Before You Buy a Car.

Do Your Homework!

Look at your budget. How much can you afford. You need to know this before you even think about looking. Never look over your budget. It's easy to get talked into more car than you can afford when the dealer uses longer loan terms to lower the payment.

Don't ever answer the question "How much a month can you afford" when you are at a car dealer. You should have used a loan calculator up front and now how much the bottom line out the door price needs to be to stay within your budget. Then look for the car that fits the Dollar amount.

Never finance a new car for more than 60 months or a used car for more than 36. You should also have at least 10% down or a trade with that much value.

You have a trade, maybe you should just keep it until you can put at least 20% down or maybe even pay cash because you didn't have car payments for 4 years and saved the difference.

Never buy more car than you can afford. But never buy less car to save money that you can afford to spend. What do I mean by that. If you want leather seats and you can afford leather seats, don’t buy the car without them. You will only be unhappy sooner and start thinking about wanting another car sooner.  You want Bluetooth and you can afford it. Buy it. Don't take the car without it. If you follow my advice you are going to be driving this new car for at least 6-8 years. 

Can you pay cash for the car?

Even if you do have the cash pretend you are going to finance it. Then you won’t blow your life savings all in one day. You might want to buy a house someday. You say you already own a house. Buy a rental property. That's how you accumulate wealth. Not buying cars. Buying cars for most people is like drinking beer. It just takes months instead of minutes for the cash to go down the toilet.

Experts say that your debt payments should not exceed 35% of your monthly income. That includes anything you have to make monthly payments on. Rent, Mortgage, Credit Cards. If you have a regular payment to make very month add all that up. for example.

You make 50K a year. 35% of that is $17.5k/12 = $1,458 dollars a month. So if your rent/mortgage is $700 a month, you have other debt payments of $300 a month that leaves you with $458 a month for a car payment.

On a 36 month loan that will buy you about $14,000 of car. You can use many of the Car Loan Calculators on the web to figure this out.  That's probably a used Honda Civic or a new Honda Fit. 

60 Months and that will get you around a $25,000 car. Congrats, you can now afford a New Honda Civic.

Shop the web. Edmunds.com KBB.com NADAGuides.com Cars.com ConsumerReports.com Craigslist.com Google Reviews, prices, video reviews. Know more about that car than the person selling it to you.

DO NOT BUY JUST YET! Now go test drive some cars. Make sure you fit. Make sure your kids fit. You are going to be stuck with this car for the next 3-5 years at least. That's longer than some marriages. And since you are not a car dealer. You didn't buy it for less than it will sell for the next day. If you bought it new you just burned about 5k-10k or more. If you bought it used at least 2k-3k. Divorce isn't cheap. Do not let them sell you this car today. You will probably feel worse in nine months than if you had a newborn from a one night stand.

You have now picked your car, your options and you know exactly how much you can afford to pay.

Do you have financing secured? Well you should, unless you are paying cash. You can always have the dealer try to beat the deal you have but never count on them to do better if they have no competition. Credit Unions are usually the best. Then maybe your local bank and even CapitalOne.com The key is to be ready before you say yes.

Now, if you are buying used do you buy private party or dealer?

Most private parties think their car is always the "excellent" condition car. Odds are good it isn't. Unless you are really good at buying used cars I usually tell friends to steer clear of private party sales. The pitfalls are numerous. There are also lots of curbside dealers out there. They just sell cars from the auctions and as a wholesale dealer I can tell you that lots of cars at auctions now days are some pretty bad deals. Most dealers keep the good cars for themselves.

Also most people trading up for a new car save sales tax when they trade in their cars. That's why they aren't much cheaper than at the dealer. And that dealer price. It's always negotiable. The people selling on the street. They just look at what the dealer is asking and think the tax is your savings. Just watch Pawnstars sometime. You usually have to see 7-10 cars or be the 7th or eighth person to look at their car to get any deals from a private party. If you have time to waste or like meeting people who love their cars more than they want to sell them then have at it.

5-10 years ago I would never buy used from a dealer. How things have changed with the internet. Dealers have to charge less and private sales cost more.

I never would have thought this in the past but lately I would stick to the Dealer Certified Used Cars. Many of those cost the dealer and extra 1k-2k dollars to do that but they actually add value to a car. Now days getting two keys and a set of matched tires can be worth $500 or more. Add that to many of the other things a CPO car is usually worth it. Especially cars like BMW and Mercedes.

By the way, unless you have a boat load of extra cash or really want to have your car delivered in Germany never ever buy a new Luxury Car.

They're Great! 

I was looking at a LimeRock Edition BMW M3 the other day at a BMW Dealer. Only 7k miles on it. New $81,000 not even 2 years ago. Sticker on the window today 76k. Special Internet Price. 67k. Real price I wasn't that keen on spending 60K to find out. I have a hard enough time leaving my 2011 Miata in a parking lot let alone a 60k dollar plus Orange billboard that screams take me or hit me.

Happy Face!

And also, where in the US can you drive a car that can go 150MPH plus without going to jail? I have only had my Miata at the track once in two years. Plus, when I'm doing 60 it feels like I'm going 100. Zoom Zoom.

Should you buy a new car, a used car or keep fixing the old one?

There is no one right answer. If you are independently wealthy and can spend as much as you want. Buy whatever you want, whenever you want, as much as you want. And by all means, trade that car in every few weeks or years so the rest of us can buy your car and not have to buy a new car or really old used one. 

The truth though is that less than 6% of car buyers keep their cars for less than 5 years now.  So much for that new car smell every few years. 

And just one other fact. It's not the wealthy people who buy new cars all the time. That's the fastest way to lose money, not keep it.

Here's what AutoMD.com, a site that rates car-repair services, found in its self-serving poll:

Drivers Keep Vehicles for Over 10 Years
Over 10 years - 78%
8 - 10 years - 15%
6 – 7 years - 4%
3 – 5 years - 3%

So for the majority of us, the 97% who can’t afford to keep a car less than 8 years, the real answer is do the math. Then use your head, not your heart. 

Math is unemotional. Numbers look like this (1,2,3,4,5) You should never buy a car based only on this :) or one day real soon you will look like this :(.

How long do you usually keep a car? 

The less time you keep a car the more likely you should only buy used cars. Cars depreciate on average 50% in the first 3 years.  By Year 5 they have lost another 12% on average . Even the cars companies that say they hold their resale value don’t do more than a few percent better.

So lets take a $20,000 car. 

After 3 years it can be bought for about $10,000 where the average car has 45k miles on the odometer. 

At the end of year 5 you would have 75k Miles on it and could sell it for about $7,600. 

The original owner paid $0.45 a mile and the second owner paid $0.08 a mile. The second owner probably had to buy a set of tires and change the transmission fluid and maybe even a battery but they still got one heck of a deal. And of course this is depreciation alone. The original owner paid more in sales tax, insurance and if you live in a State like Arizona you paid a lot more each year for license plates as well.

The $20,000 dollar car had $1,600 in taxes, $500 in license fees and probably an extra $200 a year for insurance. That’s an extra $2,700 dollars for the 3 years you owned the car. If you buy a $40,000 car just double the numbers. 

Now lets see how much in depreciation alone it costs to keep a car 8 years. $20,000 car. 8 years @ 15k miles a year = 120k miles. 

If it’s a basic Honda Civic you could  probably sell it for  $7,000 but lets go on the safe side.  If you kept that car in good shape I doubt that you couldn’t get at least $4,000 for it on a bad day. You’ve kept up on all the maintenance and haven’t beat it to death. $16,000/120,000 = .14 cents a mile it cost you to own that car.  

A car that you picked out, know the history on since day one and has served you faithfully and could even be yours if you want for the next 4 or more years.

Until now we have just covered buying new or used. How about fixing the old car?

You will hit a point where it cost’s more to fix your old car than it’s worth. That might not be the point where you stop fixing it though. Many people will tell you that when you have a repair that is costlier than what your car is worth that you should unload that car. 

I disagree. I have a 2002 Chevy Astro Van with 275,000 miles on it. The value is now between $400 on the days (very few) it’s not running and $3500 on the days it is. To find a suitable replacement is almost $10,000 and most of those have 80k miles on them or more. For that much money I can probably keep my Astro running for 10 more years. I do a lot of the work myself and it’s not my primary car. The only problem is my wife wont take it long distances anymore. O.K., neither will I. In the last 3 years it has broken down twice. That’s why we have AAA Plus. 100 Mile tow radius to wherever you want your car taken. That would usually be my garage. 

So have you decided what you are going to do? You might want to read the next couple posts and see what I have done. In my years have I have bought both new and used cars. I even keep fixing one with over 250k miles.

Sirius XM Radio. Is it worth it? Maybe.

I have been a Sirius XM subscriber almost since the very beginning.

Before Pandora, Spotify or Slacker it was about the only thing around where you could get commercial free music, especially if you were out in the middle of nowhere.

Howard Stern is Sirius Radio

We also have iPods and other devices where you can store 1000's of songs on something the size of a pack of cigarettes. At least for all of us over 40 who actually bought records or CD's. Now days you don't have to buy 10 songs for each one song you like.

Sirius has been adding subscribers. Mostly because almost all new cars that come with it for free for some period of time.

So is it worth renewing once the free trial or your last subscription is up? By the way, you can cancel at anytime and get the balance of your subscription fee back.

Do you need Oprah or Howard Stern? Do you live somewhere you can't get cellphone service or internet in your home or car? Are you an over the road trucker? Then maybe, just maybe you need satellite radio. Maybe you just want it.

Well if you do then here is something you should know.

As I said before. I have been a subscriber for years. So many years in fact that it turns out I have a package that they no longer offer. Now usually that means you were grandfathered in on some great deal that they no longer offer and you can't get it that cheap ever again. Here's where you should start laughing.

Only in the world of subscription services are you grandfathered in to a bad deal, and they never offer you the better deal unless you speak up. That's right, they just let you go along paying more, usually much more than they charge new customers. That alone should be enough to make you want to say goodbye forever. But does that make us walk out the door and never look back. Of course not. Before they let you go they will make amends. Why? Because some of your money is better than none of your money.

Now how did I know to look into the new deals, after all, they just charge your credit card at renewal time. Well, if you are an annual subscriber they send you a notice once a year that outlines what you are paying and how much they are going to whack your credit card for.

AUTOMATIC SUBSCRIPTION RENEWAL NOTICE

They are warning me in big letters I'm about to get screwed. Then they go on to thank me for being such a loyal listener. Not customer but listener. That sounds so much better than customer.

All told for One car and one internet log on that I can either listen on my computer or iPhone, the measly sum of, $273.50 per year. Holly Cow Bat Man.

More than $20 a month. You can get commercial free Pandora and Spotify for that and almost add Netflix as well. I like Stern but not that much. Once he goes Sirius can kiss half their "Loyal Listeners" goodbye.

So anyway, I call the number on the letter. The number that you can usually find on a letter that most people probably don't look at. Try to cancel on their website. You can't. You're lucky if you can even find the number anywhere on there. It's there but it's hidden. I'm giving it to you here so you can call today and cancel or at least get a better deal. 1-888-245-7496

So here's how my conversation with the nice woman from Sirius goes, and she was very nice.

Me: I just got this letter from your company and I would like to cancel.
Her: We see you have been a loyal listener since xxxx. I also see you have a plan we no longer offer. I can give you our All Access Plan. It includes everything you have now for $220 a year. (they add taxes and fees to those rates you see on the website).

Me: Sorry, that's way to much for as little as I listen.
Her: Hold on. .........  We do have a special offer that you can get one year of All Access for $129 a year.
Me: No, that's still over $10 a month for something I might listen to a few hours a month.

Her: Well, if that still to much we do have a 6 month offer for $53
Me: That sounds reasonable. So that would be $106 for the year?
Her: No. That offer changes to $44 for every three months after the 6 months is up. We will automatically charge your credit card unless you call us to cancel.
Me: Will you send me a reminder letter?
Her: No, you will have to put it on your calendar if you want to cancel.

Me:That's too much effort. How about a one year deal for a better price?
Her: I do have $120 available and on that deal we will send you a letter.

Me: You know what. I'm sorry I wasted our time but I'm just not willing to pay $10 a month for your service.
Her: Hold on one last time and let me see what I can do. ........ 1 minute later. I have one last offer I can make. I can offer you one year off All Access for $80 and we will send out a reminder at the end of the year.

Me: OK

There is one other offer they will make you a few months after you cancel as well. They send you a letter where they offer your 6 months for $25. It does not include internet access though. At least with I.A. we can have it in one car and use our iPhone in the other car or anywhere else we have internet. You are not just limited to listening in your car. Actually the car is the only place I listen.

So the real question is did I save almost $200 or did I frivolously spend $80 that I really didn't need to ? Pretty soon, $80 here and $80 there adds up to real money.

Next, DirecTV. They use the same tactics but my service has a $300 cancelation penalty right now. Is it worth paying it? Just Maybe but that's another post.

Remember. Do the math. Numbers have no emoticons.