Lesson 37: Downsizing Transportation Costs
This is not a trick question, I want you to be honest in your answer (even if it hurts, no one is going to know the answer but you so be honest).
Do you regard your car as a status symbol?
I have a friend who updates her car every two years, without fail. She's always driving the newest, top of the range model of whatever car takes her fancy at the moment. Right now it's a brand new Nissan Patrol with all the toys and gadgets. She's very proud of her car and the close to $120,000 she paid for it (it's not worth that now). What she doesn't boast about is the fact that she can't afford to go on holidays (anywhere) or even use the new car for more than the bare basic running around she does. She can't afford to enjoy that car to it's full potential. But she loves the status it gives her parked in the driveway or the school car park.
On the other hand we were a one car family for years. We updated my car 2 years ago, paid cash and we both love it. We also have a Patrol, but it's 33 years old, and been in the family since new (we bought it off my father-in-law when he no longer needed it). We use this for all our remote travelling. Before that my car was 13 years old and I loved it.
I don't care that my car isn't the latest model, that's not what is important to me. The running costs, registration costs, insurance costs, maintenance costs and the safety factors are what I care about. Right now my car comes out tops in all of those categories.
I am not suggesting that you shouldn't have a new car, or that you should drive an older car. That's your choice. I am suggesting however that if your car is costing you more than it's worth or more than you can realistically afford that you consider choosing a different vehicle so you can live a better life and have more cash to save, spend or invest.
Often downsizing to a less expensive car means a lower or even no, monthly car payment, and lower insurance premiums. The cost of fuel or LPG may also come down, along with maintenance costs.
Buying
Buying a good used car, rather than a brand new one, is almost always the best option for private transport. If you really want a high end car (like my friend), look for one that is two or three years old. You'll save a bundle and the repayments will be much lower and it could still have some of the warranty left.
When you are looking for a new car don't forget to factor in:
Fuel
Registration
Insurances
Tyres
Servicing
Before you buy, get the vehicle fully inspected by your mechanic or your auto club (RACV, NRMA etc.). This will give you an independent report on the vehicle and a list of things to be fixed immediately and a list of potential problems. An inspection should cost around $100 - $150. It could save you a small fortune in repairs and a lot of heartache if you were to not get one and buy a lemon.
Public Transport
I am so glad I don't have to drive to work through peak hour traffic any more. I used to. No, I didn't. I loathed sitting in gridlock for an hour and a half to drive 20km so I'd get up at 5.30am and leave home at 6.15am so I could enjoy a relatively quick 35 minute drive to work. I did this because there wasn't any easily accessible public transport.
These days when I need to travel into the city I use the tram. It takes an hour, about the same as it does to drive, but I don't have to find parking, because I get on at the beginning of the line and usually travel outside peak hour. I always have a seat and I get to relax on the trip. Best of all I'm not wasting petrol sitting in traffic jams.
As a side note, our eldest son's car has that whizz bang feature where it turns off when it's idle to save fuel. He calculated he saves 1 litre of fuel for every 30 minutes of idle time. That means when he drives into the city for work, he's saving around 2.5 litres of petrol a day, or around $4.50 a day, or $22.50 a week! Yes, when he travels he travels in gridlock traffic, and what may seem inconsequential really adds up, to around $1,000 a year!
If you live in an area blessed with good public transport it may be something to consider. Consider how much you spend on petrol, tolls and parking each week. Compare that to the cost of public transport. How much could you save over the next year if you were to leave your car at home?
When you compare the cost of public transport to driving you need to remember all the costs associated with driving:
Purchase price
Loan repayments
Fuel
Maintenance
Insurances
Registration
Parking
Cleaning
Tolls
Tyres
Apart from the money you could save, you can actually gain some time. The time it takes for your daily commute is time you have to read, or knit or study. You could even do paperwork if you wanted to. You can't do those things if you drive to work.
You may decide after using public transport for a while that you don't really need to own a car at all. You can always hire one for holidays and special trips if you want to.
How to Pay for a Car
Most people choose the car they want and then take out finance. It's quick and easy. It's also very expensive and you are paying top dollar for a vehicle that is always decreasing in value. That's stupid.
A better way is to pay cash for a good quality used car. But how can you pay cash for a car? Cars cost tens of thousands of dollars.
It's easy. You start off small. If you were going to finance a small used car, it would cost you say $450 a month. Over a year that's $5,400.
If you stick to the vehicle you have and save that $450 a month for a year you'll have $5,400 to spend, plus a car to either trade-in or sell privately.
Because you have cash you could probably negotiate a better deal, getting you even more bang for your buck.
Buy your $5,400 car and drive it for two years. Look after it, keeping it clean and maintained so it doesn't depreciate too much. Keep banking your $450 a month. After two years you will have $10,800 (plus interest) and a car worth around $4,000. You will be able to upgrade to a newer model and again because you have cash you'll be able to negotiate a better deal.
You can repeat the process for as long as you like. Before too long you'll be driving a current model vehicle (if that's what you want) and best of all you'll own it outright. No repayments to finance companies, no interest payments and no risk.
You might have to drive an old clunker, but it's only for a couple of years. It's temporary. Think about how good you'll feel being able to tell everyone the car in your driveway is yours - and not on loan from the finance company.
Week 37 Challenge: This is a good time to stop unwanted solicitations from credit card companies and the like. Each time you find one in your in-box or even your letterbox, look for the opt-out instructions and OPT-OUT! If you can't find them call the company and have your details removed from their mailing list. See how many lists you can opt-out of this week!
Do you regard your car as a status symbol?
I have a friend who updates her car every two years, without fail. She's always driving the newest, top of the range model of whatever car takes her fancy at the moment. Right now it's a brand new Nissan Patrol with all the toys and gadgets. She's very proud of her car and the close to $120,000 she paid for it (it's not worth that now). What she doesn't boast about is the fact that she can't afford to go on holidays (anywhere) or even use the new car for more than the bare basic running around she does. She can't afford to enjoy that car to it's full potential. But she loves the status it gives her parked in the driveway or the school car park.
On the other hand we were a one car family for years. We updated my car 2 years ago, paid cash and we both love it. We also have a Patrol, but it's 33 years old, and been in the family since new (we bought it off my father-in-law when he no longer needed it). We use this for all our remote travelling. Before that my car was 13 years old and I loved it.
I don't care that my car isn't the latest model, that's not what is important to me. The running costs, registration costs, insurance costs, maintenance costs and the safety factors are what I care about. Right now my car comes out tops in all of those categories.
I am not suggesting that you shouldn't have a new car, or that you should drive an older car. That's your choice. I am suggesting however that if your car is costing you more than it's worth or more than you can realistically afford that you consider choosing a different vehicle so you can live a better life and have more cash to save, spend or invest.
Often downsizing to a less expensive car means a lower or even no, monthly car payment, and lower insurance premiums. The cost of fuel or LPG may also come down, along with maintenance costs.
Buying
Buying a good used car, rather than a brand new one, is almost always the best option for private transport. If you really want a high end car (like my friend), look for one that is two or three years old. You'll save a bundle and the repayments will be much lower and it could still have some of the warranty left.
When you are looking for a new car don't forget to factor in:
Fuel
Registration
Insurances
Tyres
Servicing
Before you buy, get the vehicle fully inspected by your mechanic or your auto club (RACV, NRMA etc.). This will give you an independent report on the vehicle and a list of things to be fixed immediately and a list of potential problems. An inspection should cost around $100 - $150. It could save you a small fortune in repairs and a lot of heartache if you were to not get one and buy a lemon.
Public Transport
I am so glad I don't have to drive to work through peak hour traffic any more. I used to. No, I didn't. I loathed sitting in gridlock for an hour and a half to drive 20km so I'd get up at 5.30am and leave home at 6.15am so I could enjoy a relatively quick 35 minute drive to work. I did this because there wasn't any easily accessible public transport.
These days when I need to travel into the city I use the tram. It takes an hour, about the same as it does to drive, but I don't have to find parking, because I get on at the beginning of the line and usually travel outside peak hour. I always have a seat and I get to relax on the trip. Best of all I'm not wasting petrol sitting in traffic jams.
As a side note, our eldest son's car has that whizz bang feature where it turns off when it's idle to save fuel. He calculated he saves 1 litre of fuel for every 30 minutes of idle time. That means when he drives into the city for work, he's saving around 2.5 litres of petrol a day, or around $4.50 a day, or $22.50 a week! Yes, when he travels he travels in gridlock traffic, and what may seem inconsequential really adds up, to around $1,000 a year!
If you live in an area blessed with good public transport it may be something to consider. Consider how much you spend on petrol, tolls and parking each week. Compare that to the cost of public transport. How much could you save over the next year if you were to leave your car at home?
When you compare the cost of public transport to driving you need to remember all the costs associated with driving:
Purchase price
Loan repayments
Fuel
Maintenance
Insurances
Registration
Parking
Cleaning
Tolls
Tyres
Apart from the money you could save, you can actually gain some time. The time it takes for your daily commute is time you have to read, or knit or study. You could even do paperwork if you wanted to. You can't do those things if you drive to work.
You may decide after using public transport for a while that you don't really need to own a car at all. You can always hire one for holidays and special trips if you want to.
How to Pay for a Car
Most people choose the car they want and then take out finance. It's quick and easy. It's also very expensive and you are paying top dollar for a vehicle that is always decreasing in value. That's stupid.
A better way is to pay cash for a good quality used car. But how can you pay cash for a car? Cars cost tens of thousands of dollars.
It's easy. You start off small. If you were going to finance a small used car, it would cost you say $450 a month. Over a year that's $5,400.
If you stick to the vehicle you have and save that $450 a month for a year you'll have $5,400 to spend, plus a car to either trade-in or sell privately.
Because you have cash you could probably negotiate a better deal, getting you even more bang for your buck.
Buy your $5,400 car and drive it for two years. Look after it, keeping it clean and maintained so it doesn't depreciate too much. Keep banking your $450 a month. After two years you will have $10,800 (plus interest) and a car worth around $4,000. You will be able to upgrade to a newer model and again because you have cash you'll be able to negotiate a better deal.
You can repeat the process for as long as you like. Before too long you'll be driving a current model vehicle (if that's what you want) and best of all you'll own it outright. No repayments to finance companies, no interest payments and no risk.
You might have to drive an old clunker, but it's only for a couple of years. It's temporary. Think about how good you'll feel being able to tell everyone the car in your driveway is yours - and not on loan from the finance company.
Week 37 Challenge: This is a good time to stop unwanted solicitations from credit card companies and the like. Each time you find one in your in-box or even your letterbox, look for the opt-out instructions and OPT-OUT! If you can't find them call the company and have your details removed from their mailing list. See how many lists you can opt-out of this week!