| Is owning a car overly stressing your budget? That | | | | independent of use at an exponential, meaning that |
| may be because the real expense of owning a car is | | | | they lose a percentage of their value each year. Until |
| much more than your purchase price, or monthly car | | | | there is no value left. For example, if you buy a |
| payment. That makes up only about half of the | | | | $20,000 car that depreciates 20% each year, after |
| average monthly car expense. The true cost of your | | | | your first year the car is worth, $16,000, after the |
| car includes: First, your loan payment. A 5 year loan on | | | | second year it is worth $12,800, then $10,240 its third |
| a $20,000 car is approximately 400/month, dependent | | | | year, and after 5 years, worth $6553. These numbers |
| on your interest rate. Second, insurance (collision | | | | are just an illustration. The true depreciation of a car is |
| because of the loan) is typically between $75 to 200 | | | | quite a bit higher (about 28% each year). Typically |
| per month (depending on where you live). Third, | | | | after the third year, the price of a car starts to |
| Gasoline at $3.00 per gallon and an average annual | | | | stabilize. If you want your car as new as possible and |
| use of 15,000 miles per year, costs about $150 per | | | | still have good value, buy it after 3 years. If you want |
| month. Summer 2007 it would be more like $200 per | | | | as little depreciation as possible, wait until car is at least |
| month as gas is scheduled to be closer to $4.00 per | | | | 6 years old. At this point, the car is old enough that |
| gallon. Finally simple repairs (assuming $300 per year, | | | | much of the extrinsic value of the car has decayed |
| which is conservative, even for a car under warranty), | | | | away, but is still typically free from major physical |
| routine maintenance, and annual registration, all add up | | | | wear. |
| to another $60 per month. In all, neglecting the extra | | | | You can gauge how much intrinsic value a car has by |
| things you do to or for your car, the AVERAGE car | | | | how much differences in mileage influence price. For |
| costs between $685 and $860 a month. I won't even | | | | example, if you had two cars of the same make, |
| start on owning a truck! In five years, you will have | | | | model, and year; If the first had 120,000 miles and sold |
| spent between $41,000 and $52,000 dollars for your | | | | for $10,000 while the other had 60,000 miles sold for |
| car which is now worth closer to $4000 dollars. Do | | | | $13,000; then, based on the selling prices, the intrinsic |
| you feel you are getting the most for your money? | | | | value of 60,000 miles is $3000. If the market perceives |
| Typically you do not have a choice in whether or not | | | | the average life of this car as 180,000 miles, then the |
| to drive, but you do have a choice in what you drive | | | | first car's intrinsic value is $3000, the second car's |
| and how you drive. | | | | intrinsic value is $6000, and a brand new car had an |
| So when shopping for your next car, consider the true | | | | intrinsic value of about $9000 and an extrinsic value of |
| cost of your car and what factors influence that cost. | | | | $21,000 if bought new for $30,000. |
| Owning the car you want is a luxury. A luxury most | | | | Once you have a good gauge of intrinsic value, the |
| cannot afford, instead, decide what it is you need. Will | | | | next step is to determine what mileage range to buy. |
| you need four wheel drive? How many are there in | | | | This depends on how long you intend to intend to keep |
| your family? Also consider how long you want to keep | | | | the car for and your budget for maintenance. A car |
| the car as the number of passengers may change | | | | with higher miles may fit just as well within your time |
| before you are ready for another car. Finally determine | | | | frame and cost less. For example, if a car model is not |
| before shopping what you are willing to spend on a | | | | expected to last beyond 200,000 miles, and you want |
| monthly basis for this car. Let this number determine | | | | to own this car for over 5 years, then you should |
| the kind of car you buy and the price you are willing to | | | | probably not buy a car with more than 125,000 miles. If |
| pay, and if at all possible, buy used. There is nothing | | | | you only intend to have the car for 2 years, you can |
| wrong with buying a new car, but if you are trying to | | | | get by with a higher mileage car and pay significantly |
| reduce expenses, buy used. The intrinsic value of a | | | | less initially. The same rule also applies to warrantees. If |
| car is predominantly age independent. As long as it can | | | | the car's warranty expires at 100,000 miles and you |
| get you from one place to another it has value and the | | | | want to keep it at least 3 years, then you will probably |
| extent of that value depends on how long that car will | | | | want to buy a car with at most 65,000 miles. |
| continue to serve that purpose minus the maintenance | | | | This is a simplistic description of auto pricing as many |
| expense to keep it serving. Any price above intrinsic | | | | other factors also influence price. In general, when |
| value can be attributed to marketing and personal | | | | looking for the right car, remember these three things: |
| preference; values considered extrinsic. | | | | first, know exactly what you need; second, know how |
| A new car comes with intrinsic value which will decay | | | | long you plan to keep it, and third, use not age |
| proportionately with use and abuse, though the vast | | | | determines value. |
| majority a new car's price is extrinsic and will decay | | | | |