Buying a car is one of the easiest and biggest financial mistakes someone can make. Besides the purchase price of a car, you’ve got to also pay car insurance, maintenance, parking tickets, and traffic tickets. When you add everything up, I’m pretty sure you’ll be shocked at how much it really costs to own a car and barf!
1) Maintenance costs:
We’ve got auto insurance, maintenance, parking tickets, and traffic tickets. Furthermore, the thrill of owning a new or new used car lasts for only several months, but the pain of paying the same car payment lasts for years. Everybody should at the very least check online with eSurance for better insurance rates to save money. They’re one of the best and largest providers auto insurance providers around. Chances are very high you are paying way too much.
2) Opportunity cost.
When you buy a car you lose the opportunity of investing your money in assets that will likely grow and pay you dividends in the future. Everybody knows to save early and often to allow for the effects of compounding. Buying too much car is like negative compounding! Imagine how much money you would have accumulated if you invested 30,000-50,000 ksh a month in the stock market over the past three years instead of paying for a car? Probably around 150,000-300,000 ksh!
3) Stress.
When you pay more than 1/10th your income for a car, you will become more stressed. The stress you feel from not wanting to park your car in a crowded lot is completely because you cannot afford your car! If you are within 1/10th of your income, you drive and park stress free. You stop caring about door dings, bumper scrapes, even break ins. Stress kills folks.
4) Makes you want more.
The nicer your car, the nicer your other things. You start thinking stupid thoughts like: I’ve got to buy a matching chronometer watch, driving shoes, and outfit. You start paying 2000 ksh for valet because you want people to see you come out of your car instead of park for free. Having nice things makes you want to have nice everything!
5) Makes you feel stupid.
Deep down, you know that if you can’t pay cash for your car and have money left over, you can’t afford the car. Each payment you make is a reminder how foolish you are with your money. Why would you want to be reminded every single month of being dumb?
IF YOU’VE ALREADY MADE THE MISTAKE
Look, everybody makes dumb financial moves all the time. The important thing is to recognize your mistake, stop, and fix it! Here are some things you can do if you’ve bought too much car already.
1) Own your car until it becomes worth 10% of your income or less.
This is the simplest solution if you’ve spent too much. Drive your car for as long as possible until the market value is worth less than 10% of your gross annual income.
2) Bite the bullet and sell your car.
If you’ve spent anything more than 1/5th your gross annual income on a car, I’d sell it. It’s making you poor. Even if you have to take a little bit of a hit, I think it’s worth getting rid of your vehicle. Don’t trade it into the dealer because you’ll get railroaded.
3) Punish yourself.
If you don’t punish yourself, then you will repeat your mistake and feel fine with what you have now. For the life of your car loan, take away a food you love to eat such as chocolate. If you are a coffee addict, swear never to drink that stuff again! Save more of your income after taxes and feel the squeeze so that you realize how ridiculous your car spending is.
1) Maintenance costs:
We’ve got auto insurance, maintenance, parking tickets, and traffic tickets. Furthermore, the thrill of owning a new or new used car lasts for only several months, but the pain of paying the same car payment lasts for years. Everybody should at the very least check online with eSurance for better insurance rates to save money. Chances are very high you are paying way too much.
2) Opportunity cost.
When you buy a car you lose the opportunity of investing your money in assets that will likely grow and pay you dividends in the future. Everybody knows to save early and often to allow for the effects of compounding. Buying too much car is like negative compounding! Imagine how much money you would have accumulated if you invested $300-$500 a month in the stock market over the past three years instead of paying for a car? Probably around $15,000-$30,000!
3) Punish yourself.
If you don’t punish yourself, then you will repeat your mistake and feel fine with what you have now. For the life of your car loan, take away a food you love to eat such as chocolate. If you are a coffee addict, swear never to drink that stuff again! Save more of your income after taxes and feel the squeeze so that you realize how ridiculous your car spending is.