Saturday, June 6, 2009

Who Wants to Be a Millionaire? Change Your Car Buying Habits.

Many who lament not being able to save any money could save millions by changing the way they buy cars. Often, a small change of habits can make huge differences, like the difference between retiring financially free or having to greet people into Wal-Mart in your later years.

In 2007 Consumer Report studied the difference between buying a new Honda Civic EX and maintaining it for 15 years, versus buying a new one every 5 years. If you kept it 15 years, you'd save about $1400 per year. (They were pretty thorough in this study, figuring in the costs of repairs, etc.) Do that for a lifetime and invest that $1400 at the market average of 10% per year and in 60 years of driving you've got $4.5 million!

Think about this. It's astounding. Just by keeping a car longer, you could save a fortune. Even if you just kept the car for 10 years instead of 5, the savings would be astounding.

One of my cars, a Mazda Millenia, has 230,000 miles on it and is running great. I can't find a good reason to trade it in.

If you want to save even more, do what I do. (Don't turn me off here...I know it's radical.) Think of a car as reliable transportation, period. Forget the image thing. Get over the peer pressure to have a car that reflects a high status - many never get over it, and it costs them millions.

Find a good, trustworthy mechanic who sells used cars that have already depreciated greatly. I bought a car last month with under 80,000 miles for $1400, including four new tires. I buy cars outright, never making payments. It runs great and I hope to get 200,000 miles out of it. But the reason it sold so cheap was that it has a big dent in a part of the car that's difficult and costly to repair. But it doesn't affect the performance of the car in the least. I have no plans to repair it.

I don't feel embarrassed to drive a car like this. I actually feel rather smug for beating the system. I recall recently speaking to a lawyer who'd been downsized out of his practice and had to launch out on his own. Money was suddently tight and he was stuck making huge payments on his exorbitant car. "I thought I was pretty smart when I bought it," he told me. "But now I feel pretty dumb."

One of the reasons that self-made billionaires Warren Buffett and Sam Walton did so well was that they were totally unconcerned about the appearance of wealth. They drove normal cars (Walton drove an old truck), especially in their early days. Their frugal, early decisions paid off over time in both their personal and business finances.

Many people could be having a lot more fun and saving a lot more money if they simply didn't have a car payment. Work toward paying off that car, save up for the next one, and get on the road to financial freedom.