My good friend’s car is approaching 200,000 miles and is showing signs of its end times. This means that it’s out to the used car market for my friend. This friend is hovering at the line of getting by, meaning he’s not netting much, if any, cash each month. His lifestyle equals his income, which seems to be pretty typical out there in the real world among our generation.
He called me last week to ask for my advice on a couple cars he was interested in. They were both $13,000 dollars. Instead of giving him the answer he was asking for, which was which one was a better car for the money, I asked him the question of, “Will you be borrowing money to pay for this car?” When he said yes, I gave him some unsolicited advice. I said “If I was you, I would buy a cheaper car”. My friend said, “I would, but my parents and friends would make fun of me. They said that I’ll have nothing but trouble with a cheap car and that I should get a nice car.” The next day, he told me not only that he planned to buy a $13,000 car on credit, but also that he has decided, with the strong persuasion of his parents, to buy an SUV as well, instead of a car, “because it will ride higher and nicer”.
Folks, I disagree. Going nice on your car, when you don’t have money do to so, is a big mistake. Take it from me, I’ve been there. Here’s a refresher on my story:
Me, My Paid-For Car, my Friends, and a Trip to California
Almost 5 years ago, my brother, my friend and I headed out on a road trip to California. The car of choice was my well used Pontiac that got me through my college years. It was a great car and I was very attached to it. I had complete confidence in its ability to get us down there and back.
On the day we left, the low coolant light popped on. I considered leaving it home and taking another car, but we really didn’t have another car ready to go. So we left anyway. And the car drove fine, down to Denver to a evening baseball game of the Twins vs. the Rockies, then through the Rocky Mountains of Colorado, then to the red rock beauty of Utah and Arches National Park, then to Vegas for a night and finally into Southern California (shown below). The trip was going great. And then we turned around to work our way back home. All of a sudden, it all happened. The engine fried up without any warning. About $2,500 in damage had been done and I had no money, but I did have credit.
Being young and unwise, I decided to trade it in and buy a nice car. What was I thinking? I have NO IDEA. The car of choice was a $15,000 car that I didn’t like (I couldn’t find one I did like in that city), in which I drove back to Minnesota and then traded off for a $20,000 car, which I financed 100% of. I didn’t have $1,000 to my name, but I thought it was a good idea to go into debt $20,000 to drive the car that I “deserved”. I deserved the low miles (only 19,000 on the odometer), the 260 horsepower supercharged engine that can do 0-60 in 7 seconds, the sunroof, the leather, the remote starter and the 17 inch wheels. Somehow, I thought it was necessary for me to be driving that status symbol everywhere I went.
But then I had to pay for it. Two and a half years and 20-some thousand dollars later, I paid the car off. And believe me, I worked my butt off and denied myself many, many things, to pay that off in 2.5 years. It was HARD to do, making a pretty small salary as an early 20-something barely out of college. I learned my lesson from it. I learned that borrowing money for cars is not a smart financial move and that I’ll never be doing it again.
And today, not even 5 years later, I could go buy several $20,000 cars in cash, if I chose to. Do you think I’m going to trade my car in for a better one? Not a chance. In, fact I consider selling it everyday, because I’d much rather have that $11,000 working FOR me in a Vanguard Index Fund than working against me by dropping in value every single day at the rate of over $100 per month (ouch). By the way, if you do the math, in less than 5 years, I’ve seen $10,000 go up in smoke on this car. I paid $20,000 plus a couple thousand in interest, and it’s now worth under $11,000. Ten thousand over less than 5 years is a loss of over $2,000 per year or almost $200 per month. OUCCCCCCCCHHHHHHH.
Are you financially healthy enough to be able to handle a loss of $200 (or even $100) per month? Unless you’re financially independent and still have an extra $200 per month in surplus cash, I would encourage you to reconsider throwing that kind of money away in the machine you drive to work in each day. If I could go back, I wouldn’t have done it.
An expensive car will set you back in general, because it depreciates every day. Buying that expensive car on credit because you don’t have the cash for it will hurt you even worse, because it holds you down and attempts to drown you.
If any of you out there are in a position like I was in or like my friend is currently in and are looking to buy a $10,000 plus car, please reconsider. How can that possibly be a good idea? Take it from me as I’ve lived through it. It will slow you down, stress you out and make you have to work for another couple years just to pay for it. You are trading a huge chunk of your life just so you can look better. It won’t make you feel better though, trust me.