Keeping Your Old Car Could Save You $6,545 Per Year

car
As Australians we place a lot of social status on the vehicles that we drive. What are your thoughts when you see a person stepping out of a Mercedes? Do you form a picture about the type of job they hold or where they live? Would that view change if that same person were to emerge from a 1992 Toyota Corolla?

Perceptions are not always correct and assets do not always denote a person’s wealth. Warren Buffet is known to be one of the world’s greatest investors and yet still resides in his first, and quite modest, family home.

Cars can be one of the biggest financial black holes in a person’s budget. Unless you own a rare or vintage vehicle, it is not likely that it will be an asset that appreciates in value. We all admire a nice shiny vehicle and marketers have made sure we know how to differentiate the latest models by their headlight shape, badging and remoulded bonnet. We love the look of the latest and greatest and to be honest, I’m no different.

One of the greatest ironies is that we don’t often drool over vehicles manufactured 5-7 years ago. Yet I’d imagine that back in 2010, there would have been a collection of vehicles that would have elicited that same feeling of salivation. The desire for the latest and the greatest exists in many facets of life. ‘Shiny object syndrome’ is another name for it. Recognise when it crosses your mind and it could help to save you from blowing your money on a new vehicle.

My car is my wife’s hand-me-down 1996 Toyota Rav 4. On a very, very good day when the sun is shining favourably it might be valued at $2,000. On most days however, $500 would most likely be fair value! It has been rock solid and never missed a beat since we’ve owned it. We service it ourselves and it has recently turned over 320,000 kilometres.

I decided to call a local dealership to find out what the price of a new one was. $36,990 MRRP was what they came back to me with. On top of that there is registration and motor duty to be paid.

I wanted to calculate what the cost would be of hopping into a new Rav 4. I created a table below with some interesting revelations. The calculations assume that the vehicles were paid for with borrowings as most people tend to do. I have also assigned a rough interest rate of 4.5% which represents a redraw on home equity. Be aware that if you were to get a car loan rates can often hover around 10% which would make a tremendous difference to the figures below.

[table id=2 /]

$1,390 versus $7,935. That’s a difference of $6,545 per year! I know what I’d prefer to drive each year. If you’re a car buff however, doing well financially or you feel this cost is worth it then that’s perfectly fine. Absolutely no judgment. Money is meant serve you and not enslave you. It is just helpful to understand and factor in the cost of owning new. There are also fuel and safety benefits in newer vehicles. Just weigh up the costs for yourself and consider buying second hand.

 

Here are some ways to save money on vehicles:

  • Hang on to that older vehicle you’ve got. Look at a YouTube video to keep it serviced but get the experts to look at the brakes every so often. Make sure you change the air filter every 20,000 kilometres to keep the fuel economy at its optimum. Keep your tires inflated too.
  • Buy a car that is not less than 5-7 years old to avoid the massive depreciation that occurs when new.
  • Is public transport a more viable option? Public transport gives you the option to read or work on the train or the bus at a fraction of the cost.
  • Understand that certain types of cars can be money pits. The best car I’ve ever driven was an Alfa Romeo Spider. Perfectly balanced, great handling, marvellous power to weight ratio but… it continually had repair issues. Some mainstream cars while less unique have much cheaper parts and are easier to repair. Vehicles often make it into the ‘mainstream’ because of impeccable reliability.
  • Schedule your drives each week to minimise the amount of travel you need to do. Try to group errands into the one trip.
  • I am a HUGE scooter fan. Could a motorcycle or scooter be a more economical choice? Wear safety gear and understand the risks involved.
  • Car pool, walk or ride.
  • Use those shopping vouchers. $2 or $3 in petrol savings each week adds up.
  • See if work from home options exist in your workplace to save on the daily commute.
  • Prestige vehicles depreciate more substantially and can be more costly to repair.
  • Review the cost of insurance every year. Call and speak to a representative to get the best possible deal. “Is this the best you can do?” is a great question to ask.
  • Look into shared ownership. Could you team up with some friends and family and share a car between you?

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Posted on September 28, 2015 in Vehicles and Petrol

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About the Author

I LOVE budgeting! Why you ask? Having a clearly defined budget enables my family of six to live an empowered life. I work as part time teacher, I'm an investor, novice longboarder, man of faith and run Budget Brilliance with a view towards seeing people's lives changed financially.

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