Car shopping isn’t one of the most enjoyable things for a lot of people. A friend of mine once said he would rather go to the Dentist then go car shopping. I am not a fan of Dentist either and probably enjoy some of the hunt and numbers of car shopping.
The photo above is the car we bought for Logan last year. It is a 2007 Honda Accord with like 108,000 miles on it. He mainly just drives it to work with it for now but next year when he is in college it will be in more use for him. The car hopefully will last him until his is done with college and into his career with savings to pay cash for his next used car. Our goal is our boys stay Debt Free for life. Our pipe dream. LOL it is possible but up to them.
This is one of the rules to Financial Freedom that we teach our kids and we have taken them with us to experience the whole car shopping experience. Including the games and negotiation that is played.
Before we start talking about how we go about car shopping lets think about some things from the Millionaire Next Door book. Here are some key things from the book that studied Millionaires (It is on my must read book list);
- You aren’t what you drive. They believe that financial independence is more important than displaying high social status.
- 81% of Millionaires purchase their cars and 19 leased in their study.
- Only 23.5% bought Current year cars. The rest were all older.
- Average car buyer in America has a net worth of 2% that of a Millionaire but spends 72% of the most that a typical millionaire ever spend on car,
Then another good book to read is Spend Smart book. Here are a few things to think about before we dive in to the rest that we teach our kids. Bill wrote:
- If your goal is to keep automobile costs down, buying is much better than leasing a car. The three largest costs in automobile ownership are depreciation, insurance and finance charges. Leasing tends to maximize all of these costs.
- Don’t lease a car. If you can’t afford the payment on the car you want downsize what you want.
In Suze Orman’s book she said that taking out leases is a costly financial mistake. She also said Certified Pre-owned cars with warranty is a good option.
We start with first knowing what our budget is to spend on a car that we are looking at getting. Everyone can have their own opinions on how to car shop or feel they are an expert but the below points are what we taught our boys.
- Call your independent mechanic and see what Make of car they recommend to buy. Our mechanic wanted us to stay with Lexus, Toyota or Hondas because he said they were more reliable and cheaper to repair.
- Call your Insurance company and find out what the Insurance would cost you on the make and model of the car you are looking at. Get quotes from different years of the models. Also get quotes from other Insurance companies.
- Find out what plates and registration is for the vehicle you are looking at and see what it is for other year models of that vehicle. For instance Our van is over $400 a year and our car is at $100 a year because it is older.
- Save up money and pay cash for the car you want to buy. If you have to take out a loan pay at least 20% down or more and have the loan for no longer than 36 months.
- Buy Used Cars. Only buy a new car if you are close to Financial Freedom or have a net worth over one million dollars.
- Buy the car. Do not lease. Life and My Finances show a study on a lease ad that was for $189 per month. But the actual cost after 3 years with all the costs and down payment was a monthly cost of $431.19. No thanks I will pay cash for our cars.
- Car payment should not be more than 20% of your take home pay. Again I encourage them to pay cash for their cars and not more than 20% of their yearly take home income. So if they bring home a net of $48,000 then to spend under $9,600 on a used car. If they have to borrow money and their take home is $4,000 a month then no more than $800 a month for a car payment. Again, we encourage them to live Debt Free for life.
- If you do need to get a car loan be sure to shop around for the best deals.
- Value of all your vehicles in the house should be less than 50% of your total yearly take home income.
- To get a car fax report on any vehicle they buy to make sure it wasn’t in a wreak or had been in a flood.
- To look up Kelly Blue Book values of each make, model and car to see if they would be in their price range and to also make sure the dealer isn’t over charging them.
- To get Certified Cars if in price range and if not take the one they are deciding on to their mechanic to have it checked out.
- Think of repair costs, fuel costs, maintain the car costs before buying. For instance our Lexus Tires, Oil Changes and Fuel cost more than our Van and Honda car.
Of course, some people may need to borrow money for a car because they work so far from home. But look at other options then buying a car until you have the cash saved up. Maybe you could;
- Take Public Transportation.
- Use Lift or Uber Ride Share.
- Ride with a friend from work and give them gas money.
- Buy a Bike and ride it to work.
- Walk to work.
- Take a Taxi.
People can survive If they can’t afford a car to drive. If you live far away from work maybe move close to work? So many options other than going into debt for something that depreciates in value. We teach the boys to buy Assets that appreciate in value.
We bought a car for Logan to drive to college last year and that one was a simple cash transaction with no trade in. We like those.
When we bought our van a year ago it wasn’t as easy. For example, we ended up buying from the same dealer we had bought from four years before when our other van was totaled. The van we were trading in last year was a van we bought from them four years ago and they had talked it up about how it will hold it’s value and such a great deal. We paid roughly $15,500 for the van four years ago and all they wanted to give us for a trade in was $1,500 Wow… I wish I could say that is a normal story but the same thing happened to us in Minnesota. We ended up getting them up almost $3,000 more but it was a hassle. We were there for over 8 hours and the boys were getting bored.
Plus, to save another $1,000 we had to finance the Van with them and then make like three payments to them before paying it off early. Playing that game with them was some hassle but saved us like $700 roughly. Gimmicks.
Some people buy and sell their vehicles to private parties which normally works out for them I have heard. I used to do that in my younger years. Now I like to only work with dealers. But small independent dealers I prefer over the large ones. The independent smaller dealers seem to have more used cars in our price line.
At our house we have a 2017 Chrysler used Van, 2008 Lexus and a 2007 Honda Accord. All three vehicles value is about 31% of our yearly take home pay. Of course what a dealer may give us would probably be lower.
Since we are talking on vehicles we also cover with the boys how to maintain their vehicles so they last longer and hopefully it will save them less future car shopping trips in the future. LOL
What would you add or change to what we taught our kids? What did you teach your kids? Our main focus with this is so that they make more informed choices and live debt free during their life if possible. Our dream is that all of our kids will be Financially Free when they are adults.
Here are two positive quotes I like; “There is no way to happiness; happiness is the Path.” By Buddha
“Change Your Thoughts – Change Your Life” by Wayne W. Dyer
Let me know your thoughts about this blog and let me know of others you would like me to do in the future. I feel we can all learn from each other. That is why I am in the helping people retire early, enjoy life more and be more successful. Also, please see my Disclaimer page.
Don’t give up on your dreams; don’t let others talk you out of your dreams. Make your dreams happen. Make it happen today.
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Sources and Resources
- Spend Smart Book by Bill Keenan
- The Millionaire Next Door Book by Thomas J Stanley, Ph.D. and William D. Danko, Ph.D.
- The Do’s and Don’t of Money Book by Suze Orman