As I mentioned in my previous post, I finally relented and bought myself a new car.
I can understand why some of you may be scratching your head at my decision to buy new instead of used. Especially when the playbook of good personal finance habits clearly states — right there on page 31, paragraph 6, subsection 2a — that it’s better to buy a used car that is a couple of years old, thereby letting the original owner take the depreciation hit for driving it off the lot.
So, did I lose my mind? Was this another impulse purchase on my part? Have I suddenly moved to the dark side and become financially irresponsible?
No, no, and no.
Remember, despite the conventional wisdom, there are very few financial rules of thumb that are truly sacrosanct, applying to all people all the time.
After all, that’s why they call it personal finance. What makes sense for me might be completely unreasonable to you, if only because our financial situations are light-years apart.
In my case, there were more than a few reasons why I felt it made perfectly good sense to buy a new car instead of a used one. Here they are, including a few that I covered in my previous post:
My savings accounts are fully funded. I have more than six months of savings in my emergency fund, and my smaller rainy day fund is loaded and ready for the next minor crisis. Meanwhile, I’m continuing to make contributions to my retirement savings, which are also in good shape.
I’ve paid my dues. By driving my last car for well over a decade I was able to save more than $40,000 in car payments. That’s money that helped fund my savings accounts and retirement funds. It’s also a big reason why, today …
I can afford it. As I mentioned in my last post, I could have paid the dealer cash for the vehicle, but I decided to take out an auto loan instead because I got …
Ridiculously cheap financing. There’s a reason why it pays to maintain excellent credit scores — they give you the opportunity to borrow money at the lowest rates. In my case, I was able to secure a car loan at just 1.9% interest. Eventually, I’ll end up paying a little more than $1000 on my note — over five years. By the way, this is a great example of why …
The Fed’s policies reward borrowers (and punish savers). As long as lenders continue to give the money away for a song — and I can afford the payments without impacting my other financial obligations — I’d be crazy not to take it. Especially considering …
The declining value of the dollar. Thanks to the Fed’s relentless money printing, inflation is rapidly eroding the value of the dollar. So much so that it made little sense for me to part with a large amount of cash today when I can be slowly paying off my new car over time with increasingly worthless currency. In the meantime, I can invest my money or spend it elsewhere, while it commands maximum value.
I’ll be keeping the car for at least a decade. Holding my car for at least ten years will help temper those painful depreciation costs I’ll be incurring over the next several years in exchange for the pleasure of driving my very own brand new car.
Hopefully, I’ve convinced you that being financially responsible and buying a new car aren’t necessarily mutually exclusive. The truth is, financially responsible folks can sometimes get away with buying a new car — even though the conventional wisdom says that isn’t the most financially advantageous option.
Ultimately, the “right” decision is going to depend on the state of your personal finances.
Photo Credit: Jerry Huddleston