avoiding car payments

Why I Drive a Piece of Crap

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I drive a 2002 Yukon Denali with 187,865 miles.

This vehicle literally is 15 years old and has enough miles on it to drive around the earth over seven times. There are dents and scratches in it, stains in the carpet, a wire that hangs out of my radio, and a special odor that you only get with this type of vehicle.

It competes with the new car smell which we refer to as the Smell of Experience. This is our family car and yes I love my family. We travel across the desert in it every summer, we drive it through traffic, to football practice, and it has even been our date night vehicle – which means it takes us to dinner for all you sexual deviants who thought I was talking about parking and testing the suspension.

We have often been asked why we drive what we drive and it can be summed up in two words: Opportunity Cost.

 

Related: The Opportunity Cost Formula

 

We Used to Drive Expensive Cars We Couldn’t Afford

We couldn’t afford them because we didn’t have the money to buy them. Let me give you an example: The money we had in our savings account wasn’t enough to buy the cars we wanted.

Sound familiar?

We were normal, so we did what every other normal person in America does- we financed one vehicle and leased the other. I had a brand new truck and my wife had a brand new Acura.

We didn’t make much at the time, but we had the cars to make people think we were rich! We were driving cars we couldn’t afford, to impress people we didn’t know, and it was costing us much more than the monthly car payments.

The price we paid to impress the people at the stop light was crazy. A new car loses 60% – 70% of its value in the first 4 years. Don’t get mad at me, these are factual numbers from NADA and Kelley Blue Book.

 

Example: A brand new $32,000 car

Four years later it’s worth $10,000. The effect of a new car costs roughly $100 every week in depreciation! Not to mention you’re paying higher insurance premiums and higher registration fees. A visual example would be to open your wallet next time you are at a stop light, pull out a Benjamin, and throw it out the window. Do that once a week for four years and that ladies and gentleman is called the New Car Experience. 

 

So what really is a car?

It’s a piece of metal that you can drive around in and it continually goes down in value.

It is not an investment. It is not a giant purse to show off to your friends.

It is a car.

It is always going to cost you money.

 

The Opportunity Cost of Your Car

How much money, or opportunity, will this car cost you? Andrea and I decided we were going to start treating our vehicles like they were nothing more than a piece of metal that goes down in value. We knew if new cars lose 60% – 70% of their value in the first four years, then it made perfect sense to buy older cars.

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Is Your Car Upside Down?

Let’s assume you are making the average car payment in the United States of $488 over 66 months.

Question: What should you do?

Answer: Stop the bleeding.

Save up as quickly as possible a few thousand dollars and buy a really crappy car. Much crappier than even our car. Buy a $2,500 car for cash. Your friends are going to laugh at you. Your family is going to think you are crazy. If any of these things happen, it is a sign you are winning.

Need More Help?

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Now that you have your paid for car, you need to find out what the payoff or buyout is on your leased or financed car.

For example, say you owe $18,000 on your car, but it is only worth $12,000. This means you are upside down and therefore you will need to take out a $6,000 loan from your credit union or local bank to make up the difference.

Once you sell your car, you now have a loan for $6,000 instead of $18,000, you have a paid for vehicle that has pretty much depreciated as far as it will go, and you are on your way towards keeping more of YOUR money!

 

What’s The Next Move?

Start making a car payment to yourself for the next ten months and get a better car. Let’s say you make a $400 car payment to yourself for ten months. Math would tell us this is $4,000. You have my $2,500 car that you are going to sell again for $2,500 and now you have $6,250 to buy a better car.

In ten more months you will repeat this and move up into a $10,000 car. About two years earlier you owed $18,000 on a car that was worth $12,000. Now you owe nothing on a car that is worth $10,000 and you are paying much less in insurance costs and registration fees. You just took a giant step towards winning!

 

What We Did to Win

We had been debt free for three years when we decided to get a bigger vehicle for our family. We had saved up $22,000 in cold hard cash to buy a nice vehicle! We were getting ready to look at a nice $22,000 vehicle and it hit me….it’s just a piece of metal.

We looked at opportunity cost and saw that we could invest that extra money in our kids’ college accounts. We could use it to pay off our mortgage quicker. We could invest it into retirement. Basically, we could do much more with all that money than buy a piece of metal that would sit in our garage and go down in value. So, we bought an $8,000 Yukon Denali.

When we received the title to the vehicle, there was a line in the top left that said:

 

List Price $47,339

 

The original owner paid $47,339. We paid $8,000.

People say the rich get richer and the poor get poorer….now it all makes sense 🙂

 

Do You Drive a Beater?

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Leave a Comment or SHARE this story with someone you know! If this post had even the slightest effect on you, think about who else could be helped! The greatest separator of wealth in today’s society are new cars and car payments.

Thanks for reading Money Peach!

-Chris Peach

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35 replies
  1. Tony Love
    Tony Love says:

    Just wanted to comment and say this was a great blog! I wish more people thought of vehicles as depreciating metal. This type of personal finance should be taught in high school to kids about to enter the real world. I agree with your other blog as well where needing a behavior change is necessary for this to work, It seems like you can educate people all day on it but if they don’t actually do it, its pointless. Great blog, a lot of good info!

    Reply
  2. Tonnish
    Tonnish says:

    The word repairs does not appear anywhere in this blog post. I wonder how reliable a $2500 car would be. I wonder how much time it would spend in the shop. I wonder how many times it would leave you stranded. I wonder how frustrating it would be to buy a 10+ year old car knowing that a 1-2 year old car would be a much better idea in terms of value.

    Reply
    • Peach
      Peach says:

      You make a great point on buying an older car and having repairs. Repairs are part of owning all cars – both old and new. The way we look at it is a car MAY have a repair come up, but a car payment is EVERY MONTH. Over the past 4 years, the small amount we have had to put in our cars because they are “crap” are worth not having the average car payments every month. Thanks for reading and for your comment!

      Reply
      • David
        David says:

        Interesting article, obviously nothing new in regards to vehicles being a terrible purchase, but it is strange how historically vehicle loans relative to income have never been so high. Goes to show the fuel of low rates/dealer incentives/keeping up with the Jones’ etc.

        I drove a “piece of crap” that was 20 years old and over almost 3 years spent $2-$3K a year on repairs because…surprise…it was a piece of crap. When I got a decent job out of school, I bought a new ish car and the payments totalled $2.5K a year. It just made sense to me. So for the same money I can drive a reliable nice car. That “wash” is worth it to me. Most importantly the TDSR is low and is in line with my income. Frankly I couldn’t give a crap about the depreciation. I drive lots, need it for work and that $2.5K over 4 years is the cost of doing business for not being later every month because of my shit car. Furthermore MPG increased from 18 to 29, so that again reduces the figure to actually making me “net” money.

        That being said I did buy 4.5 years old – car had depreciated 60% and I actually put money down so the TDSR wasn’t through the roof. Paid off early over 2 years and bam happy ending.

        Most importantly people need to evaluate relative to income, keep debt servicing strong, buy at least 4+ years old and buy private. F*ck paying some sales idiot taxes on top!

        Reply
        • Peach
          Peach says:

          I love it David! You’re 100% right – buy 4 years or older and let someone else take the beating in the depreciation.

          Thanks for the comment!

          Reply
  3. Matt morales
    Matt morales says:

    Peach, this a great post. I have a 1999 Toyota Corolla. At first I had a crappy car bc I really didn’t have a choice but now I can’t see any other way. I just paid my 29$ 2 year registration. To be honest none of my friends really ever make fun of my car bc secretly they wish they didn’t have to pay their 400$/month. All this info you posted is what OUR generation needs to teach the next generation….it seems like now living within your means is no longer really living within your means and WE have to change that. We should be supporting our friends/family when they are financially responsible. Great read can’t wait to learn more.

    Reply
    • Peach
      Peach says:

      Matt,

      A 1999 Toyota Corolla is a very crappy car! Nice work!! You make a great point and it’s people like you that will help teach this to the next generation – but I don’t think it is too late to teach today’s generations either. Thanks for reading and thank-you for the comment!

      Reply
  4. Dewitt
    Dewitt says:

    Thanks for a marvelous posting! I definitely enjoyed reading it, you are a great author.I will remember to bookmark your blog and may come back sometime soon. I want to encourage you continue your great writing, have a nice holiday weekend!

    Reply
    • Peach
      Peach says:

      Dewitt, thanks for reading and for the nice words! I will be posting every Monday morning, so look for the next post or subscribe to MoneyPeach in the top right of every page. Thanks again!

      Reply
  5. Tia
    Tia says:

    I have been surfing online more than three hours today, yet I never found any interesting article like yours. It is pretty worth enough for me. In my view, if all website owners and bloggers made good content as you did, the internet will be a lot more useful than ever before.

    Reply
  6. Joanne
    Joanne says:

    This was an awesome message! I just got into an accident yesterday and we think the car is totaled. Now we are starting the discussions of what are to get, how much can we afford, etc… You make some great points that not many keep in mind. Thanks for the sanity check!

    Reply
    • Peach
      Peach says:

      Joanne, the normal thing would be to go out and get a brand new car. If you don’t have the cash to do so and now know about the OPPORTUNITY COST in mind, choose wisely with your next car! Sorry to hear this happened to you, but paid for cars drive nicer than the cars dragging a payment

      Reply
  7. look at this web-site
    look at this web-site says:

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    Reply
  8. Vanessa
    Vanessa says:

    This article is a much needed slap in the face for me. I have a paid off 2006 Nissan Altima with 163,605 miles on it and I thought it was time for a new car. I live in Chandler, work in downtown Phx and just discovered the express bus! Not to mention my job gives me a free bus pass. So I drive 2 miles to bus stop, hop on and get to read articles like this on my commute. Thanks for your honesty because it reminds me why I’m working hard to save money.

    Reply
    • Peach
      Peach says:

      Vanessa,
      We all need a good “slap in the face” every once-in-a-while, including me. Your 2006 Nissa Altima is a great car and 163k is not really that many miles with how long cars can run today! Furthermore, think of the money you will save over the course of a year or years with the express bus. You are impressive and keep up the good work! Thank-you for reading 🙂

      Reply
  9. Kelli Frantik
    Kelli Frantik says:

    Ouch! This blog post comes a day late for me….after many years of *not* having a car payment, I just took one on…thought I “deserved” it. Though I bought a used car, I did buy luxury….again, I have been driving a beater and I wanted a nicer car. I realize now that I have made an error in judgement and shall be paying for it for five years. Sigh. And, worse part still? My grown son got his new (used) car a couple of days before I did…and I encouraged it. He had $6000 cash, but, there just wasn’t anything reliable that we could see that would last. And, living in Nevada in the summer really doesn’t make A/C optional to me….something that goes out on older cars. So, perhaps I am just spoiled, but, you gave given me much to think about. And where does one get this Dave Ramsey program?

    Reply
    • Peach
      Peach says:

      Hi Kelli,

      Oh no! You found this site a day late :(. Get those cars paid off in the next 2 years or you may need to sell them. Car payments kill our financial plan in so many ways. I just posted on my Facebook page an article about the average cost of a 2015 car is $31,000 and then it loses up to 11% the moment you drive it off the lot. Ouch. The plan is to build wealth over time and car payments are tackling us from behind. Decide what is going to be best for you guys. When I found about how money really works, we had just purchased our brand new Acura RDX. We sold it 11 months after we bought it so we could make way for a better life. Yeah, we took a hit on it…..but we also stopped the bleeding. Good luck! 🙂

      Reply
  10. Kristen Pizzill
    Kristen Pizzill says:

    My husband and I are completely debt free except our mortgage. 3 years ago we bought a new (used) Infiniti suv that I do enjoy driving, HOWEVER I now realize that the 36k we paid for it would have made more sense to throw down on our mortgage. With discipline and focus we will get the mortgage paid early, but had we weighed our “opportunity cost” as you say we’d have been there much faster. Thanks for the great article.

    Reply
    • Peach
      Peach says:

      Kristen, when you are debt free and pay cash for used cars, you can buy cars and it won’t kill your financial future. Yes, of course there is an opportunity cost of driving newer vs older cars that you could have avoided, but you’re debt free! It’s okay to enjoy some of your hard earned money too. If you can keep the total cost of your cars, boats, RVs, (things that go down in value) less than 50% of your gross income, you’re doing awesome!!?

      Reply
  11. Anita
    Anita says:

    Our family cars are a 13 year old Suzuki Wagon R and a 5 year old Bollerwagen (http://ecx.images-amazon.com/images/I/415tVhgEzCL.jpg)
    Works perfectly for us, car insurance, car taxes, repair costs and gas hunger are cheap.
    But we still pay for our house because we have a 10year contract we can’t quit.
    And: My children and I wear “crap”, second hand clothes.
    Bonus: everyone thinks we’re poor, so the beggars never bother me and the pickpockets at the mall search for more worthwile targets.

    Reply
  12. Amanda
    Amanda says:

    Thanks for the confirmation. My husband and I had a top of the line minivan (be nice we have lots of kids) and we turned it in with the equity, as well as a couple grand from savings,and bought a 2002 Honda Odyssey that had all the “bells” our family needed(i.e. leather seats because kids are gross and remote control side doors because we have lots of kids). I got a call from my “high end” sister-in-law nearly the next day letting me know she traded in her 2010 Acura MDX for two new Acuras…sedan and RDX. I thought I was going to cry. We knew we did the right thing but man do I love new Acuras. But where she said she only had to pay $200 more a month (plus starting over on a car loan) we are now $312 a month richer. Thanks for the confirmation we did the right thing. I roll around town proudly in my 2002 knowing I’m saving money and getting our families vehicle needs met…it’s a greater feeling than a hefty new car payment each month. We’re saving for our “fancy” van but I think we’ll end up like your family and won’t be able to spend the full amount because why bother…save the money or invest in an appreciable asset. Thanks again!

    Reply
    • Peach
      Peach says:

      It can be tough to have to swallow the fact that someone may be driving “awesome” and we are driving “crap”. But, what you don’t see when they are driving “awesome” is the $500 car payment dragging behind it. You don’t see the higher insurance costs and higher registration costs. Also, they don’t see you being car payment free and saving and investing. It may not seem like a lot right now, but imagine the separation in wealth from this one principle alone over the course of 30 years. If you need help, go out and buy the The Millionaire Next Door: The Surprising Secrets of America’s Wealthy. One of my all-time favorite books.

      Reply
  13. Mark
    Mark says:

    Excellent article. I also have a crappy car, a real eye soar. It’s a 2004 Honda accord with a little duct tape on the drivers side window. The front Windows won’t roll down, ans there are dents and scratches all over. There’s about 148000 miles on it. Everyone is telling me to get a new car but it drives really well and I don’t have a car payment. I was thinking about trading it in (I might get a little less than 3 grand) and putting it towards a used Honda or Kia (keeping the payment down to 100 to 150). But I really hate car payments and I’m pretty sure I could get another 2 or 3 years out of it. What would you suggest?

    Reply
    • Peach
      Peach says:

      Hi Mark,

      You won’t ever hear me encourage anyone to get a car payment if you don’t currently have one. If you can make a $150 car payment now, then make $150 car payment to yourself for 10 months. Take the $1,500 + $3k you could get for your crappy car now and buy a $5,500 car. 10 months later you could buy a $7k car. So, in only 20 months from now, you would have a paid for $7k car without having a car payment. Sound good?

      Reply
  14. Dyann
    Dyann says:

    I’m late to the party but would like to add some of my own insight into the matter. Here it goes. Well said. Our cars are temporary things and should be valued as such. My BMW days are gone with the wind. Rocking a 2009 Saturn SL1 that’s jazzed up with some expensive rims found cheap at the junkyard.The normal concern with old versus new is repair. All cars break down. If it’s paid off you have the choice of fixing it and also who does it. Not so when you’re paying someone else for the privilege of riding around in their car. You also have the power of deciding your own insurance. A few tips would be to invest in learning basic repair and buying tools for it ahead of time. Also, you’ll need a knowledgeable mechanic for most makes and models since you’ll change vehicles often. Watch and ask him questions so that next time you can do the repair yourself. YouTube is your friend for this as well. I could go on and on since buying older used cars has become one of my 10 commandments but I’ll just add this last note. Both freedom and peace of mind are priceless! Things can happen. Situations can change. Going to the grocery store and not being afraid someone with a cart will ding you makes you chuckle. Knowing that the phone will never ring and your (their) car can never be towed because of nonpayment makes you LOL at your old self.

    Reply
    • Peach
      Peach says:

      Hi Dyann!

      I love to tell people your car will run better, drive better, and will last longer (than you think) when it’s not dragging around a hefty car payment each month. Thanks for sharing!

      Reply

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  1. […] the Lynches, who have two children, didn’t drive fancy cars, splurge on clothes and jewelry or purchase the latest electronic gadgets, they lived comfortably. […]

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