My Honda

I drive a 2004 Honda Civic that has 104,000 miles on it and I plan to drive it for another 150,000.  I wouldn’t classify it as a beater but by the time I’m done with it, it will be!   My Honda has a few qualities that I really like in a car, it’s a standard, it gets good gas mileage and it’s completely paid for.

One reason I continue to drive my Honda, as opposed to buying a new car, is because I have absolutely no desire to keep up with the Jones’!  Why should I care what my neighbor thinks about my car?  I don’t have a car payment!  When I see people driving in around in fancy cars my first thought isn’t, “Wow, that’s a beautiful car!”  My first thought is, “Huh, I wonder if they can afford that car?”  If they can, good for them!  I’m not against anyone owning a nice car at all.  I just think you should have a car that you can afford; that you can pay for in cash.  It reminds of the commercial where a guy lists off all of the awesome things he has and then says, “I’m in debt up to my eyeballs.  Can somebody help me?”  This guy was obviously too worried about impressing his neighbors instead of building wealth for his retirement or funding his kids college.  

What could you do with that car payment?  If you were to invest the average American’s car payment, $378/month according to Final Call News, over the next 20 years at an average rate of return of 10%, you would have $289,433.33!!!  Not too shabby!!

Do you have too much car?  Dave Ramsey’s rule of thumb is “all of your vehicles—cars, trucks, boats and their Sea-Doo sisters, motorcycles, and anything else like this—should not total more than half your annual income.” If you can’t pay off your car in 18-24 months and if that cars value is more than half of your yearly salary, you should consider selling it for a less expensive, reliable car.  That may be $1000 beater at this point in your snowball but at least you won’t have a car payment and you can apply that payment to the rest of your debt.

If you do sell your car, please go to kbb.com and find out the value of your car, regardless of how old it is.  I have a friend who asked me how much I thought his older car was worth. I suggested looking it up on kbb.com. That person assumed they knew what the car was worth but didn't and $1000 dollar mistake was avoided.  Know the value of your car before you trade it in!

So now you’ve either finished paying off your car loan or you sold a car and purchased a less expensive one.  Once you’ve paid off your debt and have built your emergency fund, it’s time to start saving for your next car; a used car.  Why do I suggest a used car?  A new car loses value very quickly over the first year of ownership and continues to lose value, albeit more slowly, over the next several years.   You can purchase a slightly used, and reliable, car for significantly less than if you went and purchased that same car’s current year model.  If you start saving now, by the time you're ready to purchase another car, you'll be able to move up in car and pay cash.

A friend of mine was in a car accident (he and his son are fine) and his car was totaled.   He told me how upset he was because he didn’t want another car payment (the car that was totaled was completely paid for).  I asked him how much his car was worth and he estimated about $6,000.  I told him to go buy a $6,000 car!!  He was very adamant that he was not going to drive around in a $6,000 car!  With 2 kids, he wasn’t about to put them in danger by putting them in a cheap car.  I explained to him that I drive my two kids around in a Honda Civic, I don’t fear for their safety and I was pretty sure he could buy a 2004 Honda Civic for less than $6,000.  After a few conversations, when all was said and done, he ended up getting $8,500 for his totaled car and paying cash for a used SUV.  I was very happy for him and he ended up thanking me for talking him out of buying a new car.  

Please consider your car situation.  Please don't think of a car as an investment; Cars are not investments!  You don’t want your investments going down in value, do you?!  Cars are depreciating assets.  Treat them as such.

I’d like to finish off with a few quotes from the Money Quotes page that I feel are very appropriate here:

“Act your wage!” - Dave 

“Car sickness is the feeling you get when the monthly payment is due.”  -Author Unknown

“We buy things we don't need with money we don't have to impress people we don't like." - Dave Ramsey