Neighbors must wonder what is wrong with my finances; One year I'll be driving a $3K used hatchback and the next a new BMW. The sticker cost of a car often has little correlation to the enjoyment it gives. As someone who obsesses over details the overall cost of car ownership is something I am very interested in. For many years all my auto purchases are rationalized with a little help from Microsoft Excel, Kelley's Blue Book and Edmunds.com. Note that I use many techniques to obtain amazing discounts on cars too, but we are not discussing that today.
Within the next four weeks my intention is to buy a '99 Miata and prepare it for auto-crossing. Last night I realized the highly regarded new for '06 MX-5 Miata only costs $21K and with the warranty, rapid progress of car technology etc thought it might be a better buy than a used one.... some spreadsheet work later:
- '99 Miata costs $225/ month
- '06 Miata costs $507/ month
- '06 BMW 325i costs $510/ month
The spreadsheet looks like this and you can download it by clicking here:
The spreadsheet does assume paying cash, which would otherwise earn 5% interest per year. Alter the percentage and I think it will be pretty close to financing. Open up the spreadsheet and you will be surprised at the real costs of some vehicles; interestingly in the USA the real cost is largely a function of residual value whereas in the UK fuel costs are normally a large percentage of the pie. The trick to good residual value is to buy a high regarded car with a strong market for used examples, the Honda Civic and BMW Mini are prime examples; then buy that car with as few optional extras as you possibly live without.
Did you notice in the spreadsheet that a base model BMW 325i costs $510/ month where a fully loaded 330i costs $1080/ month - these are essentially the same automobile, but over three years the loaded one costs an extra $20,500!! Are you looking to justify that surround sound kit and 42" HD Plasma to your wife... I am kidding the money obviously goes into a pension or kid's college savings fund, right?
Final tips on buying a car
- Buy a cheap car - let you neighbors have trouble making payments while you pile the difference into a 401K/ IRA
- Before buying research what it will be worth in three years time
- Haggle, haggle and haggle some more for a discount
- Deal over the phone/ fax when negotiating a price - don't go to a dealer in person - car dealers are EXPERTS in selling
- Think before loading the car with extras - these lose their value VERY FAST
- A healthy pension is much more important than shiny metal - did I say that already?
- Every car sold today is an excellent car - even Kia and Hyundai provide reliable transportation
- Remember most people dislike it when you drive a better car than they do; just buy that Civic or Camry and receive no jealous looks
- If you use finance be sure to separate those details from the cost of the car