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Does this sound like you? "I can't wait for a new car!"

What is it about cars that get everybody excited?  Is it the sound it makes?  Maybe the smells of new and rich corinthian leather?  How about the feeling of success when driving it home for the first time?  All of this got me excited when I purchased a new car in 2010, minus the rich corinthian leather because I have cloth seats.

According to a CNBC article, Americans are stretching out their cars a couple more years than they did pre-recession. There are many factors at play here.  The biggest one is the recession hit many people very hard and they are still recovering from it.  The current trend is that Americans will keep their cars 6 to 7 years before trading it in.  Before the recession, Americans were trading their cars every 4 to 5 years.  We all know that buying a new car is a big decision. Loans make us all feel like it less of a big deal because we can pay for it in bite size chunks.  For most of us, as soon as everything is going according to "plan", we start to relax and spend more.  Which means we will be more inclined to purchase that new car we have been drooling over for a while.  Human behavior is often times cyclical.  Therefore, it would be logical to expect for the trend to go back to replacing cars every 4 to 5 years.  Unfortunately, we do not realize how costly this behavior can be in our finances over a lifetime.

A great book that I recommend reading is by Ron Blue and it's called Master Your Money.  We also have a resource tab with other recommended readings for you to check out.  In Ron Blue's book, he has a great example of car loans and true costs.  I will use his example and list it below.  The numbers will be slightly different than in the book to account for the pre-recession average number of cars bought in a lifetime referenced in the CNBC article.

 

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When I look at these numbers it makes me sick to think about how much money someone else is making off of me.  For personal finances, habits are everything.  Falling into a habit of buying a new car every 4 to 5 years could cost you $1,842,350.00 over your lifetime.  Here are a couple of tips.

  • Do not think of cars as investments.  Their only purpose is to get you from A to B safely.
  • Set a goal to drive a car for a minimum of 10 years.  Buy cars that are known to last, not because of the cool factor.  A car will become an antique after 20 years and who knows what that cool factor could be worth.
  • Lastly, pause to think about the long-term impact a purchase like this could have.  This might prevent you from reaching your goals in the future.

Happy planning and let us know if you would like some help.