It has been about four years since I last had a vehicle. I have been very happy using my bicycle, borrowing vehicles from my car-sharing community and using public transportation, and yes, walking from time to time. But new circumstances created a need for a vehicle.

In some of my previous posts, I contended that one way to save money is to buy a used vehicle and to pay cash for it.

Paycheck to Paycheck

I have read many reports which claim that many North Americans live from paycheck to paycheck. Yet, when I walk down the streets, I can not help but notice all the shining vehicles rolling along the streets. I will never understand why, if someone is living from paycheck to paycheck, they would get a brand new vehicle.

Recently, I spoke to a salesperson who insisted on having a luxurious vehicle because she had to give an appearance of wealth to her clients. Really? to me, this is a sign of waste. I believe that the one way a salesperson can differentiate herself is by providing excellent service, not by wasting money on a luxury vehicle.

According to another study that I read some time ago, most North Americans have most of their wealth tied up in their house and their vehicle. A house can appreciate at a rate of 2% per year and a vehicle depreciate in about 5 years. Both of those choices are less than an optimal refuge for your wealth.

Reasons to buy used

• I bought a 2007 Chevrolet Malibu for $6,000. A 2015 Malibu costs about $27,000. I saved $21,000. I was able to use the difference to invest in the stock market where I am still making money.
• Since the vehicle is less expensive, I save money on car insurance (but always shop around for quotes so you know you’re getting the best deal).
• My car will be parked most of the time. If my car is not been used, it doesn’t make a difference whether it is new or used.
• The speed limit in Montreal is 100 km/hour. I could have the most powerful vehicle and still, I would not be able to drive past the speed limit, so why would I waste my money paying for speed and performance?
• Many luxury cars come with MP3 players, GPS systems, and many other gadgets. I carry all those gadgets on my Android phone. I don’t need to pay extra for the latest state of the art technology.
• I saved money on sales taxes.
• I save lots of money on opportunity cost. The price of the vehicle brand new is $27,000 and I paid $6,000. This means that I saved $21,000. $21,000 invested at 8% for one year is $1680. Think about this for a second. If I buy a new Malibu, in the first year I lose about $2,000 in depreciation. By buying a used Malibu and investing the difference, the first year I gain about $1680.
• When I sit in traffic, I am stuck in the middle of a highway and it is equally annoying whether the car is new or used.

Reasons to pay cash.

• If I buy a vehicle on credit, I will have to pay interest.
• If I buy the car on credit, I don’t really own the car until it is completely paid off. If I were to fall into financial difficulties and miss a couple of payments, the car can be taken away from me.
• By paying cash, I have peace of mind. I don’t have to worry about monthly payments, about credit ratings, I just wrote one check and I don’t have to think about it ever again.

As our society continues to evolve, technology continues to improve and cities become overcrowded, we search for other transportation alternatives. Technology has become so advance that vehicles can easily be driven for 200,000 kilometers before they start to break down. Car Sharing communities such as Communauto in Montreal and Zipcars in the United States are making vehicle ownership obsolete. Public transportation and services such as Uber are allowing us to get the best public transportation one can imagine. And the future where we will be able to summon a Google driverless car with our smartphones is just around the corner.

When you go shopping for a vehicle, do you buy used or do you buy new? Do you pay cash or do you finance?