Wednesday, March 2, 2011

The American love affair - the automobile

This is a topic that's almost guaranteed to get an emotional response from an American, especially most men. I used to have a friend who drove a convertible that he was so attached to that he'd named (and he admitted he had a better relationship with it than most women). And on a practical level, they can be necessary for many jobs or when you live in an area where alternatives just don't exist or aren't practical.

Yet, this can be a huge part of a budget, especially if you are low income. I've frankly found that those who aren't really pushed to the edge are rarely willing to make changes in this area (and even some of those who are.) However, with gas prices creeping back up, there are a few possibilities to consider. First, live as close to where you work as practical, unless the location of your current home is vital (i.e. you live next to an elderly parent). I live about 2 blocks from where I work and less than that from the nearest bus stop for the university I attend. My daughter rides to work with me and catches a bus to her classes from there. If my car has a problem, I can be at work or on the bus within 10 minutes. My oldest daughter lives close enough to work to walk in a pinch, and she has co-workers who'll give her a ride home if her car is broken down (and she helps them out the same way).

If you have to live further away, look into carpooling or a flex schedule. If you can work 4 ten hour days, that saves one trip in a week (saving gas and milage on the car). Can you telecommute one or two days a week? If you can't change your residence or the number of trips, seriously look into a more fuel-efficient car. Price insurance, switch to liability only on older vehicles, increase the deductible if you have savings to cover the costs. Shop around for mechanics. Take good care of your car. Don't speed, you'll use less gas and have less chance of accident. Run all your errands at once, and plan them for the most efficient driving route. If you're married, do you really HAVE to have two cars?

Drive your car longer before trading in. If you have a car payment, instead of trading in as soon as you pay it off, try to drive it at least 6 months longer than you would have and put aside every penny that you would have made in payments. If your current car payment is $300, that's $1800 plus interest that you can use in addition to the trade in value toward the 2nd car. But instead of buying "more" car or getting a lower payment for the same term, get a shorter loan term. If you go from a 5 year term to a 4 year term on a $15,000 car loan, you should save at least $400-500 in interest. Then drive it til you've owned it at least 66 months too before trading in, saving that $300 a month to give you $5400 plus interest toward your 3rd car, which should let you reduce the term to about 2 1/2 years. If you keep that one until it's a bit older than that 66 months, you may have enough between trade in and cash to buy a modest car outright, with no loan. Drive 12 months instead of 6 months past the first one, buy slightly "less" car, and you'll have $3600 and trade in toward your 2nd car, try to shorten the term for the 2nd car to 36 months, then save for 36-39 more months before trading in, and you may have enough to buy the 3rd one in cash.

Even better, if you're more willing to compromise, consider buying a used car in good condition and drive it as long as it doesn't develop major problems, maintaining it carefully, and save all the car payment money once it's paid for (don't take more than a 3 year loan on even a relatively new used car). I bought my current car when it was 21 months old (in cash, btw), with less than 23,000 miles on it, still under warranty and with a good service record. I have been driving it for just over 8 years, and hope to get another year or two out of it, but keep in mind my highest mileage for a year was about 7,000. But this car could have been paid off in about 3 years at about that $300 payment I mentioned. In ordinary use, anyone should have been able to get another two years past that out of it before trading in, saving $7200. With the trade-in, you could almost buy the next used car in cash. At that point, you could either reduce the savings rate to $200, freeing up $100 a month for something else, or save the full $300 and buy a new car in cash next time.

For those more who really have problems, consider more drastic solutions. Trade in a luxury car for a cheap used economy car. Consider car-sharing or no car at all for a time. Public transportation, bicycles, mopeds, and walking are all cheaper (cost of public transportation varies by area, though). Look for a co-worker who lives near you and offer to pay for their gas (but have a backup plan if they're sick). If you're single and really broke/out of work, consider applying for live-in positions (this isn't likely to work if you have a criminal record, however, or sometimes even a bad credit record).

Don't consider these measures as deprivation or feeling "poor." Think of it as getting ahead over a long term. Unless your job really depends on appearance, luxury cars (or frequent new cars) are, on a practical level, a status whirlpool sucking your money out of your pocket. I'm only addressing it at that practical level. I'm not condemning luxury cars, if you won't miss the money and you genuinely gain pleasure out of having that luxury car, then it's worth it for you.

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