Should Will Buy a New Car?

December 30, 2013 — 11 Comments

I recently received a question from a reader who wants to know if he should buy a new car. Here’s his situation:

I’m 25 currently running a company on week days, and have a part time job on weekends. I am making roughly $60,000 a year (give or take). The last few weeks I have been on the edge of buying a brand new $22,000 car (give or take). After going through this blog many times I am not really not sure if I should do it or not. I totally can see how spending less than 20% of my yearly income on a car is definitely a super smart thing to do.

But for the longest time I want to look a certain way. (I guess on this blog we call that the disillusion of being successful).

Anyhow, I really want to live life a certain way. I want to wear wool suits, driving clean looking cars. By all means the car doesn’t have to be really expensive. My current car is a hand down from my parents. Toyota Yaris, which I have to admit I’m quite embarrassed when my employees and friends see me driving it.

Definitely feels a bit torn right now….

From what Will described, it sounds like he’s doing quite well with his career and he’s aware of the importance of this decision. Here are a few things that came into my head when I started thinking about his situation:

– Warren Buffett bought a house in Omaha, Nebraska in 1957 for $31,500… he still lives in the same house

Sam Walton Truck

Sam Walton in his truck

– Sam Walton drove his old pick up truck and wore clothes from his own discount store even after he became rich

These are obviously extreme examples of very successful entrepreneurs who stayed very humble, but there are many more stories out there. The point is they focused their money and efforts on what was best for the company and they didn’t care what others thought of them.  In fact, many rich people buy much less car than they can afford.

I reached out to one of my entrepreneur friends and asked him to add some input. Here’s what he said:

Your employees will respect you more for being frugal. The fact is, they know you’re making sacrifices to get the business off the ground. Case in point, the part time job…. if they see you buy a new / newer car and yet the business still isn’t producing big dividends then they’ll think you’ve got your priorities out of whack. Cash is king when running a business. The more cash you have, the longer your runway which equates to a greater chance of success. Don’t let a short-term gain/want jeopardize a long-term opportunity.

Here’s a funny story… when I was starting my business I seriously had to make a continuous decision to either “invest” in buying a boat or take $25k and use it to start the business (ie pay my bills and misc business expenses for at least a year). The boat would have been a BLAST and a lot more fun than watching my savings account dwindle away over the next year but I knew if I wanted to escape the corporate world I had to start investing in myself. Thankfully I made the right decision. Three years later I paid cash for a $65k boat and didn’t have to think twice about it!

You need to be comfortable with yourself and not worry what others think you “should” look like. In fact, Will should be proud he’s smart enough to keep his paid for car so he can focus his money on the things that will make more money!

Do you think Will should buy a new car?

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11 responses to Should Will Buy a New Car?

  1. My view is skip the car. The only reason to get a new one is if there is an actual need, like your current car being inoperable. There are so many other things that are more important than status symbols at any time in your career.

    Looking at his age, he is at a tough point. Many of his peer group are starting their careers or have gained a foothold in their positions and are starting to reap some rewards. But at the same time, they can’t see what is coming down the road.

    It has been my experience that every new decade of life brings with it a turning point. Will you continue your current path or will you seek something more. If you prepare ahead you can take that something more and turn it into something great. He is on the precipice right now. Planning for the next stage of life right now is much more important than having to shell out more money for loans.

    • Jon – really great advice. We never truly know what lies ahead and if we’re smart with our money, we’ll be in a much better position to take advantage of whatever it is. Also, as you pointed out with his peer group, that’s about the same age that I bought a brand new car – mostly because every one else was doing it!

  2. I think this one is a no-brainer. I’ve never owned a car, even when I lived in the suburbs. I grew up in a home where my parents always bought used cars. My brother, who could afford a new car, always buys a one-year-old car. He says let the original owner take the huge depreciation on a new car in the first year. Unless the car has been in an accident (your mechanic can tell) you won’t have any more mechanical problems than on a new car.

    • That’s amazing you’ve managed to avoid car ownership your whole life! Obviously, it’s much different in NYC than in most of the US because of mass transportation, but imagine how much you’ve saved over the years because of it!

  3. We had a freind years ago. That looked very ordinary, drive a older car and flew stand by. He was a millionaire many times over with multiple business ventures who owned a villa in Aspen where he loved to ski with his family. Skip the car, invest the money and bypass your friends financially. Just my thoughts. 🙂

  4. I agree. Put the new car on hold. Those who ‘look’ like they have money usually do not. Those who look like they don’t have money are many times the ones who do, because they did not buy the new car.

  5. I’ll go ahead and be the voice of descent. I say buy the new car. It sounds like he can afford it and it would also satisfy a yearning is showing. It’s not like it would be a foolish or overly expensive car at 22k. As long as he intends to keep it for awhile, why not get a car he’s always wanted. Then again, I don’t buy used cars… The four years I had my Mustang, I can say I never regretted making that payment and driving the car made me feel good.

  6. I was brought to this thread because i had an aciident 3 weeks ago and totaled my 1995 honda civic which i have maintained for the last 7 years. Though last year’s experiences were two towing incidents plus $1k in costs in repairs done. I went thru all the pain of repairs and maintenance besides oil change. And each time i would still say that it is way too cheaper than having to take a loan even if the actual costs for the past 7 years matches the actual car value. But like all good things, my once reliable car has come to its end.
    Katie are you hungry
    I think people are buying new not necessarily to show off but because they go for the best quality there is out there, and there should be nothing wrong with that. Yes there is that depreciation value, but also remember that you will be using that car on its peak quality! You have enjoyed its brandnewness. All new things depreciate anyways. You have enjoyed your $28k car from day 1. It has served you well so you should not regret making that purchase in your past life lol. You add a great deal of devaluation to any of your purchases when you regret it. It is like a vacation you didnt enjoy. Thats what depreciates it.

    Instead share us how you were able to overcome your financial difficulty when you had a $50k debt. It might even inspire some of us because you got out of it. Or it can serve as a caution what we may go thru if we decide to take on a huge loan.

    I have not decided yet which way to go. You can say i was able to save because i did not have loan payments. Is it smart to use those hard earned savings plus the total loss insurance payment value to a used car? Or take out a loan which you will lose a bit of money but you are already enjoying the whole value of the car even if you are not yet fully paid, which makezs it actually a good option too.

    A 2008 honda civic si costs 17k with a 90k miles on it. Brand new is 22k? Should i mope or enjoy a $5k difference when i drive a new or used car off the lot? Or still search for a $10k used car (and just cross my fingers, and go thru the same repairs again soon) because that is the most practical thing to do?

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