Tips for Buying a Vehicle

Well, this is the first of a handful of blog posts that will be aimed at drawing some attention toward our new site http://www.goodecents.com. Basically, the point of the new site will be to give some Goode Advice toward how to make smart purchases as you're working a financial plan. So, here goes!

Tips on buying automobiles:
1. Prefer used vehicles to brand new
The only time you should ever buy a brand new car is when you have a liquid net worth exceeding 1 million dollars. I know, I know... there are lots of "reasons" people will give for buying a brand new car before having a million-dollar net worth, but let me give you the reasons to wait.

• AT a $1m net worth, you can afford to take the hit.
  A brand new car loses between 10-20% of it's value the minute you drive it off the lot. Not to mention, new vehicles lose up to 70% of their value in the first 4 years of ownership.
  
  If you're making a million-dollar income, it may be advisable to purchase the new car, especially if the time used researching a used vehicle would have produced enough income to purchase a new vehicle. Be sure you get that math! If you spend 20-40 hours researching a car you will want to figure your typical hourly income over that time. If the number is close to the cost of a brand new car, it is better for you to purchase a brand new car and put your time into your business. If you're buying a $25-30,000 vehicle, you'd need to be making roughly $900 / hour in order to justify purchasing a BRAND new car.
• Purchasing used allows you to build in the cost of repairs if you negotiate correctly. Remember, by negotiating correctly, I mean spending 20-40 hours of research and using some of the negotiating points I will cover later in this post. car.
• Most millionaires still purchase 2 year old vehicles with low miles at a bargain.
• Most people buying a brand new car frequently link multiple bad decisions such as purchasing extended warranties, purchasing with a car loan & maxing their fiscal budget to gain an "image" car.

2. Never borrow money to buy a car
Let me be clear. When I say "NEVER" borrow money to buy a car, I don't mean "most of the time" or "rarely." I mean never. Use cash or saved money (in the form of a cashiers check) for purchasing vehicles. I know, it goes entirely against our American culture to pay cash for a vehicle. But it's much smarter, much less expensive & you now OWN the car.

Cash is immediate! It says the deal is done. It is easier to get a bargain on a vehicle when you're using saved money for two main reasons:

1. You're more attached to money you've worked for and saved up over time.
2. The person on the other end knows that you don't have to clear the loan with a bank

Also consider that the average car payment in the US today is around $470 per month. If you were to work and save the $470 for 10 months while driving what you have, you will have $4,700 at the end of 10 months. Okay, it's not a NICE car, but we're not going for "image" here. We're looking for transportation.

Now, consider that a $4,700 car won't lose much value during the next 10 months, will it? Let's say it loses $700 in value over the next 10 months while you're continuing to put away $470 per month for the next 10 months. Now, 20 months after beginning the process, you have an add'l $4,700 saved and you can sell your current vehicle for $4,000. That's roughly $8,700 to purchase your next vehicle. That's a doubling of car in less than 2 years!

Again, let's save $470 for 10 more months while driving a used $9000 car (think about it, you could likely get a good deal on a $9k car by paying $8,700 cash!). Now you add another $4,700 to a car that you could now sell for $8,000. That's $12,700 worth of car! in less than 3 years! All paid for in cash... all 100% owned. All with no payments.

Let's continue that out in just straight numbers figuring in a $700 decline in value of each car starting back at year 1 buying a newer car every 10 months... y'remember... Saved up and bought a car for $4,700

1. Moved up to a car for $8,700
2. Moved into a vehicle for $12,700 (probably got a deal on a $14,000 car!)
3. Moved into a $16,700 car
4. Moved into a $20,700 car
5. Finally, moving up to a $24,700 vehicle.

So, 5 years later, you're driving a "nice car" while never having a car payment and perpetuating your ability to buy a newer, nicer vehicle for years to come. At some point, you don't need to put the $470 per month into a car purchase fund because you'll be able to purchase any vehicle you would ever need!

3. Buying used allows you to purchase more vehicle for less money
Think about buying a car more by the pound vs buying it by the feature. Also consider that many "brand-new" features are the place where cars fail. Features that were first introduced on this year's model are the items still in testing. If you buy a used, 2-4 year old, well maintained & low-mileage car... you can likely get a great bargain!

4. Be patient!
Look for motivated sellers and keep your head cool. Don't get "car fever!" A seller can smell someone who has already bought the car with their eyes. As Dave Ramsey says, "He with the most patience & information wins!" Take your time. Breathe. Down boy! Down!

5. Use Cash!*
When possible, use cash. Yes, I mean a fist full of hundreds. Okay, don't go foolishly waving them about or meeting some shady character in a dark ally. But don't be afraid to purchase a car using cash. When a person sees the cash, they are more likely to take a slightly lower price than if they see you're going to use another method. People perceive cash as being finite.

*NOTE: You will likely only be able to purchase a car with less than $10,000 in cash. First of all, most banks will flag you (FBI, ATF, CIA, NSA, Homeland, etc.) if you're pulling out more than $10,000 in actual cash. Secondly, as the price of your purchase goes up, you can easily use a cashiers check.

6. Do Research:
Spend some time researching the type of car you're looking to purchase. Become a relative expert in what that vehicle offers. Take some time to discuss the types of vehicles you're looking to purchase with a mechanic. When doing price research, use services like KBB.com & Edmunds.com to gage price sensitivity. This will help you know a good deal when you find one.

7. Set a solid, max price!
Setting your top price gives you an exit strategy. Don't let emotion and car fever push you into purchasing more than you can afford. If you've set $15,000 as the limit, don't purchase a car for $16,000... no matter how great the deal is! Again, using saved cash will help with sticking to a firm max price. The budget should be set such that it allows room for taxes, title, insurance, initial inspections & some room for mechanical work.

A good rule is to never have more than half (1/2) of your annual take home pay tied up in vehicles, motorcycles, boats or other types of motor-toys. This math fits the average american. Of course, a multi millionaire should have no where near 50% of their annual take-home pay in cars.

8. Buy Good Deals
This is a tricky point. At some point, you've just got to realize the deal is as sweet as you're going to get it. If the deal fits your budget, there comes a time you need to realize whether or not you're getting a good bargain.

9. Consult a Mechanic
If possible, take a mechanic with you to examine the car. If you're going to take the car to a mechanic during the test drive, be sure to ask permission of the owner before having their car put into a shop. The mechanic should be someone you trust or at least an independent 3rd party.

10. Take your spouse with you
Though your spouse may not be the mechanical or car expert, your spouse has a perspective you don't have. If one of you gets a wary feeling, back away and discuss it. Remember: "An excellent wife, who can find? For her worth is far above jewels. The heart of her husband trusts in her, And he will have no lack of gain."

11. There will always be another bargain
No matter how well you shop or how long you wait, there will always be a better deal somewhere. Understand that you will neither get all the best bargains nor have you found the best bargain on earth. If you do not purchase now, there will be a time later when you can. If you do purchase something now, stop shopping. Once the deal is done, move on and enjoy your new purchase.

12. The best time to buy a car...
First of all, the best time to buy a car is when you have a car. You don't want the seller to "smell" your need for a car. If you have a clunker, you may want to borrow a friend's nicer car (have them ride along in the passenger seat) to visit the seller.

It's generally a good rule to buy cars January through early March as folks haven't yet begun to get their tax refunds. One of the main things folks buy with a tax refund is a newer car. The rise in demand generally causes car prices to rise. Additionally, purchasing a vehicle in the middle of summer can be good.

It's also a good practice to work your vehicle transactions separately. If you're buying a car, don't work the sale of you current car into the same transaction... i.e. no trade ins as it is usually "slippery math."

13. Prefer private party sales
If you manage the points made in this posting, you will build in the margin to make a good private party purchase. Some of the best cars out there were bought brand new by someone else and sold private party to folks looking for a bargain. Don't be afraid to pay what a vehicle is worth, but don't be afraid to ask for a bargain either.

14. Use some sales training
Consider the price is always negotiable. If you've hit a floor that seems high, use some different methods. If the seller won't come down any further, ask him/her to then provide an additional service (detailing, oil change, etc.). If they are unwilling to provide this service, then use that as leverage to crack the floor.

Or, offer a service in exchange for money in the bargain. If you're buying a truck, ask the person if there is something you could move for them once you purchase the truck. If you have a skill (florist, painter, etc.) consider bargaining with that skill set. Example: Work 5 hours painting in exchange for $500 off the price. Always be conscious of what is on the table and what is not on the table.

15. Cars go down in value
At some point, you've got to realize that cars go down in value. Be careful not to over pay for a car.