The Worst Financial Mistakes I Ever Made – Part III

Buying or leasing New Cars

Written by Jimmie Burroughs

“Buying a new car is the single worst financial decision. Nothing you will do in your lifetime, realistically, will waste more money. It’s the single worst financial decision millennials will ever make.” – David Bach, Self-made millionaire

Over my lifetime, beginning at age 21 up until 20 years ago, I made the mistake of buying or leasing new cars. If I had Invested $400 per Month beginning at age 25 for 33 years instead of making car payments. I could have been a millionaire by age 58. That is with good investments and compounded interest.

What if I had invested the $2,500 cash, the amount that I paid difference between the car I had and my first new car? By the way, the car I traded in was still a good car. My investment today would be worth as much as $225,000, considering good returns and compounded monthly.

One of the reasons a new car is a bad investment is, as soon as you drive away from the dealership, you lose 20-30 percent, and in 5 years it can lose up to 60% of its value. On top of that, most people finance new cars, that means $100s more is lost on finance. Buying an asset that goes down in balance like a lead balloon, and borrowing money to finance it is, the worst kind of investment.

Car dealers and car salesmen are in the business to sell cars and make money, so they use sales tactics to get you to buy. They want you to think about the monthly payment and they get it low enough for you to afford. You should be considering the total cost of owing the car. At $500 a month, the average new car monthly payment, you are investing $6,000 a year plus operating expenses and insurance. Think what a retirement investment that would be. If you start early and invest wisely, it would make you a millionaire by retirement. Is it worth it just to drive a new car? Some may think so.

Financial advisor, Suze Orman, says she keeps her cars for 12 years or more. She wrote in her blog, “Choose a model that you can afford over one that looks impressive.” She said, “One of the best ways to build financial security is to spend the least amount possible on a car that meets your needs. Forget about the bells and whistles you want. Paying less helps you pay off the car faster.” I have discovered that owning a new car adds nothing to my state of Happiness, but instead it drains me of cash I could be investing for the future.

Personally. I have been driving my Jeep Wrangler for 14 years and it has only been in the shop once up until this year for a repair costing $280. I bought it when it was 6 years old. That means I’m driving a 20-year-old car. It has been very dependable and I still enjoy driving it. Oh, it doesn’t make a very good impression, but who cares.

However, buying a used car can wind up causing you a lot of misery if you don’t know what to look for. Examining the car from top to bottom is the first thing to do, but that does not reveal some of the more urgent information or hidden flaws. You might have a reliable mechanic check it out. This will cost you a fee, but it is worth it if you are not confident in your ability to spot problems.

It took me several months to locate my last used car, but I had some specific requests: I wanted a one owner, nonsmoker, low mileage car. I found what I wanted and it was in new car condition. I have driven it nearly 4 years trouble free, and I take good care of it, and it still looks new. I bought it from a reliable dealer who gave me a 6 months warranty.

The best way to check a used car out is by running the VIN (vehicle identification number) through Carfax. This is a free service which will tell you if a car has been in a flood. Go to their website and enter the car’s VIN number. You can locate the number at the bottom of the outside windshield on the driver’s side. If it checks positive for having been in a flood, it is time to move on to another car. You sure don’t need that car which can cost you a lot in the future.  

CarFax also has a paid report. They are one of the most well-known sources for finding a car’s history. Using the VIN number, they will check a car’s history along with including the important things listed below:

• Mileage Rollback
• Major Accidents
• Structural Damage
• Multiple Owners
• Service History
• Theft
• Salvage title
• Rental or lease car

CarFax can also tell you if the car is a “total loss.” When cars have been in accidents that deem the cost of repair more than the car’s value, insurance companies declare them a total lost. They can tell you if the vehicle has had been rebuilt, and even if the airbag has been deployed. The insurance companies sell these cars, declared a total lost, and some are used for parts while others are rebuilt and sold with a salvaged title. In some cases, these cars may be good dependable cars but should be sold for much less. I bought one of these cars once knowing it had been rebuilt. It was a good dependable car, and I saved thousands on it. I met with and talked with the person who rebuilt it. He did an excellent Job.

When I bought my last used car from a dealer, they provided me with two reports, one of which was CarFax. This is a service not required by car dealers, but if they are reputable and you are serious about buying a car, most will oblige you with a report on the car’s history. You may have to ask for it. Some things the dealer can help you with are the following:

• The number of previous owners
• Failed emissions tests;
• The car’s original location; wet/snowy northern areas can mean rust.
• Infrequent maintenance

Any or all the above is a red flag indicating you might need to move on. Take care to avoid buying a damaged, used car, by using all the services available to help you locate the right vehicle for you at the right price.  One last thing: It pays to save up money to pay cash for a used car if you are able to do so.