Don’t Buy a Car in the First Place
My first experience owning a car taught me an important lesson: Car ownership is costly. As a result, I suggest that if you don’t need a car, then don’t buy one, particularly if you live in a city with reliable public transportation. Use the subway or bus and save your money. As with renting a home or apartment instead of buying and owning one, sometimes in your life you may be able to do without your own car, and other times you’ll feel that having a car is 100 percent necessary. Enjoy the times when you can do without a car because you may save a good deal of money and hassle.
Owning a car requires multiple expenses that can really drain your wallet. In addition to insurance and gas, in my experience with my first car, I faced a seemingly never-ending list of maintenance and repairs, and that list only grew worse the longer I had the car. And having a car in a big city can be a hassle — I had to pay parking tickets from parking my car on the Boston streets and had to deal with not always being available to move the car on designated street-sweeping days. Add the expense of having to pay out of pocket for damages likely caused by a city snowplow that didn’t own up to the accident.
When I moved from Boston and over the subsequent decade, many of the years I chose not to own a car. I was able to do this because I lived either in a city with decent public transit options or in the suburbs close to everything I needed and could manage well with a bike (in a nice year-round climate!). During those years when I didn’t have a car, I would rent one on occasion, and that worked out well and was far more economical than owning my own car.
Pay Cash: Shun Leasing and Borrowing
When you do decide to get your own car, do your best to save in advance and pay for the car with your cash savings. For many folks starting out, doing so means setting their sights on a good-quality used car.
Taking out a loan to buy a car or leasing a car are generally much-more expensive ways to get a car because of the interest you pay (in the case of a loan) or the higher rates (in the case of leasing). Car dealers who are in the business of leasing or originating car loans will, of course, have a different agenda and push these methods because they profit from them. Don’t be fooled by zero percent interest loans, either — dealers will sock you with a higher car price to make up for such low-cost financing.
Consider Total Costs
When you compare makes and models of cars, be sure to consider more than the sticker price. Among other cost considerations are fuel, maintenance, repairs, insurance, and how rapidly the car depreciates in value.
Among the best independent sources that I’ve found for such information are www.edmunds.com and www.intellichoice.com.Compare New with Used
Because a new car depreciates most rapidly in value in the first couple of years, buying a car that’s at least a year or two old usually provides you with a better value for your money than buying a new car.
Don’t assume, however, that buying a used car is always a better value. For example, during a severe recession such as the one the United States experienced in the late 2000s, new cars made comparatively better sense than many used cars. The reason for this was a matter of simple economics and supply and demand. More people opted for buying a used car. Fewer folks put theirs on the market, holding off on buying a new one until the economy got better. These two forces squeezed supply and increased prices. At the same time, fewer consumers were buying new cars, forcing dealers to slash prices.Understand a Car’s Real Value Before Negotiating
After you home in on what make and model of car you want, make sure that you arm yourself with the essential information as you shop around. For new cars, you should know (and can easily find out) what the dealer’s cost is for each vehicle. You can find this information at Consumer Reports as well as the sources I mention in the next paragraph.
For used cars, a number of sources can assist you with quickly valuing a vehicle based on its condition, features, and mileage. Among the best sources for used car valuation information are Kelly Blue Book and Edmunds.Take Care of Your Car
Besides the obvious financial benefit from staying on top of your car’s servicing requirements (getting your oil changed regularly, rotating and properly inflating your tires, and so on), you also reap safety benefits as well. That’s why you should be proactive about your car’s maintenance.
Of course, not everyone is. I was astonished to see a car with nearly completely bald tires at the local garage that services my car. I subsequently learned that the woman refused to replace her tires because she “couldn’t afford” to do so. (Never mind that she was driving a more costly car than I was!) Clearly, she could afford to do so, but for whatever odd reason (more than likely ignorance about the danger), she wasn’t spending her money on new tires. By driving on such old tires, she was causing other problems to her car and, of course, risking a serious accident, which would really lead to a large bill and possible injury (or worse) to her and others.
Explore Your Servicing Options
Finding a good auto mechanic — someone who’s competent and honest — is no small feat! You’re not likely an expert in the various components and operating systems of your car, so you’re largely at the mercy of the mechanic telling you that you supposedly need to have something addressed on your car.
The primary advantage of taking your car to an authorized dealer (such as taking your Honda to a Honda dealer) is that the dealer has the proper equipment and technology to test and service your car. The downside to dealers is that they may have higher rates and may push doing packages of work at major mileage milestones (for example, 30,000 miles, 60,000 miles, and so on) that don’t really need to be done.
Numerous local garages can do the work, and the primary advantage with those can be convenience (choosing one near your home or office) and possibly lower rates. However, an unscrupulous mechanic may push doing work that doesn’t need to be done, and you also need to be on the lookout for competence issues, as an independent mechanic may not be able to service the full range of problems on your car’s make and model.
Drive Safely
Driving faster than 60 miles per hour, accelerating too fast, and having to jam on the breaks wastes gas and adds to the wear and tear on your car over time (and therefore is costly). And what about the people traveling with you? Driving is probably the most dangerous thing you do on a regular basis, so it’s not just about your money but the health and safety of you, your friends, and your family who take trips in your car.
Take a Lean and Mean Insurance Policy
Most states mandate minimum levels of auto insurance. In my experience as a financial counselor reviewing folks’ insurance policies, including their auto insurance, people often have the wrong types of coverage — missing things they really need while wasting money on other things they don’t need.
Track Tax-Deductible Auto Expenses
You may be able to deduct certain auto expenses related to the use of your car for your job, especially if you’re self-employed. Be aware, however, that your expenses for commuting in your car between your home and office aren’t deductible.
You can deduct your out-of-pocket expenses (such as gas and oil) that are directly related to the use of your car in charitable work. You can’t deduct anything like general repair or maintenance expenses, tires, insurance, depreciation, and so on. If you don’t want to track and deduct your actual expenses, the IRS allows you to use a standard rate per mile to figure your contribution. You can deduct actual expenses for parking fees and tolls. If you must travel away from home to perform a real and substantial service, such as attending a convention for a qualified charitable organization, you can claim a deduction for your unreimbursed travel and transportation expenses, including meals and lodging. Such deductions are only allowed if your travel involves no significant amount of personal pleasure.
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