As Ron White says, you can’t fix stupid. I know that is harsh, but seriously…read on.
So my husband comes home from work today and tells me about a conversation he had earlier in the day with a fellow teacher. Here is her backstory. Her daily commute is about 120 miles or more roundtrip. She drives a fuel efficient car that isn’t paid off yet. That car is about 2-3 years old and has 70,000 miles on it. She wants to trade it in for a newer model of the same type of car. My husband asked why and these are the reasons she listed off:
1. This car has too many miles on it.
2. She’s hoping to not need a car in 3 years.
3. So when she sells her car in 3 years, one with less miles would sell for more.
Do you see a problem with this logic? Mr. BFS did…he said he sat there with his mouth open for a few seconds not knowing how to respond.
Why I am Being Judgy
In case you aren’t following along, this person would like to sell her current car, that is working great, to buy a newer model of the same car, so she can turn around and sell the newer car in 3 years for more than the current one would be worth at that time. She thinks that is the best deal for her and her money. Really?!
Guesstimates Based on the Car
Current car was $25,000 or more. Currently worth $16,000 or less. Owes at least $12,000 (probably way more, but I will be extra optimistic). She has paid at least $16,000 including interest. If she sells this car, she will pocket at best $4000 and have paid a total of $12,000 and I am being very generous with my guesstimates.
If she keeps this car, in 3 more years it will be paid off (probably $30,000 or more total with interest) and be worth about $10,000. That means she would have probably paid a total of $20,000.
A new model of this car is $25,000 or more. Will be worth about $16,000 in 3 years. She will already be in it for $16,000 again. It will still have about $12,000 left. So she sells it and yet again is in the hole for about $12,000.
Option A – Keep the car, pay it off, sell it in 3 years, and spend a total of around $20,000
Option B – Keep the car, pay it off faster, sell it in 3 years and spend less than $20,000
Option C – Keep the car, pay it off faster, get stuck here, keep car, and spend less than $30,000
Option D – Sell the car, buy a new one, sell it in 3 years, and be down at least $24,000
Option E – Sell the car, buy a new one, get stuck here, keep car, and be out at least $32,000
In no scenario will selling her current car and buying a new one be in her favor monetarily. It just doesn’t work like that. If you could make money by buying new cars, selling them, and buying another new car, no one would ever drive a car older than 2 years. Cars are the definition of a depreciating asset and she wants to load up. Oy.
What do you think? Am I missing something?
FYI: I worked at a dead end cubicle job from 2005-2011 for about $30,000 per year. I went self-employed in July 2011 and make between $80,000-$100,000 through blogging, professional pet sitting, hubby's reffing, and our rental home. If you’d like to start your own site (link to my free step-by-step guide), I highly suggest checking out Bluehost (my referral link with a nice discount for you, PLUS a free custom header banner from me!). I even have all of my favorite tools on a resource page - I hope they help you too. Please contact me any time at budgetingfunstuff*at*gmail*dot*com with questions or just to brainstorm! I’d love to help!