Post #22: Cayla’s Car Conundrum: New, Used, or None? (Part 1 of 3)

Having a car when you are young is an important slice of freedom that most young people really want to have. But what is the best way to approach cars and transportation if you are a Freak, and thus value your money and future? There are many options when it comes to transportation and car ownership, some better than others. So let’s take a look at how Cayla went through the decision making process of meeting her transportation needs while still allowing herself to race towards financial independence.

How much does a new car really cost?

Cayla is 22 and on her own. She used to have a car but sold it before she moved to a different city for a new job. Now that she’s settled in her new place, Cayla is thinking of buying another car. She has $3,000 set aside for the purchase. Cayla has a good-paying job and a decent credit score, so buying a new car with a loan is an option for her. She could also buy a used car for less money. Or she could opt not to buy a car at all.

Since Cayla is pursuing early financial freedom, she decided she should take a hard look at what a car actually costs before she made any decisions. (If you currently have a car or plan to get one in the future, you also need to know how a car affects your money situation.) Cayla was smart. She took the time to examine the costs involved with owning a car so she could make the best decision for her future.

Before she started to examine all of a car’s expenses, Cayla thought a car had two main costs.

  1. The money she paid to buy the car, and
  2. The gas she bought to keep it running.

Little did she know, those were just the tip of the iceberg.

Cayla began by researching the option of buying a brand new car for $25,000. She knew that if she drives to work, which Cayla plans on doing if she has a car, there will be parking expenses at her downtown job.

When Cayla was done with her research, she found out that a car has many other expenses. And here are her cost estimates for owning her new car for the first year:

  • Down payment: $3,000
  • Sales Tax: $1,500
  • Car payments: $4,800 ($22,000 loan over 5 years at 4% interest)
  • Insurance: $4,100
  • Deprecation: $5,000
  • Maintenance and repairs: $200
  • Gas: $1,000
  • Registration: $800
  • Car washes: $100
  • Parking: $3,600 ($15 per day at work)

When Cayla totaled up all the first-year costs of owning a new car, she calmly and slowly said, “F********ck!”

Total for a new car for the first year: $24,100

Cayla realized right away that that amount was almost as much as the car was worth new, but she would still owe almost $18,000 for the car loan after making the first year’s payments. She also realized that that amount was more than half of her total yearly income, just for one new car. And a $25,000 car wasn’t even “top of the line.”

She did recognize that depreciation is not an expense that she would pay out of her pocket but rather a reduction in the value of her new car (thus a decrease in her net worth). But still, that leaves $19,100 that would come out of her bank account the first year!

Cayla decided then and there that she would never, never, never, never, never, never, never, never buy a brand new car. Cayla is a smart cookie.

In the next post, we will look at Cayla’s examination of the other two options and which one she ultimately chose.

Now go out there and get your freak on!

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