From Here to Financial Happiness

Day Thirty Seven Wheeling Dealing

Spending isn't bad. What's bad is spending too much – or spending on items we don't much care about. For some folks, cars are a passion, so spending a hefty chunk of their income on their family's vehicles might be a good use of their money. That'll leave them with less money for everything else, but the tradeoff could be worth it.

What if cars aren't your passion? In that case, you should focus on buying the sort of vehicle that makes sense for your family at a reasonable cost. This is not especially complicated. There are two basic rules if you are buying a car for its utility, rather than because you want to impress the neighbors or have the pleasure of driving a car that's somehow distinctive.

First, think twice before buying a new car, because you'll pay a premium price. Much of a car's depreciation occurs in the first three or four years – plus, a new car is costlier to replace and hence costlier to insure.

Second, the more often you change vehicles, the more you'll incur in costs, thanks to sales taxes, car registration fees, and markups charged by dealers.

The upshot: Your best bet is probably a three‐year‐old car with 20,000 to 30,000 miles on it, so much of the depreciation has already occurred, but there are still plenty of miles left to drive before it becomes unreliable. Thanks to all the three‐year‐old cars that come off lease each year, you should have plenty of choice. You might then aim to drive the car for at least six or ...