Intro to Adulting: Cars

Dear 2015 me,

So you want a car, that's a good aspiration to have. You're tired of taking the bus everyday for over an hour in each direction. That's two hours of your life each weekday in addition to any walking and idling while the bus makes its way to your stop. I get it, those are really useful hours you could recapture for more useful things. Not to mention the mental preparation for winter and waddling through the snow and sub-zero temperatures just to catch a bus that may or may not even show up.

I write you knowing what I know now two years into owning a car you agreed for present and future me to continue paying for. So based on the experience so far, let's revisit the thought process. I think you made the best decision available to you, considering your options and knowledge at the time. You probably could have taken more time to think it through but when has good logic stopped you from doing what you wanted to before?

On that note, let's begin: 

Quite frankly, I still think buying new was the best decision you ever made for a few reasons. We both agree buying new made zero, ZERO, financial sense. It would have been better to have taken cash and tossed it in the air so we don't disagree there. However, at the time, you had no long term financial goals other than donating money to the bank so based on the time, I still think buying new was an okay move. 

You had a lot of happiness for being the first owner of the car. You knew no matter how hard you tried, the car would never be this perfect, this clean, smell this good ever again. The first car service was equally as exciting as the first moment you took the car on the highway. Each unique moment was a first. First road trip. First car wash. First 1,000km, then the first 10,000km, 20,000km. Emotionally, I had never seen you as invested in any other possession. Sometimes, I envy you and the happiness driving brought you. Now that we've had this one time in life, we can now move past it and not do it again till there is so much margin to lose money like that.

Surprisingly, making a tragic financial decision like buying new did not cause a problem because of good spending habits elsewhere. Living on a low percentage of your income and learning to budget and live on that percentage very early quite frankly is the only reason, buying new did not end up a financial nightmare today. So I must credit you for that at least. However, for financial reasons we are never buying new again.


Did you know a car loses 60%-70% of it's value in its first 4 years?

Now that we are more aware of the future, perhaps a few words of caution. Next time, assuming that you will ALWAYS be willing to spend the same amount of your income on a car is NAIVE at best. That you can afford the payment does not mean you will like paying it EVERY month for the next X months. Also, do not buy a car where the payments are more than 60 months to complete. The payment schedule will long outlast the car. It makes financial sense to keep a car about 8-10 years BUT you are more likely to replace cars every 5. Don't kid yourself.

That the salesperson, finance officer, or whomever is selling you the car looks honest and is genuine does not mean they have your best interests. They are out for a paycheck, it is your job to keep them in their lane. They will say one thing and the contract you sign can mean another. It's not always their fault, sometimes "general policy" is verbal, but it is the contract that is binding. When they switch jobs or management changes, only the paper remains.

Read. the. fine. print. always.

Again, good job on the budget side of things, however, I would suggest you leave more room for "growth/change." Do not assume we won't like doing other things with our money later on. Now that we are tied to the contract you signed, 2017 me will have to keep paying it. 2016 us paid it, maybe 2018 us might get mad and sell the car already to stop making payments or pay it off one time. Instead, I have to keep paying for a decision you made 2 years ago. No hard feelings though, you forced the future versions of you to learn a lot.

Winter tires are expensive! I'm pretty sure we could have taken an uber every morning in winter and it would cost the same. lol. That's a lie. Seriously though, winter tires are necessary(especially here) but expensive to buy and then you need to have a place to store them when the winter goes away. 

Servicing your car is not cheap. It looks small and negligible each time but it is a real cost. Plan for it in your budget. It is necessary and it needs to happen often! You cannot escape it whether new, whether old.

Insurance is not cheap. You cannot drive without insurance. It is the most useless cost you will pay because it is money out the window and will never come back. Sure, it protects you from whatever BUT if "whatever" happens, it will increase. There is no other service that will cost you more when you use it.

Other people don't know how to drive. I am serious. If you drive like other people know how to drive, you are in for a lot of trouble. Remain alert at all times. Don't get carried away with your phone, leave it till you stop driving. If you can't see the road properly, slow down. If you're in traffic, keep your eyes two cars ahead. Anticipate collisions as a rule of thumb and always have an escape route. Do not get boxed in on the highway too.

Also, when you were thinking of maybe getting a car for "work", buying new would have been a totally terrible idea. If you were required to drive for work, that means, you'd be putting dozens of miles on the car, depreciating an already depreciating asset that much faster. If I ever buy a car for work, it would have to be used or leased. 

Speaking of leasing, if you like new cars and want to switch every other year. LEASE it. However, you will never own a car this way. It is the most expensive way to "own" a car. Kind of like the rent vs own thing for homes but this time your home is falling apart with each passing day. 

One more thing, paying cash vs paying instalments on a car. I would argue they come out to about the same if done right. If you paid cash for a car, you would lose a huge chunk of cash instantly which would have some lost opportunity cost for other endeavours. However, when you pay cash, you would never have to look back at payments again as long as you own the car. This is great for peace of mind if you have dozens of bills.

When you choose instalments, you have to be investing or at least saving the difference in cash that you did not spend instantly on the car.  This would be the only way this makes sense to do. The problem with this method though, you can do this without any cash to your name in hopes of building some cash reserves. My advice, save as much cash as needed to buy the car first and then buy a car.

Finally, we are now doing this thing where cars should not represent a significant portion of our net worth. If the car is worth too much of our net worth, it is probably not worth having the headache. If the car payment is anywhere near 25% of our take home pay, we're not doing it. If we are afraid the car will get towed and cause a nervous breakdown, the car isn't worth having. No car is worth sleepless nights. No matter how great it is.

In simple math terms,

why spend $10,000 on a car when all we have is $11,000?

Why spend $500/month on a car when making $2000/month?

The ratios are simply out of wack. But I mean, it's a nice car, do you. We'll survive tbh.


2017 you.