If you have a car addiction problem, you’ve come to the right place. Back in my 20s and early 30s, I bought eight cars over a 10-year time frame. It was clear I had a car buying problem that needed solving.
I originally wrote this post on July 11, 2009 when I first started Financial Samurai. I’ve updated the post for 2021 and beyond.
My Car Addiction Problem
When I got my first paycheck, I bought myself not only a nice 850GLT Volvo (yes, an old man car for a 22-year-old kid), but also a Honda CBR600 racing bike! I was working as a first-year analyst at Goldman Sachs. It felt great to finally be making some money to buy some goodies!
I had nowhere to park them in in NYC, so I actually had to park 20 blocks away, and take the subway back to my apartment! I dumped $18,000 in cash for the vehicles, and had to pay an additional $300/month for parking and transportation fees to my vehicles!
How ridiculous is that?
Most of us have some materialistic vice we go gaga over. One lady I know has $20,000 worth of purses, and another $10,000 worth of shoes. But if you think about it, her vice isn’t so bad since the average car a guy desires is probably in the $25-45,000 range.
Why we throw so much money discipline out the window when we stumble across our vices, I donno. What I will tell you after purchasing and selling eight different cars (new and old), is that I’ve figured out some fantastic tips to: 1) Getting the best deal, and 2) Satiating ones desires.
If you’re a car addict, you are at risk of blowing up your finances by spending too much money on a car. From the purchase price, to the car insurance, to the maintenance, to the payments, owning a car is expensive.
Follow My 1/10th Rule For Car Buying
Ideally, everyone should follow my 1/10th rule for car buying. It states to not spend no more than 10% of your annual gross income on the purchase price of a car. That’s right. If you make $40,000 a year, a good guide is to spend no more than $4,000 on a car.
If you live in a major city, you realize a car is a big fat waste of money given the added cost of parking, insurance, and maintenance. The bus I take rocks, except when it skips me b/c it’s so full in the mornings sometimes!
Don’t worry buddy, the ladies will love your frugality and common sense! If you make $750,000/yr, ok, maybe you can spend $75,000 on a nice M4. 1/10th your annual gross salary should actually be a floor minimum.
Many multi-millionaires out there drive cars worth much less than 1/10th. After all, if you make $2million/yr, there aren’t that many $200,000 cars one would buy, or be caught dead driving in these economic times!
If you can’t follow my 1/10th rule, then at least follow these five car buying rules to help you get the best deal possible.
Tips For Getting The Best Car Deal
1) Don’t ever buy new! We don’t live in the 1980’s anymore where cars would start falling apart about after 5-10 years. Cars are so well made now, they will last for 200,000 miles with regular maintenance. The depreciation curve is steepest after 3 years, so best to get a car between 3-5 years old.
2) Always find cars on the internet. 8 cars in 10 years actually requires 15 transactions since I have to buy a new car, and sell the old car. All transactions have been done over Craigslist, Ebay, or Autotrader. Craigslist is my personal favorite, with 13 out of the 15 transactions being made here.
3) Find five different comparable cares. You should then cross check the price with KBB.com based on a “good” condition selection. Paying Kelley Blue Book is a RIP OFF. In normal economic conditions, you should always strive to pay at least a 10% discount to KBB. On the flip side, if you are selling, you should try and get 90-100% of KBB’s price. Buyers generally feel like they get a deal at a 5% discount to KBB price, but you know better!
4) If the seller is playing hard ball, play even harder ball! There are ALWAYS more of the same models to choose from. You just need to be patient enough to wait for the right deal. When do these great deals occur? They occur during economic depressions for sure, but most often, it’s when the seller just has to sell due to a business relocation, divorce, or financial emergency. Getting a good price may actually come second to just getting a quick and smooth sale. Hence, be responsive, show a lot of interest, and be prepared to pay cash or prove you have your loan documents ready to go.
Know Your BATNA
Remember the acronym BATNA, which stands for Best Alternative Negotiated Agreement. In other words, the seller’s best case alternative is to take a big loss by selling it back to the dealer. Sellers do this simple for convenience.
As a buyer, you should find out what that trade in value will be, and if you can offer $100-$1000 over the dealer after proving you are a trustworthy candidate, you are getting a STEAL. Remember, a dealer needs to purchase at this price to pay for overhead and salaries.
5) Spend money to get your car inspected. Make sure to also have a clean Carfax. Don’t be a penny wise and a pound foolish by skimping on a thorough check up. I’ve done that a couple times before with old old cars, and that cost me. The $60 you spend can help you negotiate HUNDREDS of dollars off the asking price since an automechanic will always be able to find something that needs replacing.
Satiating My Car Addiction
Before I purchased my 2000 SUV in November of 2006, I literally bought a different car every 1-1.5 years. I realize this is an addiction, and does nothing to help my finances. Every time I purchase a car, I have to sell my old one. I also have to spend a couple hours at the DMV to register the darn thing, not to mention additional taxes I have to pay.
I also realize that I am a thrill junky, and a deal seeker. It was just too hard for me to resist a great deal until the economy started unravelling in 2008. Some might be going car crazy during the global pandemic. But the uncertainty is keep people from wasting their money.
I ended up driving my 2000 SUV for the next eight years. I then bought a modest Honda Fit that I leased for three years until 2017. Then I bought my favorite car, a Range Rover Sport (new body style) 1.5 years old with only 10,000 miles on it. I wanted to get a larger and safer car given we were expecting a baby in 2017.
I plan to own the Range Rover Sport until 2025 and then reassess if there are better cars with more safety features. I’m sure there will be.
Test Driving Will Cure Your Car Addiction
If you have a car addiction, I highly recommend you face the addiction straight on and go to the car dealership!
Isn’t that like an alcoholic going to a bar you ask? Not so I say, as if you leave all your credit cards and checks at home, you will hopefully have a very difficult time buying a car.
Instead, what you need to do is get in that car, sit in it, inhale that new car smell and ask the salesman to let you take that car out for a test drive!
While you are test driving, feel free to have fun! Rev the engine, test out its 0-60 mph time and more.
Afterwards, say thanks and simply walk away saying you have to think about it. If you do this, you will satiate that car buying desire for at least a month, all at zero cost to you except for a thrilling experience.
You’ll also realize the car you have is just fine, and that to spend XXX amount of money on another car is just plain dumb.
Recently I test drove a Tesla Model S coupe. What a beauty. And what a beast! 0-60mph in 4 seconds is nuts, as is the person who buys one new for $90,000! Ah, the plush leather and supple ride is so nice. Thank goodness I own Tesla stock.
When the test drive was done, I was smiling and happy. It is the same feeling you get after riding that amusement park roller coaster.
Away I rumbled in Moose, my 9-year-old Land Rover Discovery II. I couldn’t be happier. Getting from point A to point B for 1/10th the vehicle cost felt great!
Lower Your Auto Insurance Costs: Check out Esurance online. They have some of the best plans with the lowest rates around due to their lower overhead costs. It’s worth spending a moment filling out a quote to see if you can save some money. Car insurance is one of the largest ongoing expenses for car owners. Esurance has good driver discounts, and multi-product discounts as well.