Abacus: How to Shop for a Car

Westend61

When people think of the most significant financial decisions they can make in their lives, many may focus their thoughts on activities like buying a house, embarking in a post-secondary education, or even paying for things like a wedding or having a child.

One decision that many people make at least once in their lifetime's concerns which type of car they will buy. For many people, driving is necessary, and owning a car can serve as an invaluable convenience in many cities and locations.

Yet, the decisions that precede purchasing a car often go under looked. In fact, a few bad decisions with regards to picking a car can cost someone an abundance of their personal wealth. While pursuits like attending college and starting a family are rightfully seen as heavy financial burdens, so too should be choosing a car to drive.

It is usually more economical for many middle-class citizens to purchase a used car than it is a new car. The edge to used vehicles is mainly because a new car can depreciate rapidly in value after being driven off a parking lot. According to Carfax, a new car can decline by more than 20% in value in a year and lose approximately 10% of its value each year over the subsequent four years.

One reason why the price of new cars can decrease so quickly is due to human psychology. People perceive automobiles that are new as far more valuable than vehicles that have been driven by a user, even if a so-called "used car" has only been operated by an owner for a few days and has no maintenance issues.

The evolutionary psychologist Geoffrey Miller has often compared the driving habits of men and women to the emotions they hope to express to the opposite sex. Miller has written that cars can serve as a tremendous way to display impressions to others, with it being far easier to create an impressive perception in a new shiny car rather than in a beaten down vehicle.

So, for someone looking to purchase a used car, a key factor pertains to a candidate car's quality. In particular, one should make sure to examine the number of miles a car has on it, the wear and tear of the vehicle, any existing maintenance issues, as well as a history of maintenance problems.

Given that cars that have already driven for long distances are more prone to break down than newer vehicles, one point of distinction among used cars is how used they are. Specifically, it is essential to differentiate between cars used for over a decade and those on the road for only a few years.

Indeed, many people understand this contrast when shopping for cars, and for many car types, it is ideal to purchase a vehicle no more than a few years old. A vehicle of such age has usually declined sharply in price since its initial purchase. Still, it is generally in stable enough condition that it can last for several more years.

A critical component of car shopping is the specific brand of the car. For people who value longevity and reliability, Japanese automobiles may be a focal point of interest.

In a 2017 “What Car?” survey that studied more than 14,000 cars, each of which was no more than three years old, six of the top ten most reliable brands were Japanese makes. In terms of categories, including city cars, small cars, family cars, and the like, Japanese brands also dominated: the Toyota Aygo, Honda Jazz, and Lexus CT200h all rated 100% in reliability.

German brands may be of greater intrigue for people who hold an admiration for technology, innovation, and status. Many people still have high esteem for German vehicles, with Germany accounting for more exported vehicles in 2016 and 2017 than any other nation, and nearly as many as the rest of Europe.

However, there are aspects of German vehicles that one could deem to be inferior to the likes of Japanese brands and other cars. According to a 2015 survey, German manufacturing companies accounted for four of the bottom six ranks in a reliability poll was based on the experiences of United Kingdom vehicle owners.

How often a car needs fixing, and the costs of such expenses play as key "reliability" indicators for the survey. So, for a middle-class person who lacks enormous funds, a Japanese brand with only a few years of prior use could be an ideal choice compared to more expensive vehicles that tend to break down more often.

However, for those who may want to flaunt their wealth and, more importantly, have the means to do so, a conversation on cars can become even more enjoyable. Before someone spends an excess of $40,000 on a depreciating asset, they should ask themselves why they want to buy a luxury car. Luxuries are nice to have, but it is critical that one is in excellent financial footing before purchasing an expensive vehicle.

Unofficial financial advice would limit someone to spend no more than 10% of their gross annual income on the purchase price. According to this rule, it could necessitate earning a yearly income of nearly half a million dollars for those who seek even a new middle-tier model.

But people have different tastes and preferences, and for some, the utility is gained from driving, especially when the car they drive is unique to them.

For those still undecided about spending a high amount of money on a car, some details require consideration.

One of the highest costs of luxury cars is the price of insurance. With individual cars costing more than a few thousand dollars annually in insurance alone, it is essential to maintain an outlook for the financial future. Specifically, assuring that one will keep a steady stream of high income while saving and investing enough for the future is vital for affording high insurance premiums and other variable costs.

Certain models for Mercedes, Audi, BMW, Porsche, and Tesla, among a number of other companies, all exceed $3,500 in annual insurance costs alone, according to Insure.com.

An additional costly expense for certain cars is maintenance. The inevitable need to change oil and alter alignments can serve as significant expenses, which should not be taken lightly.

The mobile car repair provider YourMechanic.com analyzed which car brands necessitate the most maintenance over a given ten-year period. The website found that BMW, Mercedes-Benz, Cadillac, Volvo, Audi, and Saturn are typically the most expensive, with each requiring at least $12,400 in maintenance costs over the course of a decade.

For many ordinary individuals, buying a new car should not be a top priority. Any moderately used car that is well-inspected by a mechanic should typically suffice. But one of the beautiful things about personal finance is that, to a certain extent, people are free to express themselves beyond maintaining the ability to save money to an extreme level.

Those who gain enjoyment from spending high amounts of their income on cars are undoubtedly free to engage in the hobbies they appreciate, even if they may go against strict personal finance gurus' advice. But it is crucial to maintain essentials before spending too much on something that declines in value: poor decisions made early in life can come back to haunt someone later.