In the previous post which was the 1st one of the Buying a new car series, I shared with you a bit of a history of our car ownership. Today we’ll talk about which is the right moment to buy a new car. I know this sounds weird, but indeed there is a good and a bad moment to do it. This is valid for both your and the car’s life. For most folks the concept of paying for a car in general sounds weird in terms of their financial independence. Yet, there are few specific points to talk about which might sound reasonable to you.
The right moment to sell your car is before it loses all of its value
As mentioned in the previous post from the series, we currently own a 2008 Lexus IS250. Still, both sets of tires are due for a change next year, which means an €800 bill for 2 new sets. Looking at the market, this is about 10% of the car’s price today, which is around €8000. Since it’s 2020 now, buying 2 sets of new tires for a 12 years old car would mean we should keep it at least another 4 years. That’s because most sellers wouldn’t sell their car with 2 sets of tires, especially if they are in good condition. So, should we avoid paying €800 for tires and keeping the car for another 4 years while it loses another 20-30% of its current value? Yes, I think we should avoid losing all of that money.
If we buy the 2 sets of tires and sell the car in 2 years, buy a new car and then have to buy another 2 sets of tires (it’s highly unlikely the ones we have would fit), then we’ll lose much more. That being said, now looks like a good time to sell our car. Still, the tires we have can keep up for 1 last season, so selling the car can wait till next year.
The right moment to buy a new car from the perspective of a car’s life
In some countries in Eastern Europe like ours, it’s not uncommon for people to drive 15 or even 20 years old car. Not that this is a bad thing, but in most cases, these cars are with high mileage and almost no safety features. Buying a car like this one, whose life is almost done, isn’t a sensible decision. You will probably sell it for a price similar to the one you got it for, but the maintenance bill might look like it belongs to a car 5-10 years newer. So, which is the right moment to buy a new car?
Buying a new car from the dealership is what people call “buying it for a sticker price”. Not that this is a bad thing, but essentially your purchase will lose about 30% of its value in the first 3 to 5 years. For some manufacturers that value decrease is even higher. So, what if you find a decently specced car which has low mileage, is 3 to 5 years old and costs 30% less than the sticker price? In some cases, if you buy the car from the ‘used cars’ section of a dealership, you are able to get an extended warranty.
This means that you’ll drive a decent car, which is fairly new, for only a fraction of the price. And on top of that, you might be able to negotiate an extended warranty. I call this a win-win situation from a financial perspective in terms of the car’s life.
The right moment to buy a new car from the perspective of your life
In the previous post from the series, I mentioned that my partner and I decided to do this purchase as soon as we hit a specific milestone. For her, that milestone is to score a new project with the new certificates she got during the lockdown. For me, that is getting a payrise. As the payraise wasn’t negotiable when I took my current job role 6 months ago, I knew I’ll have to earn it. I recently got a discussion with my manager and as a result, I’m expecting a raise early next year. Still, as I’m not having leverage in terms of experience or certificates, I’ll need to work extra hard so I could negotiate a bigger one later.
Yet, that milestone is related to the fact that we decided to raise our overall income before spending more on that big of a purchase. We both know that we can sustain the purchase with what we’re earning now, but this might impact our travel budget, savings, or else. This makes us feel uncomfortable, so that’s why to us it’s more reasonable to raise our income.
Another discussion point is that we prefer to buy a rental property first and then think about swapping the car with something else. This way we’ll ensure some additional passive income from the rent, which could help us with the car.
The right moment to buy a new car would be when you feel comfortable with it financially.
If you don’t feel like this money will worsen the quality of your life or you will miss them in terms of bills, emergency fund, savings, or else, then this is the right moment.