see if you can understand it this time around, based on the scenario we’ve been discussing…

Buying new:
- I start out with a 2016 model car, with all of the latest safety features, and drive it for nearly 15 years.

Buying used:
- You buy a 2005 car, with technology that is more than a decade old, which will last 5.25 years.
- When it comes time for a new car, you buy a 2010-2011 model.  You still have a car with technology that is 5-6 years behind the new car.
- For your third car, you buy a 2015-2016. 

You have JUST NOW caught up with the technology/safety features of the new car I've been driving for more than 10 years!  Our technologies will only overlap for a few years, then I’ll be due for a new car that will again be 15+ years ahead of yours.

researcher1

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Re: The 1/10th rule for car buying
« Reply #62 on: May 20, 2016, 06:25:33 PM »
As for safety, I'll get all of those features in 5-10 years.  Did you freak out 10 years ago when you didn't have those features?  Was driving just TOO dangerous back then?

Why would you think I “freak out” or feel that driving is “too dangerous”?

I’m simply stating that all of the new car benefits I listed above (including safety features) has some monetary value, and I’m willing to spend the extra money for those benefits.

Is that something you can comprehend?

researcher1

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Re: The 1/10th rule for car buying
« Reply #63 on: May 20, 2016, 06:47:56 PM »
There are a lot of things I'd rather spend $300 on. 

If the options are "spend more" or "spend less", and any downsides of the "spend less" option aren't worth the differential to me, why would I spend more?

As another poster very succinctly pointed out, you and I apparently place different values on the new car benefits I listed.

However, I find it hard to believe you place ZERO value on all of these benefits.  How much do you think the following benefits are worth?
- Current safety technology (4 wheel disc brakes, ABS, side curtain air bags, electronic stability control, ect)
 - A car with 0 previous owners and 0 accidents
 - A car with no wear/tear, no missed oil changes, no abusive driving, ect
 - Full bumper-2-bumper warranty & 60K-100K mile powertrain warranty


Do you have a wife or kids that drive?  If so, you wouldn't pay a single dollar extra for a car with airbags and ABS? 
When my kids start driving, I would gladly pay a few thousand dollars for those features.  You wouldn't?

ketchup

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Re: The 1/10th rule for car buying
« Reply #64 on: May 21, 2016, 02:01:17 PM »
There are a lot of things I'd rather spend $300 on. 

If the options are "spend more" or "spend less", and any downsides of the "spend less" option aren't worth the differential to me, why would I spend more?

As another poster very succinctly pointed out, you and I apparently place different values on the new car benefits I listed.

However, I find it hard to believe you place ZERO value on all of these benefits.  How much do you think the following benefits are worth?
- Current safety technology (4 wheel disc brakes, ABS, side curtain air bags, electronic stability control, ect)
 - A car with 0 previous owners and 0 accidents
 - A car with no wear/tear, no missed oil changes, no abusive driving, ect
 - Full bumper-2-bumper warranty & 60K-100K mile powertrain warranty


Do you have a wife or kids that drive?  If so, you wouldn't pay a single dollar extra for a car with airbags and ABS? 
When my kids start driving, I would gladly pay a few thousand dollars for those features.  You wouldn't?
My cars were made a long time ago, but with airbags and ABS.  Those have been standard for a long time (legally required since mid-90s I believe).  ABS has saved my skin at least once that I can think of (snow).

4 wheel disc brakes would be nice as they'd be easier to maintain (and check for wear).  I've never yearned for stronger braking power.

The infant mortality side of the "bathtub curve" of reliability suggests that a ~3 year old 1-owner car would be more reliable than a new car with 0 previous owners.  Accidents should be obvious enough.  I've bought a 22 year old car from the second owner, and it had no accidents.  That's not too hard to suss out/avoid in a used car.

I like a little wear and tear.  New cars are uncomfortable for the first few years, like couches.

Warranties exist on new cars to compensate for the bathtub curve.  Once past that point, they serve little purpose on any decent car (not all cars are decent).

If one is concerned about missed oil changes and previous care for the car, one can request maintenance records and have that be part of the car-buying criteria.

We've established that the used car is cheaper than the new car, now we're just splitting hairs over whether the differential is "worth it" to you, which clearly, is a very subjective, personal choice.  I have my values and you have yours, and that's fine.

Do you place no value on these benefits of used cars?  I value each of these things greatly.

- Full awareness of what problems plague each individual model (every car has *something* stupid that always happens)
- Increased visibility (newer cars have shit visibility due to regulations, culminating in backup cameras being nearly required just to see behind you in the parking lot)
- Avoiding the infant mortality side of the bathtub curve.
- Increased ability to work on myself (the newer the car, in general, the harder it is to work on).
- Easier to find a manual transmission (still not always possible)
- Not having to go to a goddamn new car dealership to buy it

Today I drove my sister-in-law's 2013 Prius C (~50k miles on it) to the airport and back.  Playing devil's advocate against myself, I'll consider that a brand new car for the purposes of this comparison.

Things that were nice about that brand new car that I would value to an extent:

- Decreased road noise
- Bluetooth built into the radio
- Nearly as smooth a drive as my old long-wheelbase car in a far shorter wheelbase, and of course leagues ahead of my old similar-wheelbase car in this department
- Better gas mileage (it's a Prius so that's cheating, but getting 65-70MPG vs my normal 45MPG in my old tin can felt was quite nice.  It also had a fancy readout built in so I wouldn't need my own OBD-II MPG gauge).

I don't value those things enough to consider a brand new car, but they were worth exploring.

libertarian4321

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Re: The 1/10th rule for car buying
« Reply #65 on: May 22, 2016, 05:15:16 AM »
I drive a 14+ year old Chevy Silverado.  It looks like shit, but runs fine.  Not fancy, but it moves my butt from point A to point B.  And, of course, it's been paid off for centuries, lol.

My (broke-ass) yuppie colleagues laugh at it as they slide into their late model (financed to the hilt) Mercs and Beemers.

I guess I need to spend more?


VaCPA

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Re: The 1/10th rule for car buying
« Reply #66 on: May 22, 2016, 05:50:08 AM »
The other thing with new cars is which new car is bought.

There's a great deal of difference between 'I bought a base model smaller car that's brand new, but last year's model. I got it for a really good price after haggling', and 'I decided to get the SUV, I really like the leather seats and the big V6 engine, and it's only $499 per month over 84 months!'

One is a reasonably Mustachian way to buy a new car (buy only as much car as you need, etc), while the other is a far more expensive proposition.

Very good point. I've always wondered how much more economical buying used cars over a 15-20 year period is vs buying one new car during that period. The major blunder people make is buying new and trading it in well before they need to.

alsoknownasDean

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Re: The 1/10th rule for car buying
« Reply #67 on: May 22, 2016, 06:11:31 AM »
The other thing with new cars is which new car is bought.

There's a great deal of difference between 'I bought a base model smaller car that's brand new, but last year's model. I got it for a really good price after haggling', and 'I decided to get the SUV, I really like the leather seats and the big V6 engine, and it's only $499 per month over 84 months!'

One is a reasonably Mustachian way to buy a new car (buy only as much car as you need, etc), while the other is a far more expensive proposition.

Very good point. I've always wondered how much more economical buying used cars over a 15-20 year period is vs buying one new car during that period. The major blunder people make is buying new and trading it in well before they need to.

And arguably buying too much car. After all, how many people when buying new get upsold to the larger model or the extra features? Plenty of profit in it for dealers, after all :)

As an example for good used cars, I've found quite a few 4 year old Camrys or Ford Mondeos for about half of the new RRP. Slightly smaller cars (Nissan Pulsar, Toyota Corolla, Hyundai i30, etc) are about 60% of their new price for 2012-13 cars. These cars still have over a decade of life left in them, and are often the current or just superseded model.

If one doesn't want to go for something a decade old, there's some very good deals in the 2010-13 range, depending on the car and the used market.
« Last Edit: May 22, 2016, 06:13:17 AM by alsoknownasDean »

tarheeldan

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Re: The 1/10th rule for car buying
« Reply #68 on: May 22, 2016, 06:55:44 AM »
The other thing with new cars is which new car is bought.

There's a great deal of difference between 'I bought a base model smaller car that's brand new, but last year's model. I got it for a really good price after haggling', and 'I decided to get the SUV, I really like the leather seats and the big V6 engine, and it's only $499 per month over 84 months!'

One is a reasonably Mustachian way to buy a new car (buy only as much car as you need, etc), while the other is a far more expensive proposition.

Very good point. I've always wondered how much more economical buying used cars over a 15-20 year period is vs buying one new car during that period. The major blunder people make is buying new and trading it in well before they need to.

And arguably buying too much car. After all, how many people when buying new get upsold to the larger model or the extra features? Plenty of profit in it for dealers, after all :)

As an example for good used cars, I've found quite a few 4 year old Camrys or Ford Mondeos for about half of the new RRP. Slightly smaller cars (Nissan Pulsar, Toyota Corolla, Hyundai i30, etc) are about 60% of their new price for 2012-13 cars. These cars still have over a decade of life left in them, and are often the current or just superseded model.

If one doesn't want to go for something a decade old, there's some very good deals in the 2010-13 range, depending on the car and the used market.
Yep. I think about 5 years old is the sweet spot.

forestj

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Re: The 1/10th rule for car buying
« Reply #69 on: May 22, 2016, 11:48:25 PM »
My current car might be on its last legs, but if it did give up the ghost,  I think I wouldn't want to buy a car that would last more than about 5 or 6 years anyway.

In about 5 or 6 years, battery-powered EVs will be taking over the streets and available on the used market. If I'm still driving to work by then, I'll want in on that action.

A few years later still, it might even be cheaper to take a self driving taxi every day.

« Last Edit: May 22, 2016, 11:50:25 PM by forestj »

ShoulderThingThatGoesUp

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Re: The 1/10th rule for car buying
« Reply #70 on: May 23, 2016, 05:07:58 AM »
Used battery-powered EVs are widely available today, forestj.

prognastat

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Re: The 1/10th rule for car buying
« Reply #71 on: May 23, 2016, 11:04:46 AM »
Used battery-powered EVs are widely available today, forestj.

Ones that combine comparable range to a non electric vehicle and affordability aren't quite there yet. It depends on your situation, but if you take trips over 100 miles regularly there isn't really a great affordable option.

HipGnosis

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Re: The 1/10th rule for car buying
« Reply #72 on: May 23, 2016, 01:46:30 PM »
What about three year old cars then? If a car's initial depreciation is 14%pa, and drops to 8% after three years, then buying the 3 year old car still gets 80% of the expected life for under 80% of the cost.
I haven't looked lately, but Clark Howard use to advise buying cars that are 3-7 seven years old, which is what I've been doing the last 10-15 yrs.

researcher1

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Re: The 1/10th rule for car buying
« Reply #73 on: May 23, 2016, 01:55:24 PM »
What about three year old cars then? If a car's initial depreciation is 14%pa, and drops to 8% after three years, then buying the 3 year old car still gets 80% of the expected life for under 80% of the cost.
I haven't looked lately, but Clark Howard use to advise buying cars that are 3-7 seven years old, which is what I've been doing the last 10-15 yrs.

How many 3-7 year old cars have you purchased in the last 10-15 yrs?

HipGnosis

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Re: The 1/10th rule for car buying
« Reply #74 on: May 23, 2016, 02:01:50 PM »
I haven't looked lately, but Clark Howard use to advise buying cars that are 3-7 seven years old, which is what I've been doing the last 10-15 yrs.

How many 3-7 year old cars have you purchased in the last 10-15 yrs?
I'm on my 4th one.  It was 7 yrs old when I bought it and it looks brand new (when it's washed).  I shopped quite diligently for it.

k-vette

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Re: The 1/10th rule for car buying
« Reply #75 on: May 23, 2016, 07:40:56 PM »
We bought a toyota Camry (2010) in about 2013 with low miles for $15k.  Yes, it was more expensive than out used corolla, but 2 car seats would fit and allow me to drive.  Sometimes I worried about that decision, but calculated out the other day that based on miles, we've easily got another 11 years of life left in it.  The corolla was sold for $4,200 with 210k on the odometer and I now bike to work.  This required moving closer to work, but we spend less on gas, insurance,  AND our home value has increased  about 160% since purchasing.  In short, I've netted about $100k if you factor in all the associated variables.

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Re: The 1/10th rule for car buying
« Reply #76 on: May 25, 2016, 02:16:55 PM »
Used battery-powered EVs are widely available today, forestj.

Ones that combine comparable range to a non electric vehicle and affordability aren't quite there yet. It depends on your situation, but if you take trips over 100 miles regularly there isn't really a great affordable option.
PHEV, then. Love my Volt. Barely ever drive on gas, absolutely need it an average of once a month. By MMM standards I'm a ridiculous car clown and my monthly cost is ~$15-20 electric and about the same for gas.