Recs

13

Run Your Car Into the Ground

Good money management has two sides to it. On one hand, successful investing makes you the money you need to live the lifestyle you want. But how you handle the other side of the money equation -- your spending -- is at least as important to your overall financial security.

Take the vehicle you drive. Everyone knows that the minute you drive a car off the dealer's lot, it immediately loses a big part of its value. And no matter how strongly you may believe that your 1980 harvest gold Ford Fiesta should be a collector's item, most cars will never make it into the limited realm of collectors' vehicles that actually go up in value over time. Face it -- eventually, your car will go to the junk heap.

But that doesn't mean you need to accelerate the process. With cars, as with many things, it's not a matter of turning lemons into lemonade. Keeping unavoidable costs such as repairs and maintenance low is one winning strategy. But even though there's only so much you can do to stay out of the repair shop, you can cut costs by replacing your car less often.

The three-year itch
Of course, not everyone feels that way. Plenty of people still want to drive a brand new car every few years. Especially in the luxury-car segment, vehicle makers such as Daimler's (NYSE: DAI  ) Mercedes-Benz and Ford's (NYSE: F  ) Jaguar division have tried to entice people into newer cars through lease programs and financing incentives.

For many, however, the frequent desire for a new car is just a habit they've developed over a lifetime. In the past, the short lifespans of vehicles made frequent replacement more a necessity than a luxury. There's a reason old cars have only five digits on the odometer -- getting 100,000 miles on a car was cause for celebration. Now, even a million miles is within reach for some.

In general, though, used-car prices still reflect the greater demand for new vehicles. According to Kelley Blue Book, the average car loses 65% of its value in the first five years. Even cars that win awards for best resale value, including the Honda (NYSE: HMC  ) Civic and the Toyota (NYSE: TM  ) Corolla, are lucky to retain about half of their value.

Keeping it forever
But consider the second half of a car's life. Even if a car loses half of its value in three to five years, it might keep running for another 10 or 15 years after that. That's as much as five times the value for the same price.

Now, granted, older cars tend to need more frequent and costly repair work. In deciding when it's time to bite the bullet and replace a car, the final straw is often an expensive repair that costs more than the vehicle's current value. So if you own your car with the intent of running it into the ground, you need to be prepared for the day when you finally succeed.

Yet over your lifetime, think about what a big difference it can make to hold on to your cars longer. If you buy a new car every three years, that means you'll buy 15 cars from your college years to retirement. At $30,000 per vehicle, even if you get half of your value back in trade, you'll still fork over $225,000 throughout your lifetime to your favorite dealer.

In contrast, if you buy new and run your cars into the ground, you might have to buy only three or four. That'll save you at least $100,000, which should more than make up for the extra repairs you'll need to keep those older cars running.

Cutting your losses
Car buying is just one example of an expense most people can't really avoid. But you can minimize even unavoidable expenses. By being open to money-saving ideas, you can create big savings that will give you more money to spend on the things you really want or need.

For more on keeping your commuting costs low, take a look at:


Read/Post Comments (1) | Recommend This Article (13)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On January 21, 2009, at 4:06 PM, gene2u wrote:

    Good advice. The only issue I see with running a car into the ground is that I eventually gets sick of the same vehicle after 8 or 10 years, and like you mention, the upkeep gets expensive and aggravating. It is tough to have a vehicle in the shop without a backup car. Also, an older car will not run as well. It'll squeak, some parts start to malfunction, rust, etc.

    On the whole though, I find owning a car a long time to be satisfying. I don't like purchasing vehicles, so I can avoid the unpleasantness by running them into the ground.

Add your comment.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 587848, ~/Articles/ArticleHandler.aspx, 9/15/2014 8:55:48 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Dan Caplinger
TMFGalagan

Dan Caplinger has been a contract writer for the Motley Fool since 2006. As the Fool's Director of Investment Planning, Dan oversees much of the personal-finance and investment-planning content published daily on Fool.com. With a background as an estate-planning attorney and independent financial consultant, Dan's articles are based on more than 20 years of experience from all angles of the financial world.

Today's Market

updated Moments ago Sponsored by:
DOW 17,031.14 43.63 0.26%
S&P 500 1,984.13 -1.41 -0.07%
NASD 4,518.90 -48.70 -1.07%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

9/15/2014 4:00 PM
F $16.47 Down -0.12 -0.72%
Ford CAPS Rating: ****
HMC $34.50 Down +0.00 +0.00%
Honda Motor Co., L… CAPS Rating: ****
TM $117.16 Up +0.05 +0.04%
Toyota Motor Corp… CAPS Rating: ***

Advertisement