Do you have an old car that you’re debating whether to replace or not? There are a number of reasons why you would start thinking about replacing your old car.
If your current car is in need of regular repairs and is no long reliable. Or you had a recent change in life status –getting married or having a baby. It can also be because of a recent promotion and when you get promoted you tend to reward yourself with nice things, including a new car! Since we are humans, it can simply be because we got tired of the old one and we want change.
However, buying a car can have a significant impact on your finances.
1/10th Rule
One of my favorite financial bloggers wrote about the 1/10th rule for car buying. He says that you should spend no more than 1/10th of your gross annual income on the purchase price of a car. To illustrate this, see below sample calculation.
| Gross Annual Income | Price of Car |
| $30,000 | $3,000 |
| $120,000 | $12,000 |
| $300,000 | $30,000 |
The cost of an SUV is at least $26K, and with this method you would need at least $260K of gross annual income. It sounds ridiculous right? Read his interesting article – The 1/10th Rule For Car Buying Everyone Must Follow.
All personal finance bloggers would agree that a car is a bad investment. In fact, it is not an investment at all! It depreciates value and to own a car means you would need to spend more. There’s insurance fees, gas, toll, parking and maintenance fees.
It makes more financial sense to keep your existing car as its value already depreciated. The lesser you spend on a depreciating asset, the better!
Repair cost is almost equal to the value of the car or monthly car payments
If repairing your car costs as much as the value of the car itself, then it’s time to say goodbye and get a new to you car. I’ve had my fair share of costly repairs since my car is almost 10 years old. I’ve already rebuilt my transmission. Luckily, I found a really good mechanic and it cost me only$450. Now come to think of it,$450 is only one month’s worth of car payment, more or less. So in this case repairing the car is still a lot cheaper. Another thing to check is if your car repair costs on average is already equal to monthly car payments. If it is, then you should think about replacing it.
READ: Get your car’s data at your fingertips using an OBD-II Scan tool
Buying used or new
If for some reason, your old car really needs to be replaced then the next question would be – are you going to buy a new car or a new to you car? Again, you’ll find that most personal finance experts will recommend buying a used car to avoid being hit with a high depreciation cost. I personally prefer to buy new and run it to the ground. Keep it at least 10 years to get the most value. Knowing the car’s history is important for me and there’s satisfaction from taking care of the car and making it last that long.
You just want change
Now let’s say for example your car is still in a good working condition and you just want to change. It maybe because your car’s age has reached at least 5 years old and or you got promoted and feel like you deserve a better car.
One of the main reasons why I thought of replacing my then 6 year old car was because of technology. There was no Bluetooth connectivity! In the age of music streaming services, hands-free calls and waze, having no Bluetooth connectivity is a deal breaker in cars.
But because I love my car and I still like to keep it, I found a way to scratch my new car itch.
It’s as simple as upgrading my car stereo! I went to one of the more well known car audio shops and got my car a new touchscreen stereo with Bluetooth functionality. While at it, I also upgraded my speakers with better sound quality. It made a huge difference! My car is no longer from the dark ages! Another good news was that the aftermarket stereo that I got was even better compared to some of the touchscreen stereos included in most brand-new cars! So now I am a happy camper!
Why I’m keeping my old car
1. I love my car. For first time car buyers, make sure you choose the one you really like. Admittedly when I was buying a car, my budget was not enough to buy the car that I liked. I was planning to get the lower priced model but I just couldn’t stop thinking about this car so I bit the bullet and got it! Don’t settle to get a certain car due to budget constraints because then as soon as you get an excuse, you’ll get rid of it. If you can’t afford the car you like then wait and save more.
2. I take pride in the mileage I have accumulated. Unlike other car owners that consciously make an effort to limit the number of miles they make, in my case I take pride in the number of miles I make. It’s an accomplishment to be able to take care of the car and use it for a long time. The more I use it, the cheaper the price per mile or kilometer is. For example, if I own a $32,000 car and only had 30,000 miles on it before I change to another car then that means – without considering any other cost, it cost me$1 per mile of travel! That’s a lot! Compare that to my personal value of$0.18 per mile .
3. No car payments! I don’t necessarily follow the 1/10th rule but it feels good to know that due to depreciation, I now have my car valued at 1/10th of my gross annual income. Plus, I don’t have any financial obligations in keeping my car. No debts! I can focus on paying for real estate property rather than paying for a car.
4. No new-car anxieties. I don’t have to worry about where I parked my car or if there’s a new paint scratch somewhere. I don’t get riled up from new dents and scratches. It’s just a car.
5. I have a good mechanic and an abundant supply of parts. My car is a Honda so getting parts is fairly easy but finding a good mechanic is a key factor. It’s not worth to take the car to the dealership for service after 5 years because it is too expensive! Finding a good alternative mechanic if crucial especially when you reach 100K miles or kilometers where getting expensive repairs happen.
6. Stealth wealth. I like keeping a low profile. Your car is not a status symbol. You’d be surprised that most millionaires have modest cars.
How to keep your old car
1. Regular maintenance is key. The car manufacturers designed the maintenance schedule for a purpose and it is not a joke. Follow it and you’ll have lesser headaches.
2. Keep your car clean. Washing your car and getting it vacuumed makes a big difference. No matter how old your car is, keeping it clean will make it feel new. Newer cars that are dirty would make it seem old.
3. Update the stereo.If you want to keep up with the modern times of music streaming and hands free calling, you don’t have to buy a new car! Just get a stereo upgrade! It will cost you roughly the same amount you’ll pay for 1 month of car payment but that’s a lot cheaper than buying a car!
Are you keeping your old car? How many miles or kilometers have you accomplished?
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