PURCHASING/SELLING A VEHICLE:
In the materialistic society that we live in today, people are trying to keep up with the Jones’. This means cars that are becoming more and more expensive. Fancy cars like Teslas, Hummers, Mercedes and BMW SUVs in lots of garages. Would you be surprised that we don’t have any of those in our garage? My husband currently drives a 2018 Toyota Corolla that he had to purchase when he was rear ended and his car was totaled. I am fitted with a 2012 Honda Odyssey. We have two teens and one has a 2004 Toyota Rav4 and the other a 2010 Chrysler Sebring, that we co-purchased with our teens--used. We currently have no loans on any of the cars.
In purchasing a vehicle, where is your “go to” for the purchase? A large, well known dealership? Smaller neighborhood dealership? Autotrader? Carvana? Facebook marketplace? Private seller/friend? Carmax? It’s very important that you do your research before even getting behind the wheel for a test drive. Luckily with the internet, it’s not as time consuming as it once was where you had to look through classified ads (where I found my very first car). Did I just age myself? We’ve used Costco in purchasing more than one vehicle where they hook you up with a local dealership and then you get a no haggle low price. It’s a wonderful deal and another one of the many perks that the warehouse offers. Definitely take advantage of it if you have a Costco membership and are purchasing a new vehicle. In the purchase of our teens’ cars, we found them both on Facebook marketplace. One was from a smaller local dealership and the other being from an individual. Before purchasing, we took both cars to our personal mechanic who was willing to look over the car (at no cost) to tell us if they saw any issues. We ended up not buying the first vehicle that we took to them based on their comments and discoveries. This can save you from getting a lemon and costing you thousands of dollars with issues.
If you are interested in leasing, it allows you to get a new car every few years. However, it takes money away from you and your family. At the end of the lease, you have zero equity in the vehicle. Because of that, it’s so much easier to continue leasing since you have no money to put down on another purchase and the lease payments are typically lower than a purchase. Don’t get me wrong, there are upsides to leasing like lower monthly payments, a new car every few years, worry-free maintenance, and no resale worries. However, if you’re trying to find ways to spend less money overall and build up family equity, I’d pass on the lease. In addition, when you do finally get to the point that you want to break the lease cycle, you have absolutely no money to put into a new car. It can be defeating. If you’re currently leasing, bite the bullet now and purchase an inexpensive, used vehicle when your lease expires, which will help keep your payments low or ideally nonexistent.
In addition to NOT leasing, an immediate way for you to earn extra money is to buy used automobiles. As everyone says, you lose money as you drive your new car off the lot. Typically, with new cars we’re talking about a higher purchase price, which most likely equates to a longer loan term and potentially a higher interest rate. You can check out www.edmunds.com and www.kbb.com for current used car values. For more websites, search “used car prices.”
Sometimes purchasing a new car can be a smarter decision depending on the market factors. For example, with the current market, many automobile manufacturers are offering cash back and 0% (or extremely low) interest. When I bought my most recent car, we chose the cash back instead of a lower interest rate. Knowing that we would be paying the loan off early, the up-front savings amounted to more than the slight difference in the increased interest rate. If you’re looking to purchase a vehicle that keeps its value well, it might not be that much cheaper to buy used. With a new car purchase, you would also get a warranty and maybe other perks like free oil changes.
The following list states some of the things that you should definitely consider (not all inclusive) in deciding whether to buy used or new:
-Loan interest rates
-Sales prices
-Warranties
-Ad valorem taxes, and
-Potential maintenance costs
Let’s talk a little more in depth about automobile loans. The best option is NOT to have a loan at all, whether it be for a new or used car. I know that this may not realistic for many so, if you have to have one, you should try to get the best deal out there. If you’re a member of a credit union, they may have better than average rates. Also check out www.bankrate.com, and www.bestrate.com. The dealerships themselves also have in house lending opportunities as well. Keeping your purchase price low (by buying used or on great finance terms) will help keep your monthly payments down. In deciding on how long to make your loan term, the shorter the better. You will have to pay a larger monthly payment, but you will pay less interest over the term of the loan and pay it off quicker. Typically, with an automobile loan greater than three years, you risk owing more than the car is worth as the car ages and the balance doesn’t decrease significantly. This is referred to as being upside down.
Worst case scenario for emergencies…using a home equity line of credit. The interest rates are currently very reasonable and the loan is tax deductible since it is tied to your home. **Please talk to your CPA about this as tax laws are continually changing. BE VERY CAREFUL!!! You are taking a loan out and using your home as collateral, which I would strongly advise against unless you are in an emergency situation. This can be dangerous if you default on the loan. In addition, I would only recommend doing this if you have a lot of equity in your home and only owe around 65% of your home’s value on your first mortgage.
Let’s look at an example. Your house is worth $200,000 and you owe $130,000, which works out to be a 65% loan to value ($130,000/$200,000 = .65). In this scenario, you would have enough money to purchase a reasonably priced vehicle, without jeopardizing your stake in your real estate. *65% is not set in stone. For me personally, I’d feel comfortable in this situation. The more conservative you are, the better it is in the long run.
Another easy way for you to earn money for your family is to keep a car until “the wheels fall off”. It’s not necessary to have a new car every few years. Would it be nice? Of course! Is it a necessity? Absolutely not! Since you should be driving the car for a minimum of 10 years and your loan term was for three years, which means that you would have seven years without car payments. This is a great situation to be in.
Moving forward, you want to be able to purchase you next vehicle for cash. When you no longer have a car payment, you have options with what you do with the money you are earning. You can put aside the amount that you had been paying each month for car payments in a savings account (or other investment option) as if you still had a car payment. This means that you’d be putting aside several hundred dollars per month in a separate account to save for the purchase of your next vehicle or repairs on your current vehicle. The next time that you need to make repairs on your current vehicle you’ll have money set aside already. When the time comes to purchase your next car, your goal is to have enough money saved to pay cash. **All other installment debt should be paid off before putting this money aside.
If you are purchasing a vehicle, what are you doing with your old car? Are you trading it in, totaling it due to an accident, giving it to a family member, or selling it yourself? Each of these have pros and cons. In our family, we try to sell our vehicles personally to yield the best possible price to be able to roll it into the next vehicle. If you know that you don’t want to deal with the hassle of all of the work in selling your vehicle yourself, trading in your vehicle may be your best option. If your plan is to purchase through a dealership, I would leave that out of your negotiation telling them that you haven’t decided what you’re planning to do with it. That way, you get a “cleaner” price and then can negotiate the trade-in separately.
OTHER VEHICLE EXPENSES:
When you own an automobile, you also have additional expenses, such as gasoline. In driving down the road, you see lots of options for gasoline. How do you know which is the best? Is one brand name better than another? Should you decide where to go by price? Is premium gasoline better for your car than regular unleaded?
Scenario: Two gas stations are adjacent to each other and one is charging $2.32 per gallon for regular unleaded and the other $2.37. Is the station that is charging $2.37 giving your “better” gas? No. Gasoline is gasoline. You should make your decision SOLELY on price. The gas is the same. You’ve all seen it when a station changes names (new owners) from one day to the next. Do you think they completely clear out the gasoline out of the pumps before the new owner takes over? No, of course not. It’s the same gasoline that it was the day before. This can also apply to the changes in prices from day to day. It’s the same gasoline, even if it went up 5 cents from the day before.
Premium versus regular unleaded. Some people will swear by the fact that they believe that their vehicles run better on premium gasoline. Some vehicles may even require that you use premium or your warranty is invalid. Most mechanics will state that your car will be perfectly fine on regular unleaded and doesn’t need premium. Is premium gasoline a necessity to keep your car running? I would have to say no. In deciding where to purchase your gasoline, make sure you also check out your club warehouses like Costco, Sam’s Club, and BJ’s. The gas is generally cheaper there. Also go by your local WalMart to check out their prices. Do your research. The app Gas Buddy will show you the cheapest prices in the area or on your route when traveling. *Just make sure that you’re not driving far to save a few cents because you might be wasting more money by driving there than you’ll save.
In owning vehicles, it’s inevitable that you will need them serviced. This can be for general maintenance (oil changes and the like), normal wear and tear, or major overhauls (auto accident). Many people use the dealerships to get this work done. My recommendation is to find a very good mechanic that you trust to do the same things on your car. You will pay about 60% of the dealership prices. You need to find someone that you trust and won’t take advantage of you, especially if you don’t have a good working knowledge of car mechanics. Your best bet is to get a referral from a friend. Another option if you’re handy or if you have a handy friend, you can order a lot of parts on the internet. When my daughter got into a fender bender, the body shop gave us a quote and we were able to find the parts cheaper online so we just had to pay them labor costs. It saved us hundreds of dollars. If you have the time and inclination, you may be able to do small repairs yourself. www.youtube.com is full of videos showing you how to do car repairs. The labor is typically the most expensive part of any repair.
Along with general maintenance, you also have to keep up with cleaning the inside and outside of your vehicle. Detailing automobiles has become a very lucrative business. It is much more convenient (and nice) to have someone else clean your car for you. However, to earn money, sometimes you have to take things into your own hands--literally. The more frugal option would be to do it yourself in your driveway. You use your own water, soap, cleaning products, and vacuum. Taking the middle ground would be going to one of those drive-up car washes where you can do the work yourself with their soap, water, etc. and pay a few bucks to wash and a few more to vacuum. You don’t see those around much anymore. The drive through ones are about $8 for the base wash and you get to take as much time as you need for vacuuming. It may be even cheaper than using your own water, products, and spending your time. When I was renting, the apartment complex I was living in had a car washing station in the parking lot. A big savings. It was convenient and cheap. It had the high-pressure washer, but I did still have to do the actual washing. When detailing your own automobile, make sure you put Rain-x on your car’s windshield. It helps the water just roll off the windshield in heavy rain and reduces the amount of time and intensity that you have to use your wipers. This, in turn, saves you money on wiper replacements. Remember it’s the small stuff that adds up in the long run.
When you drive a vehicle, it’s inevitable that you will incur some parking costs. Some people have to pay for parking at their place of employment or just for special event parking. To reduce these costs, take public transportation whenever possible. This includes trains and/or buses. This not only helps reduce your parking costs, but it also saves wear and tear on your automobile extending the life of your vehicle. If there is no public transportation available in your area, find out if you can take pre-tax deductions out of your paycheck for the expense of parking for your employment. This will reduce your total taxable income so you won’t be taxed as much by the IRS. If this is not a possibility, try parking a few blocks away from your workplace to find cheaper parking. It is sometimes cheaper to park in smaller pay lots than in the parking decks of large buildings. It may be worth the savings by walking a few blocks. You will not only be earning money for your family, but you will also be getting some exercise.
There are numerous expenses that you may have on your vehicle and always ways to cut costs. A little research is usually worth the effort. What other expenses do you think you might need to spend???
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