I’m always a little afraid our site title will be taken too literally. We don’t claim to be “extremely frugal” or living at the poverty level. But if there’s one area we veer pretty far from the norm, it would be our vehicle purchases. Perhaps a good way of describing it would be “pretend to be a teenager.” Because who besides a student drives a $1000 car?
While I wouldn’t assert that everyone should follow suit, allow me to divulge the thinking behind the thrifty approach to vehicles that’s served us well into our 30s, carseats and all. Perhaps you’ll find something that will help next time you need a car.
Would foregoing car ownership altogether be the cheapest option? Yes! But this isn’t a good fit for many, including us. Instead we’ve tried to minimize what we’ve deemed a necessary expense.
Who Wants a Hooptie?
We’d been preparing to replace our rusty but trusty 2002 Focus for a while. This meant we had money in our car fund and Neil had his eye out for the type of car he wanted in the under $5000 price range. He was strongly considering flying south for a weekend and bringing back a rust-free vehicle. Before a free weekend materialized, his coworker told him that his neighbor wanted to sell a car for $500 max—a 2004 Scion that needed a clutch.
After contacting the owner, Neil got a ride from his coworker since the location was an hour away. Neil, usually a hard-core haggler, wasn’t trying hard to get the price down. Because it had some problems in addition to the clutch, the owner thanked him for taking it for $200. No, that’s not a typo. That’s $200–less than what most people pay for a bike or a stroller.
Neil got the Scion home without incident. He could replace the clutch himself for around $300, but that could take the better part of a weekend. A mechanic friend quoted him at $500 for the job and we decided it was worth it to outsource. (See–not extremely frugal.) The total for all repairs came to $800. So you could say we bought the car for $200, or spent $1000. Either way, it’s a steal.
Neil listed his other car on Craigslist and within the week it sold for $750. More on that below.
Uncommon Sense for Car Buyers
Having the option to buy a car for $200 is hardly reproducible but it wasn’t totally random either. I picked Neil’s brain and unearthed the secrets of a frugal car-buyer, most of which fly in the face of conventional wisdom.
- Don’t drive your car into the ground. While we believe in driving cars for a long time, but we don’t drive them into the ground–anymore. We jumped Neil’s 1985 Ford F150 twice on the 5-mile trek to the junkyard. Later we were a one-car couple for a month while searching to replace a dead car, the free totaled vehicle he restored and drove for years. This is when we bought Neil’s beloved 1990 Dodge Shadow, a $750 car he sold years four later for $500. My 1992 Brother still drives it. Most grown-ups (including us now) can’t tolerate the inconvenience of a truly dead car, and that urgency tends to spur people into overpaying for vehicles.
- Don’t pay for less miles. Not only do we not see the point in buying a new vehicle, we don’t see why we’d pay much more than $5000 for any vehicle. Beyond $5000, you’re most likely just paying for lower mileage. We actually prefer cars that have lived a good life 100,000 miles, at which point some major repairs have been done and depreciation drops off dramatically.
- People do notice you drive a clunker–and that’s a good thing. Getting connected with the $200 car wasn’t entirely random. A couple years ago, a different coworker had a car he wanted to get rid of. Neil bought it for $1800 and sold it for $3500. All he put into it was the price of the temp tags and about an hour’s work. Neil works at an engineering firm that employs lots of young grads who drive nice cars. He sticks out in his rusty 15-year-old vehicle. Being known as a scavenger/grease monkey is ideal when someone is looking to offload a hooptie.
- Less rust is worth it. If you work on your own cars and live where it snows, it’s worth starting out with a rust-free vehicle. Getting a $50 airline ticket somewhere south and driving back in a solid vehicle is a good idea if no one tries to sell you a car for less than the price of a bicycle.
- God provides. The timing of both cases of Neil’s two most recent vehicle purchases was uncanny. In the first, the $1700 profits covered the exact balance due after fund-raising for my India trip. In the second, we’d been actively planning how/when to replace the Focus. We’ve found time and time again that God provides in unexpected ways as we follow Him.
Car ownership is expensive, to be sure. But it doesn’t have to a $20,000 proposition. It doesn’t even have to be $10,000. You can save a lot by recalibrating your view of what a reliable used vehicle can cost. And how sweet would it be to never have a car payment again?
For further reading check out How I Spent Less Than $8k on Cars in 17 Years of Commuting.
What is your approach to vehicle purchases? Has your frugal reputation ever scored you a great deal on something?
This post was written by Neil, an experienced car guy. He’s got lots of great practical tips; enjoy!
What is it with America’s obsession with cars? Even the most frugal among us get swept up in the hype. I’ve owned lots of cars. If I think real hard, I can remember my first car. My momma said it could take me anywhere. (Anyone?) It was a 1988 Toyota Celica GT, 5 speed Black with black interior, with flipup headlights. Suffice to say it was a chick magnet. I purchased it in the last few months before my 16th birthday for $950.
I recently had a discussion with someone who insisted that getting a new hybrid will be such an efficient use of resources the car will basically be paying me to drive it. He didn’t know who he was talking to. Over the course of my decade and a half driving career I’ve spent $7700 to keep myself mobile. I’ve always commuted, never taken public transportation, or rode a bike for any significant time during those years. That’s forty-three bucks a month for wheels. Not bad, not great either. (Yes, of course I spent on fuel, repairs, and insurance. I also sold them later. This post focuses on buying a car. )
What I don’t get is people pretending to be frugal and dropping big bucks on cars like it’s no big deal. By big bucks, I don’t mean $10,000 for a used “economy” vehicle. My car purchases for the past 17 years come to less than that! What gives? The following are unacceptable excuses for buying an expensive transportation device:
“I just want to be safe.”
All cars made from 1995 are quite safe relatively speaking. If you were really concerned with safety you would stay off the road entirely. There are few riskier things we engage in on a daily basis.
“I just want my car to be reliable.”
Price and age of car care not indicative of its reliability. Consumer reports will tell you the same.
“I don’t have time to work on a car.”
How much do you value you your time? Working extra decades to fund your car choices is a lot more time-consuming than turning the occasional wrench.
“I just want to enjoy my commute.” -and/or-
“My car makes me happy.”
Why is your commute so long that you have to buy a fancy car to enjoy it? Can you see how self-defeating that is? I’ll compound my crappy commute by spending butt loads of money on it too. Listen people, a car ain’t going to make you happy, just like any other material possession.
“Would somebody please think of the children?”
Children do just fine in any four door car or wagon with the LATCH system. (Though these are not even necessary.) No need to get a fancy minivan with built in dvd players, stow and go seating, and the whole nine yards, to accommodate a couple tiny humans.
“I gotta get better gas mileage to save money.”
This is a slippery slope. Be sure to run an ROI calculation on that. I highly doubt getting a different car will actually have a reasonable break even point. Please check out my spreadsheets detailing real-life scenarios I ran for friends: Gas Mileage vs. Vehicle Cost.
“I have to have a nice car for work.”
Most likely not the case. Do you actually cart around clients that demand to be chauffeured in a special vehicle? Or are you just telling yourself that? Could you for the rare case this is true, rent a car for that day or week?
These are all bogus excuses my fellow frugal friends! You can get a good cheap used car and not have to put much money into it. It always amazes me that people justify getting a fancy car by saying they got screwed on a used car they purchased once. How is it that for over 15 years I was able to eek loads of reliable miles out of a handful of very cheap cars? Am I just lucky? Nah. Pick wisely. More on that later.
The truth is Americans are obsessed with cars. I have taken countless negative remarks about my hoopties over the years but really, who cares? If you’re into reading these frugal blogs you’re sure to have implemented some odd frugal tips. It’s funny to me that people get so into maximizing their bulk cinnamon purchases but then completely over-justify their need for a fancy car. If you want to win with money, you must get your car spending in control. Housing and transportation are most people’s biggest expenses. It’s worth it to maximize savings here. Once you get those under control, then move on to your bulk oatmeal calculations.
How to Buy a Used Car
You want a car that has passed 100,000 miles. This is the magic number. People think that once their car passes this milestone it is worthless trash and will sell it for next to nothing. One hundred thousand used to be an achievement for a car. Today, it means nothing. All cars can double this number without major component replacement. It’s not a big deal. Look at the following graph.
Maybe people think that because they claim rights to one of the excuses above, then the depreciation curve doesn’t apply to them. No one escapes the depreciation curve, no one! Notice how the graph flattens out after 100000 miles or about 9 years. This is the time to buy a used car. Refuse depreciation. Ideally you’d be like this guy who doesn’t pay anything to drive, but he’s got some extraordinary skills.
The next most important thing is that the car was reasonably maintained. At 100,000 miles you want to see the car has had its timing belt changed. You want to check the front end for clunks. Check for leaking fluids. Open the hood. Check the oil. Look at the coolant. Maybe I’ll do some follow-up posts of what to look for with each of these. If you’re not knowledgeable about cars, get an third-party mechanic to check it over for you.
Take the car for a test drive. A hard test drive. If it’s an automatic, floor it. Yes, floor it. Make sure it shifts where it’s supposed to and doesn’t grind its gears. If it’s a manual, see if you can check the clutch adjustment. Get it up to highway speeds. Get it all the way to operating temperature. Check for leaks.
Look at Edmunds car reviews for common problems for the particular model you are looking at. Determine in a worst case scenario if that issue were to happen would the car still be a good deal. Consumer Reports used car ratings are okay but not nearly as good as Edmunds. Consumer Reports will have you rule out several years of a make and model because of a transmission issue. However, one could avoid that issue by getting the other type of transmission (manual vs. auto for example).
Buy American. Seriously. Yes, Japanese cars used to be a lot better; that’s not true anymore. American cars can hold their own in the reliability department. You want to buy American because American cars lose value much faster than Japanese. This is a GOOD thing. You want to find a car that’s value drops like a rock. You are buying way out on the depreciation curve that way. You will minimize its affects. Korean cars are also a good value.
Also, American cars have cheaper parts. Go onto a car parts website and compare a few common replacement parts (exhaust, ball joint, radiator) for a Ford and a Honda. No comparison. Both of these cars will go 200,000, probably more. Japanese cars just don’t command the premium price that goes with them anymore.
Use Kelly Blue Book as a starting point for negotiations. You want to buy a car from a private party at the private party price or below. Deals too good to be true in used cars usually are. I have no problem paying private party KBB if the car is well maintained.
Where are you on the car purchase spectrum? How could you work your way down?
Have you ever run a big stack of $100 dollar bills through your shredder? No? Then why would you buy a new car? We’ve shared the basics of how to save on top expenses like food and housing. Transportation is the remaining top 3 topic. If you can use public transport, walk, bike, or carpool, do it! If, like me, you use a car to get multiple children around snowy, spread-out suburbs, here’s how to do it without debt.
The average new car payment for Americans is $470 per month according to Time Magazine. That’s $5,520 a year. For a household with two average loans, that’s more than a quarter million dollars over 25 years. The average used car loan isn’t much cheaper, at $368 per month.
The car companies and lending agencies have sold us on needing new cars, or at least a car payment. It’s considered a fact of life, as normal as taking a mortgage. But car loans aren’t necessary and are one of the worst forms of consumer debt. The vehicle depreciates greatly while you pay excessive amounts of interest. While it would take a really really long time to save enough cash for most houses, it is very reasonable to save up a thousand or few needed to buy a car. Most people don’t want to drive a $1,000 car forever, but if that is all you can afford right now, you certainly can’t afford to pay hundreds a month in a car payment. So open a savings account and call it Car Fund. Put the amount you would have spent on a car payment in there until you have enough to buy a decent used car. Let someone else take the big hit of initial depreciation.
But won’t you spend tons in repairs if you buy older cars? This myth has become a mantra for those who accept car payments as necessary. Obviously you need to take along a savvy friend or trusted mechanic when purchasing a used car. However, the repairs you might run into with a used car will very likely cost less than the amount of interest you will pay with a new car payment.
Let me illustrate. When Neil’s college car died (I’ll share its story in upcoming post “Free and Broken”), we bought a 1990 Dodge Shadow for $750 and drove it for four years. At the end we sold it for $500. So he drove it for about $5/per month during that time. You can afford a lot of repairs at $5 per month! And we had fewer problems with this beater than our 2002 Ford Focus (which is still going strong).
Car repairs should be viewed as an inevitable part of vehicle ownership, though, so wouldn’t it be good to learn a little about car innards? If you are very unhandy, make friends with someone who is and ask Handy to teach you. The handy are typically looking for any excuse to spend a day in the garage. Some jobs are for the pros but being able to fix things is a huge financial advantage. Why not take up a pastime that saves money instead of costing money? (Borrow Handy’s tools until you’re ready to invest in your own.)
What about gas mileage?
Another common myth states buying a more fuel efficient car will save you money in the long run, even if it costs more up front. But the difference in fuel costs simply can’t make up for the huge disparity in price point. And let’s not pretend we’re too concerned about the environment when we’re creating a demand for the production of giant new vehicles.
What about safety?
Speaking of fuel, do we all really have to drive gas-guzzling over-sized SUVs just to feel safe? While Hummer is bound to beat Beatle in a crash, automobile advertising pushes consumers’ panic buttons rather than providing real evidence that we all need a pricey new Land Rover to survive the week.
What about keeping a new car for a long time?
Making a new car last would certainly be preferable to the alternative but few have the discipline to drive a car for 20 years. Not to mention the depreciation and paying interest on something that will have little to no value at the end.
What about buying a new car and paying it off really fast?
Again, this is better than taking 5-6 years to pay it off but if you have the resources and discipline to do this, why not just save up until you can buy it? You’ll avoid the interest and the risk of not paying it off as expected. If you already have a car loan, this is exactly what you should do, unless you simply can’t afford your vehicle and need to sell it.
So kill the car payment and reduce your yearly expenses by $4,000-10,000, on average. Together with switching grocery stores, you could free up as much as $15,000 without even suffering.
Where do you stand on the new vs. used car debate?
Car Shopping? Brace Yourself For This Shocker. White, Martha C. 3 Dec. 2014. http://time.com/3615281/car-shopping-loans-borrowing-risk/