When I was a teenager, I dreamed of having a fancy car. I devoted all my energy and effort to owning a sports car, and I finally succeeded. That car was my biggest pride, but it was also the main reason why I was broke. I was constantly improving it, making it flashier and faster, but I was also accumulating parking and speeding tickets. In fact, I got arrested once for not paying all the tickets I owed. I remember, I was 17 years old and I was speeding, as I often did, and when the policeman was about to give me a ticket, he noticed I had other unpaid speeding tickets and that I had an arrest warrant. He arrested me and I had to stay in jail until my mother bailed me out.
Eventually, I grew out of that stage of my life. I came to Canada and started a business as a dance teacher. At that moment, I realized that a car was a tool and that the one thing I needed from my car was to take me from place A to place B. So, I bought the cheapest car I could find and I bought it cash It was about $5,000. The size of the engine was the smallest possible, 1.6 litters, four cylinder, so it didn’t consume too much gas. I live in Montreal, a city that it’s mostly flat, so I didn’t need a lot of power to take me up hills. Also, because of its small engine, it didn’t go too fast either, which was perfect because I never got a parking ticket. Finally, because the monetary value of the car was so low, the insurance was not as expensive. Luckily, I never had an accident.
Many people fear buying a second-hand car because they think it might break down in the middle of a highway. Well, that never happened to me in all the years I owned a vehicle. Nowadays, a vehicle can work perfectly fine for over ten years before showing signs of fatigue. I found that I was getting the best value for my money when purchasing vehicles that were over five years old. The price had dropped considerably due to depreciation, and they still had plenty of life left.
Now, at this point in my life, I am much better off financially. I can buy a luxury car, cash, if I wanted to, but I decided not to ever own a vehicle again. This is the Uber era when I can have a driver pick me up at the front of my house and drop me off in downtown Montreal for less money than it would cost me to pay for parking.
This is how I handle my transportation needs, I walk if a place is within 30 minutes walking distance and the added benefit is that this is part of my daily exercise, I bike if the place is within 30 minutes by bike, I take the metro if the place is easily accessible by metro, or I use a car-sharing service if the place is not accessible by metro, and the car sharing service only cost me $10 Canadian per hour.
When you own a car, so much money is wasted on time, insurance, maintenance, fuel, interest, and depreciation. It’s also a waste of peace of mind. Here in Quebec, you have to change tires from winter to summer and back again, parking space is limited, and you have to deal with all kinds of maintenance issues (even if it’s a brand-new car). Imagine the wasted energy getting an appointment to see the mechanic, going to the mechanic, waiting for hours until they do their work, and then paying them for their labor.
Car dealers and manufacturers have been extremely successful in making us believe that we have to buy a new car every four years, and protectionist unions and politicians impose huge tariffs on less expensive vehicles coming from China, so people have to practically mortgage their lives to get a new, overpriced vehicle.
The Real Cost of Buying a New Car
Most people who are buying a new vehicle don’t have the means to buy it. The car loans, now up to 8 years, drain their lives. They buy a new car for various reasons, many of which are financially unwise:
Dumb Reasons to Buy a New Car
- Impressing Others: Buying a car just to show off or impress friends, family, or neighbors can be a poor financial decision if the purchase is beyond your means.
- Keeping Up with Trends: Getting a new car just because it’s the latest model or has a trendy feature such as being a hybrid, all electric, self-driving, etc.
- Peer Pressure: Feeling compelled to buy a new car because your peers or colleagues have new cars.
- Minor Cosmetic Issues: Trading in a perfectly working car for a new one due to minor scratches, dents, or other cosmetic imperfections might not be the best use of money.
- Sales Promotions: Buying a new car just because there’s a good promotion or sale.
- New Gadgets: Upgrading to a new car solely for the latest tech gadgets or features, which might not be essential for your driving needs, can be seen as an unnecessary expense.
- Perceived Status: Believing that a new car will elevate your social status or make you appear more successful can be a misguided reason for making such a large purchase.
- Advertising Influence: Succumbing to the persuasive tactics of car advertisements and buying a new car without a genuine need or consideration for your financial situation.
How People Hurt Themselves Financially When Buying a New Car
- Taking on Too Much Debt: many cars cost over $40,000
- Car Loans are at a higher interest rates: Generally, car loan have a higher interest rates than a regular mortgage.
- Long Loan Terms: To make payments more affordable, lenders are giving long term loans of up to 8 years. Which means that you will be paying interest for a long time.
- Draining Savings: Using a significant portion of your savings for a down payment or to purchase the car outright can leave you without a financial cushion for emergencies.
- Ignoring Total Cost of Ownership: Failing to consider ongoing costs such as insurance, maintenance, repairs, and fuel can lead to financial strain as these expenses add up over time.
- Skipping Research: Not researching or comparing prices, interest rates, and terms can result in paying more than necessary for the car or the loan.
- Negative Equity: Rolling over debt from an existing car loan into a new loan can create a cycle of debt where you owe more than the car is worth, making it difficult to sell or trade in the vehicle.
- Overestimating Affordability: Underestimating the impact of a new car on your budget can lead to financial problems, especially if your income or expenses change unexpectedly.
- Ignoring Opportunity Cost: Using funds to buy a new car instead of investing or saving for other financial goals (like retirement or a home) can limit long-term financial growth.
- Impulse Buying: Making a hasty decision to buy a new car without thoroughly considering your financial situation and needs can lead to regret and financial hardship.
- Higher Insurance Premiums: Newer, more expensive cars often come with higher insurance premiums, which can add a significant ongoing expense to your budget.
- Depreciation: New cars depreciate quickly, and buying one can mean losing a substantial amount of money in value as soon as you drive it off the lot. This loss is not recouped if you sell the car early.
I know it’s just a coincidence, but I got out of poverty almost at the same time I stopped caring about which car I owned and later on, my financial situation got even better when I stopped owning a car.
Many people use car ownership as a symbol status, but I think there is no shame in owning a cheap car or not owning a car at all. Conversely, I think it’s a shame to own an expensive car when you are struggling financially.
Please let me know in the comments if you own or don’t own a car, and if you own a car, whether it’s a new car or an old car.