On Episode 47 of the Your Financial Pharmacist Podcast, YFP Founder Tim Ulbrich, PharmD talks about the best practices for car buying and how to ensure car buying doesn’t get in the way of achieving other financial goals. In addition to Tim sharing his own tips and experiences, car buying recommendations from the YFP community are shared throughout the show.
Mentioned on the Show
- Experian State of Automotive Finance Market Q4 2017
- Your Financial Pharmacist Facebook Group
- Edmunds
- Kelley Blue Book
- The Millionaire Next Door by Thomas Stanley
Episode Transcript
Tim Ulbrich: Hey, what’s up, everybody? Welcome to Episode 047 of the Your Financial Pharmacist podcast. Tim Ulbrich here, flying solo and excited to be talking about car buying. And as I alluded to in the introduction, we’ve got some great content for you and specifically, the YFP community has shared lots of their own opinions and experiences on car buying that I’m going to share with you throughout the show. So here’s how we’re going to break down today’s episode. I have three different sections that we’re going to tackle this topic of car buying. First, I’m going to present some data and statistics, just make sure we’re all on the same page of exactly what are we talking about in terms of the costs associated with car buying. Then, I’m going to share the community members from the YFP Facebook group and some of the lessons and advice that they have around car buying. And finally, I’m going to share some of my lessons learned and blunders when I had my most recent car purchase of my 2009 Honda Odyssey, my Swagger Wagon, which I’m extremely proud of. Learned lots through that experience. I’m excited to share that with you as well.
OK, so before we jump in and talk about the numbers and data surrounding car buying, I have to get this out there. And I recognize I’m not going to become the most popular person by talking about this topic. We, myself included, we love our cars, right? That’s just a reality. And I have fallen into the trap before of putting my car buying priorities above other financial priorities that I’m trying to achieve, most notably when I was trying to pay off my student loan debt. And so we obviously have a love for cars, and I think often, it’s easy for us to defend that purchase. And so my goal with this episode is for us to take a step back and say, ‘OK. Maybe you’ve made great car decisions. Maybe you’ve made bad or poor car buying decisions. How can we really look at and evaluate where car buying fits in with the rest of your financial plan? And whether or not that’s being prioritized appropriately.’ So as you think about other goals that you’re trying to achieve and that you’re working on, maybe it’s student loan debt, maybe it’s credit card debt. Maybe some of you are out there, trying to build an emergency fund or save more for retirement, kids’ college, more vacations, whatever that would be, where does car buying fit in? So here’s the one question that I want you to ask yourself after you hear today’s episode: Is my current car situation and car payment getting in the way of me achieving other financial goals? And if so, is it worth it? Let me say that again. Is my current car situation and payment getting in the way of me achieving other financial goals that I’m working on? And if so, is it worth it?
OK, so one more thing I have to get out there before we jump in and talk about the numbers and continue on with today’s episode is that I’m all about safety when it comes to driving vehicles. And let’s work with that assumption as we go throughout the rest of the episode. And I think it’s also safe to assume that all of the cars that we’re driving, with maybe a few exceptions out there, all of the cars that we’re driving are safe vehicles. Now, commercials we watch and other things may make us believe that this car has a better safety rating than another car, but relatively speaking, across the board, I think it’s fair to say that our cars are safe. And therefore, I am not suggesting that you drive an unsafe vehicle just to save a few bucks. And so let’s be clear with that as we talk about some of the considerations around car buying.
So let’s jump in and talk about some of the data and statistics surrounding car buying. And one of the things that you’ve often, I’m sure, heard before is that cars are a depreciating asset. Cars are a depreciating asset, meaning essentially that they are going down in value from the moment that you purchase that vehicle. Now contrast that with other things that are appreciating in value, such as your home — hopefully, depending on the market that you live in — maybe investments that you have. Cars, on the other hand, for the most part — unless you have purchased some type of a rare vehicle or you collect vehicles that have significant value — for most listening to this podcast, your car is a depreciating asset. Now, why is that an important thing? It’s an important thing to consider because when we talk cars, whether it’s a new car, a lease, a used car, whatever be the case, I want you to think about a car in the context of the other goals that you’re achieving and whether or not it’s an opportunity cost.
Now check out this data here from Edmunds.com. If you had a $30,000 new vehicle that you purchased, the second that you drive off that vehicle from the lot, it depreciates by over $3,000. A year later, it’s down about $7,500 later. And then fast forward to five years after purchasing that vehicle, that $30,000 car now has a value of approximately $11,000. So that vehicle, $30,000, five years later on average is worth about $11,000. So you can see that for most new vehicles, there is a significant amount of depreciation that happens within the first five years. Now, hold onto that thought because one of the things we’re going to talk about is if you buy used, when might be the right time to buy? And hopefully that data gets you thinking, is there a period where a car may have a lower number of miles and has still taken a fair amount of the depreciation and the hit on the value of that car? And the answer to that is yes because if you look at a car that’s at the third, fourth or fifth year of its lifespan, it’s probably still relatively low mileage but also has taken a hit of the depreciation, meaning that you have a good value that will be in front of you.
OK, so cars are a depreciating asset. Now, check this out as well. If you look at the data from Experian, who publishes a report, which is really fascinating — I’ll link to it in the show notes — it’s called the Automotive Finance Market Quarter Four Report from 2017. Now, what they found in this Quarter Four report from 2017 is that the new car loan average monthly payment is $515 per month from that 2017 report. Let me say that again. The new car loan average monthly payment is $515 per month. Now, what if you lease a new car? You’re looking at an average payment of $430 per month. What about a used car? The average monthly payment for a used car is about $371. Now, hopefully you’re thinking, holy cow, that’s a lot of money. Especially as we think about other financial goals that you’re trying to achieve. Now, I know some of you are going to be right in line with those averages. Others of you maybe have paid cash for a vehicle. And others of you maybe have a loan, but that amount of the loan is significantly less than those averages. So based on that data, if we look at used car payments ranging from $371 up to a new car payment ranging at the top end of $515, if you are somebody that’s listening to this episode, and you think that you’re struggling with other goals that you’re trying to achieve — debt repayment, getting in control of your monthly expenses — car buying, your car, is an area that I would highly recommend you take a look at to see if cutting back may be worth it. And I think that if you talk with other people that have gotten rid of a car or scaled down their car, I think you’ll find that you probably won’t miss your car maybe as much as you think you will to begin with.
So what is the opportunity cost here of a vehicle, whether we talk about a lease, a new purchase or a used? So the question I want to pose to you is what if you were to take that monthly payment — and where you have that current average there of $515, what if instead you paid cash for a car every six years? And let’s just assume for this situation that that vehicle that you’re paying cash for is going to cost you $10,000 every six years? Now, some of you are thinking, can I really buy a decent car for $10,000 that’s going to last me six years? And I would say yes. If you actually do a quick search on cars.com, depending on what you’re looking for, you can find a lot of decent cars at a relatively low mileage rate, 50, 60, 70, 80,000 that’s going to be somewhere in the $4,000-10,000 range. So remember here, we’re going for safe and functional, right? So we’re not going for top-end features, we’re going for safe and functional. OK, so if we play out this situation, a $10,000 every six years that we pay cash for, if you divide that out, that would cost you on average, $139 per month. Now I got that by taking $10,000, and I divided it by 72 months. So if we were to take the difference, let’s say you’re somebody listening that has that average new car payment of $515 per month, if we would take the difference and you’d say, ‘OK, what if I sold that and instead paid cash for a $10,000 car every six years?’ That was $139, and if we take that difference, that difference is $376 per month. Now, here I’m talking the savings that you could have, which relates to the point that I made about the opportunity cost that come along with buying a car. So if you took this difference, $376 per month, and you instead invested that money in a mutual fund — better yet, let’s say an index fund, maybe within a Roth IRA, and that earned 6% growth per year, check this out. In 10 years, that would be worth approximately $62,000. In 20 years, that would be worth approximately $175,000. In 30 years, you’d have about $378,000. In 40 years, about $750,000. And drumroll — in 50 years, you’d have about $1.4 million. So there it is. The potential to save more than $1 million by strategically buying a car that’s at a lower monthly payment. And for some of you, maybe that’s leasing a car at a lower monthly payment. For many others of you, maybe it’s selling your vehicle and buying a used car like I mentioned in this example, $8,000-10,000 or so that you can have for five, six, seven years, maybe even a little bit longer. Now, some of you are hearing that math and thinking, OK, well obviously the cost of vehicles are going to go up, and you’re going to have to have some maintenance — all great points. So maybe it’s not $1.4 million. Maybe instead, it’s $800,000, $700,000. The figure doesn’t matter. I think what we’re really highlighting here is that there’s an opportunity cost that can come with having too much money tied up in a depreciating asset, which is your vehicle.
So what does the YFP community have to say about car buying? Now, the other night I wanted to throw out a question to the community because I know that based on the data that I just shared, and knowing that I have a bias toward buying used cars, I really wanted to get some more input from the YFP community. So just a couple nights ago, I posted these two questions inside of our Facebook group. Question No. 1 is: What lessons have you learned through your car buying experiences that you’d be willing to share with others? And No. 2: Do you buy or lease your vehicles? And why? And if you buy, and you buy used, where is the sweet spot in your mind in terms of having the best value? Now, the comments I got from this post were just awesome and further inspired me to do this podcast because I could tell for many, there’s a lot of passion around car buying and a lot of discussion about the different strategies and tricks and tactics to consider when you are car buying? So let me put a plug here. If you’re not already a part of the YFP Facebook group, I would highly encourage you to join us. I’ll link to it in the show notes. You can also just search on Facebook, Your Financial Pharmacist Facebook group. Join the conversation. There’s so much education, motivation and feedback that’s happening amongst this community. And this is really just one example of that happening.
So what I’m going to do, I’m going to read you some of the responses that I got because I think as I was reading these, it really helped for me reinforce a point that I think is great for you all to consider or even brought forward points that I had not even thought about talking about on this show. So Latonia, who’s a very active member of our Facebook group, so shoutout to Latonia, her response to this is that “I learned to not buy new and to buy used because it depreciates once you drive it off the lot,” just like we just talked about. Shop around and continue to bargain as much as you can. So for Latonia, she said, “I buy instead of lease since I don’t feel a desire to drive a new car every 2-3 years. I also want to finish car payments and not to have present in the long term.”
Erin from our Facebook group says, “I’ve purchased new and used, but prefer used. If you feel uncomfortable, walk away. Also, don’t fall victim to them asking what you want to pay each month instead of telling you the whole price of the car. They’ll try to get you in a five-year or longer loan to get you into your monthly budget. Haggle the price down instead. Again, if they can’t get the price to where you want it, walk away. They’ll probably call you the next day, offering what you wanted. It helps to finance your credit union too if you’re a member. Our credit union actually talked the price down for us before.” Well, Erin, great advice you’ve packed in there. You mentioned very briefly preferring used. I think you have great advice there about walking away in the negotiation process, which I’ll talk about here in a little bit. I love your advice about not falling victim to the monthly payment. Instead, looking at the whole picture about what it’s going to cost you over the life of the loan.
Cammy, who actually is not a pharmacist but has joined the conversation, actually works in the auto industry, who messaged me yesterday and has enjoyed being a part of this group, she says that buy used about three years old with preferably about 40,000 or under for mileage. So her advice is three years old, preferably about 40,000 or under for mileage. She says that “I’m struggling now as our van is or has been paid off and is turning 100,000 miles. She just put $1,200 doing the maintenance, still needs to get a few more fluid changes to the tune of $600. This weekend, the air has seemed to gone out in the vehicle. It’s a 2010.” And she goes on to talk about her vehicle being a Honda, and she’s really at that point trying to figure out, you know, when are you going to continue to invest money in a vehicle versus looking at something else. So shoutout to Cammy for joining the conversation. Also love to have fellow Honda Odyssey owners in the group as well.
So Scott says buy the cheapest car that you’re comfortable using. He says, “I refuse to pay sales tax on an expensive car that depreciates so quickly. 3-5 years used with a single owner is the best way to go for most people.” Scott, one of the things I didn’t think about, and I’m glad you brought that up, is the cost of the sales tax. So obviously, the higher the buy, the more the sales tax is going to be on the purchase, so I think that’s great advice and input.
Courtney says that “If you’re buying used from a private party, have your own mechanic look at it. If the selling party isn’t comfortable with that, you should probably find a different car. This allows you to know what you’re getting into.” And as somebody who’s completely incompetent when it comes to vehicles, I can attest to the importance of having somebody else give you a second set of eyes and give you some advice to make sure you’re not overlooking things that maybe you have blind spots when it comes to buying a vehicle.
David says that “We bought a four-door Toyota that was six months old with only 5,000 miles and got it for half the new sticker price. That was several years ago and haven’t come across anything nearly that good, but the dealer said it sat on the lot because that specific vehicle wasn’t real popular at the time, and nobody wanted a stick shift. We learned to look for cars that had been sitting on the lot for a long time in order to get a good deal.” Great advice, David.
Rachel says, “Go to the dealership with a plan.” Amen to that, Rachel. “Do your window shopping online only. My goal was to buy a used, reliable, safe vehicle with under 50,000 miles. I purchased with a low-interest loan, but I could have paid with cash, which made me feel really good. Research the cars you’re interested in before going, and research the cars that the dealers have on their lot. Last time I was car shopping, I knew more about the car than the salesperson, which made me look and feel confident in negotiations. Be patient,” Rachel says. “I didn’t budge on the price I wanted the vehicle for. And in a few months, I ended up getting a better model of the same vehicle for the price that I wanted.”
Brianne says, “I’ll tell you the truth and admit that I’ve leased for the past five years. Previously, I bought a used car, and when it started breaking down on a regular basis while I was on rotations, I needed something reliable quick and didn’t have time to shop around for the best deal. I had a great experience at the dealership and extremely low monthly payments for a brand-new car, and best of all, never had to worry, which was worth its weight in gold to me. When the lease was up, I re-leased because I was about to be fresh out of training with little savings. I feel like it was the right decision for me both times, and now I’m saving for a used car that I’ll have time to research and look for and hope to pay close if not all of it up front.” Brianne, I’m so glad you jumped in the conversation because I think you bring up a great point that this is not a black-and-white decision in my mind of buying a car used is better than lease new versus used and so forth. You know, I think back to a couple years ago when Volkswagen was having some of their specials because of some of the PR troubles that they were having where they were running — I think it was a Jetta, I believe — they were running for $89 or $99 a month with nothing down. It’s hard to beat that when you look at the math on a vehicle. And so I think when you, you bring up some good points about the point you were at in terms of transitioning out from rotations and through residency, in terms of some of the comfort that you were looking for and not wanting to deal with the hassle. And I think that highlights the importance of this really being an individualized situation and to do the math to see what might be best for your personal situation.
Kelly says “I lease and love the idea of renting a car. The important mindset of leasing is to know it’s not your car. I don’t have to do much except take it in for regular maintenance, and I haven’t had hidden costs. I won’t lease forever, but it’s convenient. And since cars are not really investments, it’s a good option for me now.”
And finally, Sandy says, “I’ve had two cars since I graduated in 2001. One I bought new and have driven for 13 years, still going strong and probably turning to 150,000 miles today or tomorrow.” And actually, she confirmed that. She put a screenshot of the odometer onto the Facebook page. So Sandy, thank you for doing that. She says that, “Now that my husband has had a few more vehicles than me, the biggest mistake was getting the extended coverage on one of his vehicles. Won’t do that again if I were to buy new.”
So thank you to those in the YFP community who jumped into the conversation. This was really only about a third of the comments, so for those of you who are thinking about car buying, thinking about is this the best decision for me? What might I be looking for in the process? Or maybe some of you are thinking, I might want to get rid of my car, sell my car, look for something else. I would encourage you to ask those questions inside of the YFP Facebook group and to join the conversation.
I want to take a brief moment before we jump into the second part of the show and to highlight today’s sponsor of the Your Financial Pharmacist podcast, which is Script Financial. Now, you’ve heard us talk about Script Financial before on the show. YFP team member Tim Baker, who’s also a fee-only certified financial planner, is owner of Script Financial. Now, Script Financial comes with my highest recommendation. Jess and I use Tim Baker and his services through Script Financial, and I can advocate for the planning services that he provides and the value of fee-only financial planning advice, meaning that when I’m paying Tim for his services, I’m paying him directly for his advice and to help Jess and I with our financial plan. I am not paying him for commissions, I am not paying him for products or services that may ultimately clout or bias the advice that he’s giving me. So Script Financial specifically works with pharmacy clients. So if you’re somebody who’s overwhelmed with student loans, or maybe you’re confused about how to invest and adequately save for retirement, or maybe you’re frustrated with just the overall progress of your financial plan, I would highly recommend Tim Baker and the services that he’s offering over at Script Financial. You can learn more today by going over to scriptfinancial.com. Again, that’s scriptfinancial.com.
OK, so we’ve talked about some of the data and statistics surrounding car buying, and we’ve gotten some input from the YFP community about what they prefer in the car buying process and what is some of the advice that they have and things to consider. So what I want to do to wrap up this episode is talk about five lessons that I recently learned when I went through the process, Jess and I went through the process, of buying a car a couple years ago. So this is our most recent Swagger Wagon. And I have to be honest, if you had asked me five years ago, would I be excited about getting a good deal on a used minivan, I’m pretty sure I couldn’t have honestly said yes, but that’s the reality of three young kids, and I have a lot of pride in our used minivan in getting a good deal on that buy. So here’s the backstory. In 2014, Jess and I were still trying to get rid of our student loans. And at the time, I had an itch to get a new car. And that itch turned into going to the dealer. Going to the dealer turned into me trading in a paid off Nissan Sentra that had less than 50,000 miles on it and instead buying a used Lincoln MKX that had more miles on it and obviously was a greater expense.
Now, in the moment, the Lincoln MKX looked great. Great leather seating, great — I think it had a Bose sound system, actually, which was incredible — had the moonroof, had the whole nine yards. But here we were, almost about to pay off our student loans, and we took a step backwards financially. Now, six months later, kind of looked back on the situation, said probably shouldn’t have done it, actually turned around and sold that car and ultimately used the difference that we gained in that sell to finish paying off our student loans in October 2015.
So was it a massive mistake? No. But did it cost us some money and some stress along the way? It certainly did. Now, fast forward a little bit further from that. And we went through our second experience of buying a used car and paying cash for that used car. So just about two years ago, we went and we were in the business of needing a new used minivan, a new used, new used minivan. At the time, actually our sliding door had fallen off. Thankfully, one of our friends had helped us put it back on. But nonetheless, it was time for a new used minivan. And so as we went through that process of looking for, talking about, buying that new used minivan, there’s really five lessons that I learned from buying that minivan that built upon the lessons I learned when I went through the process of buying and then selling the Lincoln MKX. So those five lessons, I’m going to walk through briefly.
No. 1 is cash is king. Cash is king. So when you pay for a vehicle with cash, if you can do that, what I have found through doing that twice is that you ultimately get a better overall price. There is real power in the negotiation with cash. The other thing that I really like, which is kind of the silver lining with paying cash, is in my opinion, it forces you to buy down on the car that you’re looking for. What do I mean by that? If I’m going to write a check for a car, I’m probably not going to be willing to write a check for or $20,000 or $30,000 car. And it’s going to force me to look down into something that’s a little bit lower in overall price, maybe $8,000, $10,000, $12,000. And again, back to the earlier point that cars are a depreciating asset. I’m always trying to figure out, what’s the lowest dollar amount that I can spend to get the best value. And I think cash forces you to buy down because you’re writing a check.
So why else is cash king? Ultimately, you own the vehicle. No payments, which means that you’re using those payments elsewhere to achieve your financial goals. Now, the caveat here is if you’re going to pay cash for a car, I would highly advocate that you have a good emergency fund in place before you make that decision because in the event that anything goes wrong, obviously you want to be able to make sure that you can fund it. However, if you have no monthly payments on that car, chances are you’re going to have some margin in your budget to be able to do that. So No. 1, cash is king.
No. 2, patience pays off. So in my opinion, the best time to buy a car is when you don’t actually need a car. When you don’t have that pressing moment of, I need to have a vehicle. So if you can plan a month, three months, six months out, know that it’s coming, but be in the position to make sure you can do your homework and to be patient. It’s going to allow you to find the best deal, and it’s going to make sure that you’re not emotionally reacting to that buy. Because just like I mentioned, when I went and bought that Lincoln MKX, it started one day in a very casual search on cars.com, quickly turned into a feeling of, man I’ve really got to have this, quickly turned into me ending up at the lot and making that decision. So patience pays off in the car buying process.
No. 3, having an educated offer equals savings. Having an educated offer equals savings. And this really builds on No. 2 that if you have time, and if you can be patient, you’re ultimately going to be able to start looking and doing your research and making sure you’re coming with a very detailed, educated offer. And I can remember when I came to buy that Honda Odyssey recently, I could tell you a 2009 Honda Odyssey in the EX model that had this many miles on it, what was the going price for that car. So when you go into the dealer with that type of information, you’re obviously ready to negotiate. So I would recommend that you first start by looking up features and reviews of the car that you’re interested in in a site like Edmunds.com or a similar site, which I’ll link to in our show notes. Then you can start to work through Kelly Blue Book and other sources to really get to the nitty gritty on what is that car worth, what’s the value of that, and what price might you want to go into when you begin the negotiation process?
No. 4, used cars most, not all of the time, buying a used car most, not all the time, is going to be the better move. Now, I cannot emphasize that enough that it’s most, not all the time, as we’ve heard through some of the comments in the YFP Facebook group and in the community. So really this goes back to the point that we talked about, depreciation, right? So that if depreciation has already happened, and you’re buying at the right point of a used car, you’re really going to get that sweet spot where the hit of depreciation has already been taken, and you’re still going to be in a relatively low mileage position that it’s not going to require a ton of maintenance. Again, this is also highlighting the fact that if you can buy at the right price of a used car, it’s going to help free up some cash each and every month that you can use that difference to throw that money towards other financial goals that you have.
Now, things to think about that if you buy used at a dealer versus you buy used, let’s say from a private party. With a dealer, typically — not always, but typically — the car is going to be a little bit more expensive. It’s going to be a little more difficult to negotiate because those people are trained to negotiate. Now, the plus side of a dealer environment is it’s usually a little bit easier, and they’re going to help take care of all of the paperwork. And if you’re going to finance the vehicle, obviously they may have financing options that are available. Also, if you’re somebody that says, ‘I really want to be certified pre-owned,’ working with a dealer is going to give you that option. Now, working with a private party, there’s going to be more work on your end. You’re going to have to handle a lot of the paperwork and the processing, although I can tell you that’s fairly easy, and there’s a lot of great resources out there that can help you. It’s going to probably, not always, probably going to be a little bit easier to negotiate if you’re comfortable with that. Now, the downsides here is that you’re going to really have to do your homework on the inspection, making sure you’re feeling comfortable with the quality of the vehicle. And you’re going to, of course, have to pay cash typically for that vehicle unless you’re going to have some type of private arrangement with that person to finance it. So No. 4 is used cars most, but not all the time, are going to be the better move.
Now, No. 5 is I would highly encourage you, if you’re looking at a lease versus an own is to do the math. Do the math to see is this a better financial move when it comes to a lease or an own? And then on top of the math, make sure you’re factoring in things like your comfort with taking care of the maintenance and your comfort with having a used car that you might have a few things that go wrong here or there. So let me give you an example of what I mean by doing the math. If I were to be shopping today for a Honda Odyssey van, and I was looking at, say, a 2018 lease versus buying a older, used, decent mileage Honda Odyssey. I just pulled up today, actually, if you look at a 2018 Honda Odyssey LX, the current offer that they have with good credit is a 36-month lease that’s $369 a month for $2,500 that’s due at signing. Kind of sounds like a commercial, right? $2,500 due at signing at $369 per month for 36 months. So in this example, the total payout comes to $15,783. And that’s combined with the monthly payments as well as what you’re due at signing. And if you take that dollar amount, and you divide it by 12 for how much that would cost you per month, that’s going to cost you $438 per month, assuming that there’s no damage to the vehicle, there’s no overmileage, etc. when you turn in that car. So a lease option, as I’m looking at the numbers here on a Honda Odyssey LX, is going to cost me about $438 a month. Now, what if instead of leasing, I were to buy a used Honda Odyssey vehicle? What would be the difference there? And what are some of the considerations? So I was looking at today a 2012 Honda Odyssey EX, which is actually a model up from the LX, has about 60,000 miles. That car is selling for approximately $11,500. So if I were to convert that into a monthly payment, if I were to take that to convert it to a monthly payment so I could do an apples-to-apples comparison to the lease, that comes out to $319 per month. So instead of the lease costing me $438 per month, here this buy would cost me approximately $319 per month. So if you just look at that on the surface, that looks like $120 per month of savings. But in reality, at the end of 36 months remember, in this situation you have no more payments. So every month that goes by that you own that vehicle that you’re not reupping a lease, you have to then of course factor that into the savings. But you also, on the flip side, need to factor in that you’re probably going to have some cost around maintenance that maybe you would not have with the lease. So if you look at this example, I think if you’re comfortable driving a car that’s got 60,000 miles on it, the math is pretty clear that that’s a better option when you consider what you could do with that $120 per month plus whatever you save when your payments are done. Now, some of you may be driving vehicles that the lease numbers look much more favorable than that. So what I’m advocating for in point No. 5 here is to do the math and to make sure you really evaluate the difference between leasing and buying used.
So just to recap five lessons there that I learned from buying those two most recent vehicles, the Lincoln MKX and the Honda Odyssey:
- No. 1, cash is king.
- No. 2, patience pays off.
- No. 3, an educated offer equals savings.
- No. 4, used cars are superior most, not all of, the time.
- And No. 5, do the math on a lease versus an own.
Now, here is my call to action for you is to go back to the question that I asked at the very beginning of this segment. And that question was this: Is my current car situation and payment getting in the way of me achieving my other financial goals? If so, is it worth it? Is my current car situation and payment getting in the way of me achieving my other financial goals? And if so, is it worth it? And some of you might answer that question and say, no, it’s not. And that’s great, continue on with the plan that you have. Others of you may take a step back and say, you know what, I think my car is getting in the way of achieving whatever financial goal you’re working on: student loan, credit card debt, retirement, etc.
And so then the question would be do you have an opportunity to sell your current car? Could you potentially sell your car and buy down on car so that you could free up some money each and every month to help achieve those goals? If you have a question about that, please jump over to the Facebook group and pose that question.
Now, one last thing that I’d like to end on here is if you’ve never read the book, “The Millionaire Next Door,” by Tom Stanley, I would highly encourage you to do it. He does a great job of outlining the financial behaviors and mindset of those that have a net worth of $1 million or more. And one of the things he spends a lot of time on the book is car buying because what he evaluates and recognizes is that those that have a net worth of $1 million or more often look at a car as a depreciating asset and are instead looking at where else could I be putting my money that is appreciating or that is growing in value? And through his research, he concludes that more than 50% of millionaires never spend more than $30,000 on a new car. And only about 23% actually own a new car. So 50% of millionaires never spend more than $30,000 on a new car. And only about 23% own a new car.
So thank you for joining me on this week’s episode of the Your Financial Pharmacist podcast. It’s been a lot of fun to be alongside here to talk about car buying, and I hope you’ll jump over to the conversation in the Your Financial Pharmacist Facebook, and I look forward to next week’s episode and hope you’ll tune in as well.
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