Danielle, aka The Frugal Lawyer, blogged this week, a mea culpa of sorts, about purchasing a new car. She had hinted at her indiscretion earlier in the week, but finally confessed. I have come to enjoy her writing while participating at Cash Commons, a new question and answer site about money problems.
Far be it from me to pick a fight with an attorney, as an Ob-Gyn I am genetically afraid of lawyers….
But, so far, the comments on her post have been all congratulatory in nature, and as she is a self-confessed recovering spend-thrift, I think I would lose points in the personal finance blogosphere, yes maybe even a little bit hypocritical, to let her get completely away with buying a new car.
So for all The Millionaire Nurse wannabe’s here is my list of reasons why buying used is better, when buying transportation:
- Depreciation-when driving the new car off the lot, the value of your new purchase drops by 20-45%, making this a depreciating asset-it usually doesn’t pay to borrow money for something that drops that quickly in value.
- Hidden Costs- Besides the monthly payment, and interest there are other costs involved in buying new vs used. These include higher insurance costs-see this article in the Wall Street Journal about insurance costs. Taxes-the taxes on buying your tags in most states is directly related to the cost of the vehicle, and new cars just cost more, therefore a higher yearly tag tax.
- The savings she suggests from buying a more fuel-efficient vehicle are real, but most studies show at today’s gas prices, it will take 5-7 years to make up the difference in price that the new car costs.
- Having a large amount of your net worth tied up in a vehicle, is usually not a wise move, financially, although that is probably not an issue here, but is for many people whose car is the second largest asset after their home.
So, before anyone points out my personal hypocrisy, in the spirit of true confession, I will admit that I own, (or the banks own) several investment lots on the Gulf coast, that I purchased at the height of the real-estate boom, that have now dropped significantly in value, and though I am paying them off as quickly as possible, I do admit that I made a big mistake in not purchasing them with cash or not at all.
The Frugal Lawyer also makes me a little jealous when she describes the personal pleasure she gets from driving her “new green machine” (my words not hers). When I climb in my 10-year-old paid for truck that gets 16 miles to the gallon, I am thinking about what I am going to do that day-not how I am saving the planet. But maybe that is because I am over 50, and male, so I just don’t get that emotional attachment she has with her new vehicle, with my truck. So far the truck doesn’t seem to mind my emotional detachment, but maybe I am just not listening…
So, do I want Danielle to feel guilty every day she gets in her new car? No, just like I am trying to quit beating myself up for trying to be a real-estate baron. We just need to continue to learn more about our relationship with our money, and try hard to be a good example in the future to those we are trying to help on their path to financial freedom. Which is, I think, both of our goals in blogging about personal finance.
Millionaire Nurse Blog
Dr Dean, Thanks for the link and I heart your blog. I’m not a nurse and you’re going to make me a millionaire too. I do all corporate litigation, so no need to fear my kind.
I was fortunate and received a large sum for a thing I can’t discuss and that paid for a very large part of the vehicle. If I was just buying it new, there was absolutely no way it was going to happen. And, if something else happens at the end of the year at another thing that I don’t talk about, the car will be paid off completely.
The only reason I bought new was because of the model. I specifically wanted the Insight. In addition to my attempts at being more financially responsible, I am also trying to be more green. I hate the Prius and I am die-hard Honda. I was planning on a used Honda. Then I saw the damn Insight. Freaking advertising. And, on a happy note, since it is so much smaller, I have stopped hitting things. That is a very good thing! I honestly think that Accord was too big. (I drove a new Beetle for a while and maybe I need super small cars so that I don’t hit stuff.)
In all honesty, one of my main goals is to lower my actual monthly budget. Yes, I know that paying off my debt is key, but I am on the dmp and I know exactly when that will happen. I also know that making that lump sum payment to my grandfather wouldn’t have changed what has to go out each month. By changing my car payment, I’m allowing myself greater flexibility for some stuff that is coming down the road that may involve other things I can’t talk about. That is the only problem with the blog. Some of the background that would make my behavior much more reasonable is simply off limits/confidential/pertains to work, etc.
Cash flow is certainly important when it get’s to the brass tacks of paying bills monthly.
Thanks for the reply,(and for not suing!).
I agree wholeheartedly about the “new” car concept! But, that is because I have never had a fascination with cars…to me they are merely transport. So, I am going to continue driving my 1997 Mustang until it falls apart
Then, I will strongly consider a used car!
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