Q: My husband and I are public servants and fortunate to have steady employment. After taxes, his pension fund contributions, my 13% 401(k) contributions, health insurance deductions, etc., we bring in $77,208 annually. Our essential monthly budget total averages around $3,700 and includes a refinanced 20-year mortgage, utilities, groceries, etc. We have an emergency fund that will cover us for six months.
We own four cars, all of which we’ve purchased or acquired for a total of $5,000. Their age range is 1997 to 2012 with over 200,000 miles on all of them. Needless to say, we rent a car when we drive over a hundred miles to visit family. We’re looking at buying a new car and taking advantage of the 0% financing for 63 months on a Subaru.
Mentally, I never thought I would be someone who would buy a new car. It just seems weird to me to spend $27,000 on a depreciated asset. We’re going to trade in one of our vehicles and I’m going to negotiate my ass off. But even if we ended up buying something for $20,000, it still feels weird to me. Should we be concerned if our monthly buffer amount is a thousand dollars after essentials, plus a $300 car payment for the next five years? If not, how do I get over this mental block?
A: First of all, let me just say that I’m just so impressed with everything in this question — particularly that you’re going to negotiate your ass off. I love that.
I think you can go ahead and buy a new car. I would — as you seem to be — be inclined to look at financing options, because with interest rates at the bottom of the barrel, there’s cheap financing out there for so many different things. (Perhaps this Subaru deal is why the Forrester seems to be so ubiquitous in my neighborhood).
Then, I’d compare the monthly payment on that with the monthly payment, interest rate and cost of a three-year-old certified used Subaru (or similar car). Look at what the company is offering in terms of a maintenance deal and estimate how likely you are to have to come out of pocket to fix it over the next few years. Personally, I wouldn’t worry one bit about buying a new car based on everything that you write here — and how careful you seem to be. But I suspect a certified used car might appeal to your thriftier side as well.
Finally, I want you to think about what you’re spending to maintain and insure the four cars that you currently own, which probably get really bad gas mileage, or at least less good gas mileage than this newer Subaru will. Maybe you’ll realize that you want to get rid of three out of the four, or two rather than just one.