Early Retirement Lesson #4: How Much Car Can I Afford?

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Pretty Jaguar F-TypeHere’s another installment of what I would tell my kids about pursuing financial freedom. Read all of my early retirement lessons here. I’ve already covered housing, so the next big expense that comes to mind is cars. This is a revised version of a older post.

If you want to achieve early retirement, my rule of thumb is that you should only pay CASH for cars. By cash I don’t mean retirement savings in an IRA, I’m talking about actual cash sitting in the bank while otherwise still making timely progress towards your other financial goals. I’ve never had a car loan. When I buy a car, I write a check or hand over a wad of cash.

Don’t you like cars? I’ve been a Car and Driver subscriber off and on for 20 years now. I wanted to become an ASE-certified mechanic and even applied to automotive school, but settled on being a mechanical engineering major. But I also know that cars are the biggest area where the price paid vs. utility derived (i.e. value) can get completely out of whack. While a BMW M3 is a beautiful example of precision German engineering, unless your commute involves an unrestricted Autobahn it won’t get you to work any faster than my old 2001 Pontiac.

I’m also a proponent of individual choice according to personal priorities. Great cars are beautiful manmade creations, just like great buildings and great bridges. (Top Gear reference!) You may derive an obscene amount of personal joy out of your car. Okay, so buy it with cash saved up after you put 15%+ of your pay aside for retirement. An old classmate drove a 12-year-old Porsche 944 that he worked on himself.

So I can never buy a new car? Again, if you have the cash knock yourself out. My parents are the buy-new-and-drive-for-a-decade type, and they’ve done well with that philosophy. The car-buying process is not known for being pleasurable, so buying new with cash and driving it into the ground can often be good enough.

Reliable car sweet spot? The “true cost” of a car is the sum of depreciation, maintenance costs, gas, and insurance. New cars hurt you on the depreciation front. Going too cheap may result in high maintenance costs overwhelming the low depreciation. Any fuel-efficient car between 3 and 7 years old with good maintenance records seems like a reasonable choice to me. Buy it from a private party on AutoTrader or Craigslist, get it checked out by a trusted mechanic, use one of the many pricing guides available. Modern cars can easily go past 10 years and 100,000 miles now with proper maintenance.

I personally like the idea of a used GM, Ford, or Mazda model. This is because I bought a Pontiac Grand Prix for under $9,000 at 3 years old and 35,000 miles (company car went off-lease). Even though this was the base model of a struggling-and-now-defunct domestic brand, it ran for another 9 years with the only major repairs being broken power window actuators. Essentially, I now believe that the used car pricing market adjusts adequately for reliability. Hondas and Toyotas are certainly more reliable but there is no way I could get a 3-year-old Camry for $9,000.

What if I only have 50 bucks and need a car for work? My first advice would be to try harder to find alternatives. Public transportation may be a hassle, but I dislike the idea of working past 65 even more. Can you vanpool or carpool? Could you (gasp) bike or walk? Second of all, watch out. All kinds of shady shenanigans happen if you have a low credit score and need help financing.

If you absolutely have to finance a car, bring your own financing from a reputable credit union like PenFed or Hanscom FCU, which currently offers used car loans starting at 1.49% APR. Negotiate only on price, not monthly payments. Make the loan term 3 years or less.

Again, this rule of thumb is targeted at those folks to want to escape the rat race early. You can still have the $40,000 luxury vehicle, but you’ll have to plan ahead and save for it. Then, when you’re staring at a nice $40,000 balance on your bank statement, it becomes much easier to weigh clearly the value of the car vs. writing a huge check.

You may have heard this before, but never buy anything based on monthly payments – that’s the same logic that encourages just making the minimum payment on credit card debt and spawned rent-to-own furniture! Don’t fool yourself into believing you can afford a car just because the monthly lease payment seems manageable. Did you know that over 70% of Mercedes-Benz C-classes are leased? There are many people who spend big chunks of their income every year on cars when they could have a paid-off mortgage instead.

Imagine how much more practical car ownership would be if everyone had to pay cash. Think of car debt like credit card debt – something to be avoided if at all possible. If you already have it, work to pay off as soon as possible.

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  1. Jon,

    Just wanted to say how much I enjoy your blog. The content is never dull, and I have learned quite a bit.

    Cars can drive you into debt and misery. I drove my last car, an 89 Corolla for almost 20 years. In the last 5 years it looked awful but still drove well. So many people have cars for status. A car is only a way to get from Point A to B.

    • @Steve
      “So many people have cars for status. A car is only a way to get from Point A to B.”

      This often a point of contention that I feel like I have with a lot of other fellow personal finance enthusiasts. I agree 100% that a lot of people would benefit greatly from buying/owning a cheaper car, but there’s a large middle ground between status symbol and something the gets you from point A to B. If you apply the logic that X item is only to [insert bare minimum function], for everything you own, you’re going to be living an extremely spartan life. People place different values on different aspects of their life. Just because someone isn’t driving a bare bones econobox, doesn’t mean they’re just showing off their status. Some people enjoy driving and want a car that enhances that.

      • I agree with Daniel. I enjoy driving and buy only cars that are fun to drive. I also but used and pay cash. Truly sporty cars aren’t typically the kinds of cars that earn one status (with notable exceptions) because luxury cars tend to be bloated, heavy, and soft-handling. There are plenty of low-buck niche models out there that are an absolute blast to drive. Check out Grassroots Motorsports as a starting point for suggestions.

  2. Very good post and Hat tip for the Top Gear reference!! 😀
    This is off topic but do you still watch TG? Their recent season was good as usual, especially the episodes about Jeremy’s P45 “car” and their Rugby game with Kia cee’ds.

  3. Alexandria says

    Amen. I have the same rule of thumb on cars. My first car cost $1k (drove it for 7 years), then $5k, then $10k. I only got rid of the $5k car because it was a sports car convertible – had bought it like new and very low mileage. But it didn’t work with babies. I can’t decide if next vehicle will be $10k or $15k. I think $10k is kind of the sweet spot as we were able to buy practically brand new. But I admit I was able to do the same with my $5k car – it was just a much older model and the car I got did need a lot more maintenance than most any car I had owned. Was probably more model choice than anything.

    I was going to say, we are going to keep it in the $10k-$15k range as long as we have a mortgage. Two cars forward our mortgage should be paid off so I would not be surprised if we do $1k, $5k, $10k, $20k as the progression. Buying that $20k vehicle after being mortgage free will feel like quite a splurge. This means we could easily buy a very luxurious vehicle if it is a little used. (My parents bought a $50k luxury car for $20k – they have been driving it for 15+ years. !! I envision driving a deal like that).

  4. Alexandria says

    Edit: I meant $1k, $5k, $10k, $15k, and finally $20k (when mortgage free).

  5. Hey, I’m sure the “gasp” after the biking or walking was a bit of a throwaway line – but biking is a pretty economical way to go for commutes of around 5 miles or less for most folks. Even if you already have a car it saves you on gas and maintenance. It generally doesn’t take that long, and saves you time you might have been spending at the gym exercising! No to mention no issues with traffic and/or parking.

  6. I bought my last truck new and drove it for more than 10 years. While I loved my truck, kept great care of it and sold it for a great price, I now have a 12 year old Civic I commute in and I must say, it was a revelation. I paid $3500 for it, and it had almost 200,000 miles on it. I test drove a couple others that had lower miles but this one clearly was taken care of, maintained well and was overall the best choice. I got the car just as place holder until I found a better one, but I’m keeping it now. I still take great care of it but I noticed that when I bought my truck new, it was mine from the beginning and I knew the history, which I thought I would like. As it turns out, personally, I like having a used car that I really don’t have an emotional attachment to. I don’t have to cringe at every rock chip or dent. Granted, I don’t completely disregard the Civic, but I don’t have the long personal attachment to it so as long as it starts and gets me to work at great MPG, I’m a happy camper. I doubt I’ll ever buy a new car again. I like to think I would drive them until they die but the truth is 10 years is the max before I get itching for a new car and buying used saves money and lets me get a “new” car every couple years for the same amount as a brand new car.

  7. My most recent car: a 10 year old Saturn for $4500. Had to put $1500 of work into it and it runs great. Hoping to drive it until it dies.

  8. I really like this blog because you mostly take a very nice analytic approach to personal finance. This post however falls short of the quality of your other posts.

    I think your point is that people should not spend a ton of money on a car. I agree, but the rule “only get a car if you have cash for it” doesn’t seem to be based on anything at all. I think it would be better to tell people that the sticker price isn’t what’s important it the True Cost of Ownership which includes gas, depreciation, repairs etc. Sometimes a new car is cheaper per mile than a used car. It all depends.

  9. I’ve always liked Suze Orman’s “if you can pay it off in 3 years” stance – but this is in fact better.

    Kudos for the Top Gear reference, too 😉

  10. Great post, but you fell into the new car depreciation hole that everyone does.

    New cars come with warranties, factory ones, the good kind. Most used cars don’t. So while a 3 year old car might look like it’s saving you money, add in the cost of a warranty and it’s not much cheaper than a new car.

    I just went through this exercise. New Ford Focus with factory rebates: $20k. Same car (same body style, trim level, options) but 3 years older on the same dealer lot: $17k. But that example was a rental car buy-back with 30,000 miles. The bumper-to-bumper warranty was over. So $3k buys you insurance against unforeseen repairs, and peace of mind knowing nobody drove your car…like a rental.

    • Sorry to reply to an old post, but just had to say you might have been set up. Comparing to a used car ON THE SAME DEALER LOT?? Think they might have that price artificially high to get you to buy new? Look at craigslist, right now I see a cheaper ONE year old 2014 Ford Focus SE w/ Lots of Upgrades – $16000, and TWO year old 2013 Ford Focus SE – $11500.

  11. Thanks Johnathan, this article is at the right timing. Recently I am tempted to buy a new car, especially the APR for financing is 0% for 36 months or 0.9% for 48 months. (money in online banks earn the similar interest rate anyway)
    Staring at $15k cash saving for car and 135K mileage car, I am trying to stick with “pay with cash” or “drive till it die” approach whenever appear first. 😛

  12. i agree with most of your points. though, your discussion is more directed toward people who are single and young it seems. if you have kids it’s a different ball game. i have the same age car as you. factors coming into my decision making are safety, roominess, and getting an automatic so my wife can drive it. so 2/3 reasons are related to having children. you have a kid now, you should realize it’s not all about money sometimes, maybe it isnt about luxury, and just a family needs to have a bigger, more dependable, safe car and might need to go into debt for something other than an old death trap beater.

    • American Fool says

      gt, I have similar concerns… my wife is a bit of a leadfoot, and not really used to snow. With the new safety features coming out in some of the new cars (though I dispair of ever getting her into a Forrester – she thinks it looks too much like a station wagon…sigh), I think it’s worthwhile to pay a little more for safety, for her and the kids. The combination of safety, warranty, etc, makes me think of borrowing for a safe, reliable car that will last a long time rather than plunking down $5-$10K cash for a used car. Our current cars are 17 and 18 years old (purchased new) with 250K and 300K miles on them. Also, appearances do matter in some businesses, and my wife happens to be in such a business – so we don’t need a luxury car, but a 17yo car with a couple dings is a mild image issue for a new partner. I’ll drive the other cars to 500K miles if they’ll last! The flip side of the coin you have to weigh is the long term impact on Net Worth. There are flex points, where your combination of income and spending either result in a long slow decline of NW in retirement, or it just keeps building. Because we are close to that flex point in my retirement projections, I do have to think twice about what it does to our future cash flows.

  13. My personal rule for buying a car: never take out a loan to buy a car. Actually, this applies to everything I buy except a house. It’s not because a house is too expensive, therefore I need a loan. It’s because a house (or more specifically, the land) will appreciate in the long term/overall. I don’t believe in borrowing to purchase something that will depreciate: cars, computers, appliances, etc. That’s pretty much everything except house and education.

    Americans treat car loans as the norm, but I believe it is financially irresponsible. If you can afford the monthly loan payments, then why not make monthly savings ahead of time, then buy a car with cash when you’ve saved enough? Until then, buy a reliable used car. Anyways, just sharing my view, I’m not saying everyone has to adhere to it.

  14. @Steve – Thanks for the kind words. 20 years is quite impressive.

    @Jake – Yes, I still watch Top Gear UK. The most recent Africa special was pretty good, the last India special was not. Top Gear USA was a bit painful in the beginning, but their new season is better.

    @Alexandria – Sounds like a good plan to me!

    @Tom – I think biking is a fine option, obviously much easier in certain circumstances (weather, bike lanes, distance) than others. I essentially biked a couple miles to work in grad school for 3 years.

    @Brett – See, I think people tend to underestimate the quality of cars today. Yes, some parts will wear out but the true cost total is still quite reasonable.

    @Spencer – I hope that’s a long time.

    @Kerry – The key here is that I’m not telling you what car you *should* buy in order to maximize value (indirectly covered though with sweet spot point), but instead a rule about *affordability*. If people just bought cars they could “afford” according to my rule, there would still be a variety of cars out there (fast, expensive, cheap, big, small).

    @Charlie – Poweeeerrrr!! 😉

    @Colin – New cars can be fine, just pay cash. Fords and GMs are cheap new, and even cheaper on the used market with depreciation if you look hard enough. The repair bill on a new car for the first 3 years should be between $0 and $1,000 with or without warranty. But again, buying new is fine.

  15. @Nicole – I’m sure you can find a great car for $15k. Lots of good options in that range, you can even get a new Honda Fit for close to that.

    @gt – I hardly think that a 2005 Ford Taurus is a death trap. It’s a mid-size sedan, has LATCH carseat anchors, airbags (not good for kiddos but good for us), even stability control was an available option. I understand the desire for a big car for the kids, but to me that just means spending a few grand more if we’re talking value maximization. But again, the point of this post is you can buy whatever you want if you have the cash.

    @Bucky – I think avoiding a loan is pretty much the same thing as paying cash, no? 🙂 I’ve never had a car loan and likely never will. When I buy a car, I bring my checkbook.

  16. Another way to save cost if you cannot afford any car is to use Vanpool (http://www.enterpriserideshare.com/vanpool/en.html) – many employers provide this for free as a benefit, but even otherwise, it is fairly inexpensive to vanpool.

  17. @Mihir – Yes! I forgot, here is an excellent guest post on vanpooling:


  18. I drive a 1990 Geo Prizm. 23 year old car that I have been driving for the last 20 years (bought used!). Every year I bump into someone I haven’t seen in some time and it’s the same old line – “You still driving that shit box?” Yes. Yes I am. Mileage isn’t bad, air blows frosty and maintenance has been extremely cheap. Other related costs like insurance and registration are very, very low. I’m driving it till one of us dies and the way this car just keeps on motoring I’m not sure who it’s going to be.

  19. Also don’t forget about ride sharing options like Zipcar

    I have the cash to get just about need car, however I just can’t justify spending 5k+ for something I don’t really need.

    With my smartphone I can navigate public transit system with ease. For example I know within a minute if the bus is coming late and come to the stop late. While on the bus I usually watch movies and Google maps alerts me when to get off. In comparison when I drive I find it too stressful, especially when stuck in traffic.

  20. Jonathan – I can’t say I NEVER had a car loan, but pretty close. I got a 36-month low interest loan from GMAC when I bought my first car, a brand new (as in, I put every mile ever on that car) 1986 Chevrolet Camaro. Paid that one off and put the payment in the bank for the next time.

    And the topper – I just put antique plates on that Camaro, to save on insurance and registration. 27+ years on a Camaro, not bad, huh?

  21. Jonathan – another great post! I am big BMW enthusiast and always thought a car was a necessity. I am hoping to be car free once my lease is up as I am finding public transportation, car sharing and taxis more convenient than owning a car I take out once a week! For anyone interested in buying a car, I found that the following in a spread sheet helps to understand what a car really costs.

    Monthly Payment
    Home Parking (typically if you rent an apartment)
    Office Parking
    Misc Parking + Fees

    Even if you pay cash and eliminate the monthly payment, look forward to having all of the rest as fluctuating payments every month.

  22. Another huge postitve for buying used is being able to negotiate the price down much more then on a new vehicle. A poster above mentioned a used car on a lot being only 3k less the the same one new. You don’t have to pay anywhere near what the sticker is on a used car lot if your willing to work a little.
    I have a few BKM’s Ive developed over the years. I don’t know if they apply to all dealerships but they have worked for me.
    1. Look for a used car at a different brand dealership (eg I bought a Buick at a Toyota dealership). My theory is there is less demand for a Buick then a Corolla if you are shopping at a Toyota dealership and they might be willing to slash the price to get rid of it vs one of their own brand cars. They probably got this car via trade in or at an auction, so they have wiggle room.
    2. Shop the last day of the month. Big dealers tend to have sales goals tied to each month and they will be more willing to move cars at the end of a month to meet quotas.
    3. Shop on a day nobody else will be. If its pouring rain you may be the only person at the dealer. Black Friday is huge for retail but I found almost nobody at a car dealer last time I tried this.
    4. Be willing to walk away when negotiating. If you don’t get what you want, leave, they might chase you down as you are driving away (happened to me).

    My best example of the above strategy worked for me buying my current car, a 2001 Buick Lesabre. I bought it from a Toyota dealer on the last day of a month in 2004. It only had 30k miles on it and sold brand new for 27k 3 years earlier. The dealer had it listed for 13k, I got it for 6.2k. THey told me no chance as I was negotiating about 15 times. I didn’t budge, and eventually left, or tried to. As I was pulling onto the street I saw 2 salesmen chasing me. I got my deal and still drive this car today. A 3 year car still under warranty for a few months for a tick over 6 grand. Hard for me to imagine ever buying a new car.

  23. @ Ron:

    Your point number 4 about being willing to walk away reminded me of this Marketplace Money segment in which an FBI hostage negotiator talks about how he negotiated on his last vehicle purchase:


    A good listen.

    – another Ron

  24. subscribe to this blog because of quality content in my opinion as I would presume everyone who follows this blog are frugal in their own ways.

    read this content in my email today and do agree with it and with some other opinions the readers posted. sometimes I also feel this way, “Sometimes a new car is cheaper per mile than a used car. It all depends.” which led me to this post.

    If I buy into a vehicle that is new, I have to make sure that I get the ultimate return of my investment by driving it until I can squeeze the usable life out of a car. My wife and I haven’t own a new car as of yet. I just bought in my opinion a quality buy of a minivan for $3K last fall to accomodate my growing family of 5 to replace what I consider my 18 yr old Camry having 302K miles on it with cost of repairs that isn’t worth it no longer (still has it though, use it sparingly nowadays). on the other hand, my wife is driving a 13 yr old maxima having 190k miles with a engine code error that needs to have a part replace for emmission purposes only and is eating up further on gas consumption because of that clogged part, otherwise good condition. cost to fix is $500-$1200 depending on replacement part. fuel econ of maxima is 18/26 city/hway new. monthly gasoline cost for maxima is at least $250/month and requires a premium gasoline to point out. wife drives 80 miles RT for work.

    so given that, thinking of getting a new better fuel econ car to replace the maxima. first thought would be the cheapest car in the market in versa simply because of financials but still on the fence again because of financials. just recently I’ve been researching the totally EV nissan leaf where nissan dropped the price and offered a enticing lease to boost sales but then again the author said, “don’t fool yourself into believing you can afford a car just because the monthly lease payment seems manageable.” with all the incentives to buy into an EV vehicle, car can be had for $18K accdg to the site and lease on the other hand is $199/mo with $1800 down. (Net capitalized cost of $19,631 includes a $595 non-refundable acquisition fee. Dealer contribution may affect actual price set by dealer. Monthly payments total $7,164 At lease end, purchase for $14,529, plus purchase option fee up to $300 (except KS & WI), plus tax, or pay excess wear & use plus $0.15 per mile for mileage over 12,000 miles per year. Lessee is responsible for maintenance and repairs. A disposition fee is due at termination of lease term.)

    there’s more to the fine print I’m sure but this is where I feel new is sometimes better than old but still IN THE FENCE again due to financials. I would like a point of view from the author of the blog and the readers alike about this. on one hand, don’t want to spend gas that much and if I had to, rather pay that on a EV monthly lease that goes towards the value of the car before I can ultimately purchase it for the residual OR buy the versa and still pay gas but cheaper. ???

  25. P.S. – My current daily driver is a ’96 Toyota Avalon that my wife bought used in ’99 (cash). Comfortable, still looks good (well, the body has held up – it does still look like a ’96 Avalon, after all), decent milage and 300+k miles on it with only needing routine maintenance (tires, belts, brakes, tune-up stuff).

    It just keeps going.

    – still the other Ron

  26. Great topic!

    I search for original owner and excellent maintenance. You may pay more for a used Honda or Toyota but they’ll go 200K if you treat them right.

    Every car eventually goes to zero (no value). It’s hard to think of them this way.

    • American says

      1997 Camry – I did buy it new and treat it right. 19 years, 297,600 miles and counting. The drive train is still in great shape, but the clear coat started going about 12 months ago, the A/C finally gave out, and it recently got dinged on the back left side panel. I’ve only had to repair anything in the past few years; things are starting to give out. I could fix it all and get years more life, I’m sure, but I’m ready to replace it.

  27. washerdreyer says

    Funny timing on this post, I just today bought a ’12 certified used Focus. In this crowd, I’m a little afraid to admit it, but I did get that PenFed loan at the rate quoted in this post. I have the cash on hand to buy it, but currently home shopping and need to keep the money for down payment purposes. Total interest over five years is $503.55, that seems pretty reasonable to me, and let me get an almost new car at a price I was happy with.

  28. @washerdreyer – Sounds like you did just fine, enjoy your new Focus! If you’d like to write a guest post about your car loan experience at PenFed, please let me know. I’m curious as to how the details works for a used car. Thanks!

  29. Dona Collins says

    I can’t tell you how many times I’ve seen people make or plan a purchase with the money they have in the bank because, “I’ll get paid on Monday…” or “I am going to get a new job…” or – fill in the blank with an excuse. Something always goes wrong and then they can’t afford food, rent, gas. Priorities are important. Don’t buy it if you don’t have the money for it. Period!

  30. I tend to disagree that this works for all. About 17 years ago while I was getting my MBA, I needed a new car. Thought about buying a used one since I was still in school, but opted for a brand new Mercedes. The thinking was that I was going to be getting a full time job in 1 year as a newly minted MBA and would be able to afford it. I would plan to keep the car for a long time and a quality car would last that long. I want something I would enjoy driving for years to come rather than compromise and take the cheaper route. I did not want to get another car in 5-6 years.

    So now 17 years later, I still drive my Mercedes and love it. I have 165,000 miles on it and over the 17 years, the car has cost me less than 2-3 used cars would have cost me (I use 2-3 since I guess I would have to change cars every 5-6 years). Sometimes new is better.

  31. A friend had a leased EX35 and used penfed to buy the car out at the lease end as Infiniti wildly under-estimated its residual value. My friend said the Infiniti dealer’s jaw dropped when he revealed the rate. most people do not know penfed. Weird.

    As for cars, I’m a car nut and it’s my one huge vice. I’ve had 8 cars in 13 years. Some were leases, some were purchases, some were used and in the end I only regret parting ways with my 2003 330i ZHP.

    In some cases the cars didn’t really cost me much over a year (like my lemoned 335i cost me less than $500 to use for a year or my commuter car Protege that I resold after 2 years for a loss of $1000 total). Other times I blew 5-6k over a year. In all instances though I’d rather keep my cash on hand for investment properties, stocks, etc.

    Cars depreciate like crazy most of the time. Buying a new car for cash for me is a bigger waste as I haven’t kept a car more than 3 years since the 90s. If I followed logic, I’d go buy a 3-4 year old honda accord and drive it for 7-8 years. But I love driving too much to do that.

    And I know it’s wasteful to burn through cars. Shrug. Some people spend thousands on vacations or computers/hifi or $200 a month cell phones or several hundred a month going to bars/starbucks. I waste a few percent of our income on cars. Hell, the profit from my rentals more than pays for the cars.

  32. Thank you for this post and for your blog.

    I am 53 and lets just say that I have approached your level of financial intelligence gradually over the past 30 years, after learning the hard way (credit card interest, bank fees, loan interest, investment mangement fees, inflated self-regard for stock picking, etc). I luse your well-articulated posts to teach my children, as well as my retired parents.

    Cars are always a depreciating asset, and unfortunately make up a huge percentage of most people’s financial “portfolio”. We have a couple of used cars that annoy us from time to time, and enough cash to buy new cars. The old cars aren’t worth much, so keeping them involves little depreciation cost, and maintenance remains modest. We go through the urge to buy something twice a year or so. When faced with the choice of giving up hard-earned savings, we always back down. It helps to be nice to the old car. Clean it, replace the wiper blades and floor mats, fix the broken trim. Then keep it for another year.

  33. Omar Little says

    The crazy thing is that I’ve read some articles saying “spend no more than 10% of your monthly income on a car payment”. That seems very high if you are making decent money!

    What do you think of Dave Ramsey’s guideline- your cars’ total value should not be more than 50% of your HHI?

  34. Jonathan,..for used minivan (like 3 year old),..which brands would be in sweet-spot price?


  35. I can recommend taking a car loan for a short period of time to boost your credit score.

    • I disagree, I’ve never had a car loan and I’ve never had problems getting any sort of mortgage or credit card that I actually needed. You don’t need to check off every box to have a great credit score.

      • Zero percent or even any loan under 2% = take the loan. While we can buy for cash I would take 30k invested and a zero percent on a toyota any day over putting it all on the car. Wife’s toyota will be solid for years and we put some of the cash on a new solar system.

  36. I generally agree. For disciplined investors though (as I’m sure many of your readers are, particularly those on the path to early retirement), I suggest taking a different approach. If you have option to finance at a low rate in the current loan market, say <2%, do it. Why? If you want to retire early (or earlier), you are better off maximizing your tax advantaged accounts, including a HSA if available, paying down your mortgage, and accumulating a large taxable investment accounts first. Over the long run, your money will work better for you stashed away in these accounts. Just autopay the minimum car payment for 5 years.

  37. Good post, but I think it’s definitely missing the ‘sharing economy’ angle. Since moving to Australia, where car prices and licensing costs are double those in the states, we’ve been happily living without a car.

    Good public transit and a very walkable/bikeable city are great, but the key to this strategy is the car sharing services like flexicar (same as zipcar). There are three of them in Melbourne and we just subscribe to all three and never have an issue getting a car with 5 minutes notice whenever we need it. And we pay for taxis with no guilt knowing we never get close to spending as much as we would on a car.

    • Actually that post is scheduled for tomorrow! Do you have Uber in Melbourne?

      • Yep, we have uber, but I haven’t used it as much as I did in Seattle because there’s a bigger price premium over regular cabs. They just added UberX here, which improves that a bit. Cabs are usually easy to find while out, and I have an app that will call one to our apartment just as fast as uber, so there’s not much motivation.

        It’s interesting how I remember the pre-paid nature of uber was something I really valued in the states, because paying with a CC was a hassle (and the drivers didn’t like it), but using cash was a pain too. Everyone in Australia supports ‘pay wave’ CCs that reduce the payment time to like 10 seconds total and drivers don’t mind it, so that’s super easy.

        • One additional thought on the car sharing services – we don’t yet have one that will let you pick up and drop off a car in different spots. I know they have one like this in Seattle, and I really hope someone tries it here. We have the bikeshare system like New York, where you can drop a bike at any of the hubs. This is awesome because I’ll often ride to work but then take a tram or taxi home if the weather changes. I would love to be able to go point-to-point with a shared car too.

  38. Renee George says

    I love your blog but have to disagree. I just bought my first new car (Honda Civic). After driving my last car for 17 years (bought used) I’m amazed how much cars have changed. This one is far safer with side airbags and a rear view camera among other cool features. Also, it just feels good to drive. I’ll wait a long while but certainly not another 17 years before purchasing another car.

    By the way I have been saving all my credit card rebate money for years. It paid for half my new car!

  39. Love the post. We have had our cars (Nissan and Honda) between 18-19 years respectively. When we go on long trips or just want to have some fun, we rent from the local Hertz. It’s usually $26-35 a day and we get a nice car (even with Siruis). We have saved a lot of money

  40. Jonathan or anyone with minivan experience,..for used minivan (like about 3 year old),..which ones would be in sweet-spot price?

  41. I always wanted to buy the Vette. I think I should have. Once you get married, have kids, good luck fulfilling your dream. I am not saying blow your savings or go into debt to buy the car. But if you can afford it and save somewhere else, the enjoyment you might get might be worth more that money in the bank. Now this depends on folks, for most car is way to get from point A to point B. For others it is lot more.

    • “Once you get married, have kids, good luck fulfilling your dream.”
      Such an odd statement. If the wife and kids weren’t your dream, why did you pursue those instead of the car?

      I find there’s an odd thing about being able to easily afford a thing that makes me jot want it nearly as much anymore.

  42. The best way to save on buying a car,(IMHO) is to look at your needs and not your wants then find the cheapest solution that meets them.

    I state this because many solutions found in the comments section do not apply to me.

    For example: I have owned crappy cars before and drove them into the ground, but my needs DO NOT allow for this anymore. Back then, I drove in the city mostly, now I drive 25000 miles a year commuting a weather ranging from 10″ snow fall to 90+ summer temperatures. Back then, I drove a car with one shock completely rusted out (rear wheel drive) meaning the entire weight of the tire was being taken up by the other side. I pictured the massive twisting action along the whole drivetrain. It was an ’84 Corolla. When I was away on trips, my wife would let the engine run out of oil then complain that the car wouldn’t start to which I would add oil and off it drove! In fact, the worst thing about the car was that the rust was so bad, fumes were getting inside so I took a can of great stuff foam and J cloths and “sealed out” the exhaust fumes. The foam grew through the rust holes which caused a hilarious effect of the appearance of mushrooms (or fungus) growing from the inside of the car!

    Talk about being cheap

    Now my choice for my recent purchase was a new Diesel Passat with manual tranny, white paint and leather interior. Every thought went into making it the cheapest possible car that met my needs. Diesel = cheaper to run (Canada diesel is not overly expensive, in summer its slightly cheaper than gas). Diesel cars tend to last 25% longer than gas cars, so spreading the cost over more miles reduces cost per mile. I intend to keep the car 250,000 miles/ 10 years. And manual transmission burns less fuel and is lower maintenance. White paint and leatherette(vinyl) are the most durable options.

    Comfortable and stable driving for my current situation was extremely important and i think i got the perfect car for my needs.

    Everyone is different

  43. I think the total costs (purchase $ + maintenance + repairs + cost of hassles) for the life of a car is pretty much fixed, variable only by how the driver is driving it (drive it rough or drive it gently). So if you buy at the middle end, you pay less upfront but you pay more for maintenance and replacing parts hassles.

    I do agree that you should pay cash for a car. I am a buy-new person. Buying new eliminate the costs of repair hassles right off the bat. I drive it gently, my maintenance and repair cost are low. It is trouble free driving as long as I drive it.

    I just bought a new car.

    I “sold” my previous car (150k miles, I had spent very little on the car because I drove it gently) by selling it on craiglist for $3000. As you might expect there were many tire-kickers. In truth, I was prospecting for the right person to give it to. Finally I found the right couple who wanted to buy it. When they showed up to pay for my car, I signed it away for $1. They didnt even pay me the $1. Merry Xmas.

  44. It’s always nice to not have a car payment, the fewer bills the better. I got out of college and replaced my 98 ford explorer (200k miles and 18 mpg) with a 2004 ford focus (20k miles and 26mpg). I paid $6,500 cash and even though the car was 8 years old it was still an upgrade from my last. The car now has 70k on it and has started to give me problems. Ive put $1,500 this year and every time the check engine light comes on I’m scared it’s going to be something expensive. With interest rates so low and the demand for used cars so high, these days you can get new cars for a few grand more than used and you get warranties and free basic maintenance which is really appealing to me. I’m hoping that my car will last until I am promoted to a position that includes a company vehicle. I think people can be successful paying cash or making payments with 1% interest. Flip a coin.

  45. A calculation of how much car can you afford with current income would be nice. I thought there was a 10% per year recommendation or something like that.

  46. Yes, but it speaks also speaks of privilege. I’ve tried the bus/bike/walking. There are many, many downsides to these. Included are issues for those with disabilities and access, poor public transportation options in smaller cities that make commuting via bus a 2 hour experience one way for a 20 minute car ride. Public transportation also does not always go to the destinations you need, it drops off in very bad areas of town, and, again, in smaller cities/towns does not run very late leaving people with odd hour jobs/schooling/etc. with few alternatives. Walking and biking in rain, extreme heat, and again for people with medical conditions/disabilities can be a significant problem.
    Unfortunately, owning a vehicle of some type is very necessary in many areas and many of us don’t get the privilege of deciding where we work.

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