How to buy the right car for your wallet

The odometer on my car is nearing 223,000 miles. While I am hoping the dented-on-all-four-sides sedan is going to make it to at least 250,000 miles and beyond, realistically, we need to plan for a replacement.

But before we go car shopping, we need to decide what we are looking for. There are a lot of things to consider here like the manufacturer, style, color, etc., not to mention just our own personal tastes in the matter. You can really go to town thinking about all the possibilities. But I wanted to simplify the process. I wanted to narrow it down to the basic decision of finding the best car for our situation at a price we could afford. I didn't want our wants to become our needs, at least not until I got further along in the process.

How to Compare Cars side by Side

I was talking about it to the editor here at Get Rich Slowly, who shared a spreadsheet her husband created. The spreadsheet takes the cost of a vehicle and spreads it out over the remaining effective life of the vehicle. So using these two factors, the cost divided by the number of expected lifetime miles, you get the cost per mile. It's at least one way to compare different cars against each other in a way that's like comparing apples to apples and oranges to oranges. It doesn't factor in the cost to operate the vehicle, just the cost to purchase the vehicle. You can add the cost to operate into the mix later on to get a better picture of your overall cost if you want, but those costs depend on your own situation anyway.

Using the formula below, you can create your own spreadsheet to get an idea of which cars could make a better purchase (at least from the standpoint of how much of a dent it makes to your wallet initially). The cars in the table below serve as examples, but you can instantly see how the cost per mile goes up depending how much the car costs, how many miles it has, and how long of a life it could have. The most cost-effective cars have a lower per-mile cost, like the 2008 Smart Car at $.07 per mile.

Capitalized $ Cost/Mile = Cost/(Expected Lifetime Mileage – Current Mileage)

Vehicle Price Current Mileage Expected Lifetime Mileage Capitalized $/mile
2008 Smart Car $ 7,500 36,426 140,000 $ 0.07
VW Passat $ 28,391 17,622 250,000 $ 0.12
2008 Volvo S60 $ 11,000 61,850 140,000 $ 0.14
2008 MB ML320 SUV CDI 4WD (white) $ 23,888 81,694 250,000 $ 0.14
2013 Subaru Legacy $ 19,981 10,200 150,000 $ 0.14
2009 MB ML320 SUV BlueTEC 4WD (white) $ 29,000 47,704 250,000 $ 0.14
2013 Nissan Rogue (Hertz Rental Cars) $ 15,995 29,112 140,000 $ 0.14
2011 MB ML350 BlueTEC AWD, RAB Motors $ 32,988 31,432 250,000 $ 0.15
New 2014 MB GLK250 SUV BlueTEC 4WD (white) $ 40,105 3 250,000 $ 0.16
New 2014 Ford Escape AWD $ 25,264 11 140,000 $ 0.18
New Audi A7 diesel $ 75,000 1 250,000 $ 0.30
New Lexus GS350 AWD $ 65,633 1 200,000 $ 0.33
BMW 750i XDrive $ 37,999 27,431 140,000 $ 0.34
2009 Land Rover Sport BMW $ 29,872 54,050 140,000 $ 0.35

Narrowing the Field: Deciding What Kind of Vehicle We Need (and Want)

It helps if you know generally what kind of vechicles to put into the spreadsheet to begin with, so I started to look at what I thought our needs might be.

1. Size. Currently, we are a family of five, although we may expand the family again. Anything is possible. In addition, having just enough seats for each family member is inconvenient when our kids have friends over. So a six-passenger vehicle would really be nice. However, I want to be open to the most economical option, so it is time to be realistic. We haven't added to the family. Wishing for additional seating happens maybe four to five times per year. Could we be creative to address that problem when it happens? Besides, there are very few six-passenger vehicle options. When I built my own spreadsheet, one Mazda and a few big truck models (and we don't want or need a big truck) were all I could find. From there, it's seven- or eight-passenger seating.

2. Expected lifetime. Opinions differ on how long cars drive without incurring major repair bills, but let's use 140,000 miles for a gas engine and 250,000 for a diesel. So many other factors affect this: your driving style, whether you perform preventive maintenance, and even the type of mileage you put on the vehicle, just to name a few. Now that I work from home — even though we typically drive out of state several times per year — I think 10,000 miles per year is a safe estimate for us. Since I seem to drive my vehicles for six to seven years (longer, if possible), it seems that we should set our sights on a car with 90,000 miles (or fewer) on it (140,000 minus 50,000 miles). I also would like it to be a 2006 or newer.

I searched dealerships and private sales in my area. I originally started with vehicles with 90,000 miles or less, seating for five or more, and $10,000 or less. I got a surprise or two as I plugged different vehicles into the spreadsheet.

My first surprise was how few vehicles fit within those parameters. Maybe this is just my geographical area, though — or am I dreaming to think that we could buy a vehicle with 70,000 miles for $10,000?

Second, I assumed that cars would always be a cheaper option (as compared to minivans and SUVs). But that is not always the case. As an example, a Buick Lacrosse I found cost more per mile than a newer Chrysler Town and Country. Again, there are so many variables: size of car, options, etc., but this is a fun way to view the car's purchase price in black and white.

Periodically, I have heard arguments about whether buying new or used cars is a better deal. I like buying used cars at this point in my life because I have a couple of mechanics in the family and I also don't want to tie up $30,000 in a car or minivan. In the few examples that I plugged into the spreadsheet, used trumped new every time. However, I didn't factor in any dealer incentives like cash back or zero-percent financing.

Once I had a feel for how vehicles stacked up against each other in terms of raw cost per mile, I started thinking about the operating cost for some of the front-runners.

3. Cost to drive/maintain. Obviously, cars that get better gas mileage will be cheaper to drive. Gas mileage is easy to determine since it is listed with the car's specifications. It is more challenging to compare repair costs, though, because repairs on certain cars are more expensive than others. For instance, my brother works at a BMW dealership and says parts are so expensive on BMWs that he wouldn't drive one … even though he could do the repair work himself. Insurance costs depend on the type of car you drive, too. Adding different types of coverage — such as collision — if you buy a new car will increase your insurance premium as well.

Saving for a Replacement Vehicle

After we paid this car off four years ago, we kept putting $300 monthly into our savings account — and we threw some extra cash in the bucket whenever we could — until we had $10,000 saved up.

This was a painless way to save because our budget already accommodated the car payment, so to continue paying the same amount was pretty easy.

I've read about other methods, though, like adding varying amounts to your car account depending on how many miles you drive in a month: more miles = more money. I like this idea, too, because it encourages you to decrease your mileage. But it seemed like just another thing to think about, and I preferred the ease of an automatic payment withdrawal.

You could also just put extra, unexpected money into a savings account, such as, bonuses, raises, gifts, and so on like we did; but how often do you get extra, unexpected money? Since it is unreliable, it doesn't seem like it would amount to much as quickly as saving every month.

Then there is the method of not paying cash for vehicles at all. “We can make more by taking out car loans and then using the money we would have paid for the cars to gain better returns,” a friend said recently. I am glad it works for her, but I dislike car loans way too much to enjoy that.

In a nutshell, this spreadsheet was very helpful to clarify what we wanted or needed. I confess to feeling overwhelmed when I think about what we'll buy next, so this spreadsheet will be the first step to trying to find the right vehicle. This research also showed me that $10,000 is probably not going to be enough, so we will be considering other sources to add to our savings account as well.

I hope our car keeps on rolling for many more miles.

I am curious: Is anyone else driving a vehicle that is just big enough to offer a spot for every member of your family? How do you decide which kind of vehicle to drive, and how do you save for a replacement?

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Grace @ Online Stock Trading
Grace @ Online Stock Trading
5 years ago

Nice information. Buying a car can help us save money. But it is a good idea if we buy it a cash rather than paying for mortgage, just another burden if we buy car through installment plan. BTW, a car is just a liability if it can’t help us generate income. I just remember the old thought from Rich Dad Poor Dad, book.

JS
JS
5 years ago

Well, for my car, I did not go through this type of exercise, simply because I knew what I wanted (a new Mustang 5.0). Anything else simply would not do. However, this actually makes a lot of sense for me, because my last Mustang GT was still going strong at nearly 180,000 miles and over that time cost me very little in maintenance and repairs. I knew I was getting something I’d be happy with for a long time and wouldn’t be itching to trade up in a few years. I also broke our “no car loans” rule because the… Read more »

Phil Dub
Phil Dub
5 years ago
Reply to  JS

It’s good to see a car enthusiast around here! I think cars often get pigeonholed only as a necessary expense on this site. Everyone here saves their money for the things they value, some of us value cars.

I myself have a daily-driver, but also a ‘fun’ car (’03 Cobra; go Mustang!). It was bought with cash and I only put a few thousand miles on it a year, so maintenance cost is low. Others may scoff at the idea, but there are plenty of things others spend money on I don’t understand.

JS
JS
5 years ago
Reply to  Phil Dub

Phil, I am likewise glad to see another car guy here. Safety, reliability, affordability, and a modicum of practicality all do come into consideration (the Mustang does have a back seat, after all). But another major consideration for me is how exciting the car is to drive, to look at, to own. I am in my early 40s, have a good but relatively normal office job, two elementary school-aged kids, and a wife who is a homemaker. Our weekends consist of kids’ events, church stuff, etc. In other words, I have become quite boring, haha. My car is pretty much… Read more »

Lina
Lina
5 years ago
Reply to  JS

JS – I’m glad you posted this. I hesitate to mention on these boards that we have an auto payment and no plans to completely eliminate one from our budget. We’re not fans of buying low cost used vehicles for the sole purpose of not having a car payment. Before we had kids, I was fine with driving a reliable-ish clunker. But now we feel that the vehicle I drive needs to be safe, reliable, etc. since 90% of the time our kids are with me when I’m driving somewhere. 2012 was the first time I’ve ever had power windows!… Read more »

Brent
Brent
5 years ago
Reply to  Phil Dub

Another thing to consider, that isn’t covered in depth in the article, is the much lower price of repair parts for popular, collectible cars. Mustang parts will always be cheap because there is always a large market for those parts, hence lots of competition within the marketplace. On the other hand, the only company that makes engine control modules for a Nissan minivan is Nissan, so they can and will charge heart-rending amounts of money for those critical components. Or you can do what I do with my Suzuki Samurai and as stuff breaks, fab up some new stuff to… Read more »

Wiggles @FirstYouGetTheMoney
Wiggles @FirstYouGetTheMoney
5 years ago

In today’s market, I like your friend’s idea of taking out the car loan because of how low auto loan rates are compared to what you could earn if you invested. Even if you could put a down payment down, it may be more beneficial to finance 100% of the value of the vehicle and take the difference and invest it.

Rail
Rail
5 years ago

I broke my rule of NEVER buying a new vehicle when I bought my pickup 10 years ago. 1% int. rate and supplier rebate made it very lucrative to buy new, even though I took the depreciation beating on buying new. I put about 50% down and made double payments and paid the note off in 2 years which helped ease the interest pain. I also inherited a car from the grandparents so I drive that daily and keep the truck in the shed most of the time. The pickup only has 70,000 on it so I plan on keeping… Read more »

Juli
Juli
5 years ago

My car buying philosophy is to buy the least amount of vehicle that will meet your needs, in the best condition that you can reasonably afford. I live in the south, where so many people drive huge pick up trucks or suv’s just because it is “cool”. Most of the people I know that have these are not using them for hauling construction equipment or anything. Our last vehicle we bought was a new 2013 Hyundai Elantra. We have 2 kids and no plans for more, so this fits us fine. If needed, we can squeeze another adult in between… Read more »

Alea
Alea
5 years ago

Used cars used to bury us in debt with constant repairs, so buying a new car in the end saved us money. I drove that new car for 17 years and it was the best decision I ever made. Two years ago I bought my second new car, for which I paid cash (having saved for it for three years). I plan to keep this car as well until its more expensive to fix it than it’s worth, so about another 15-17 years to go. :o) Since I couldn’t negotiate my way out of a paper bag, I used the… Read more »

Alan Millar
Alan Millar
5 years ago

This is a good comparison tool. Thanks for posting it and describing your process. It’s always important for someone to stop and double-check their assumptions when building a comparison model like this. We all have personal biases; a model like this can help us to stop and re-evaluate them. I personally would not put all gas-consuming cars into the same lifetime mileage. I agree that 140k fits for most car manufacturers. There are one or two manufacturers that I would have no problem gauging at 200k for many of their cars, based on personal experience and that of friends and… Read more »

Amanda
Amanda
5 years ago
Reply to  Alan Millar

I have a 03 Chrysler Concorde and she just hit 141,000 miles and she still has much more to go. Runs great and still looks new. I hope they are not all right about that mileage thing!

Phil Dub
Phil Dub
5 years ago
Reply to  Alan Millar

I also have an issue with the mileage assumption for gas and diesel motors. Often times it’s not the motor you need to repair. It’s everything else. Manufacturers have been making combustion engines so long they’ve got it figured out a lot better than all the new electronics, suspensions, transmissions. Ever wonder why drive train warranties are longer than bumper-to-bumper warranties?

nicoleandmaggie
nicoleandmaggie
5 years ago

I have a Hyundai Accent… we just blogged about it this past Monday because we just had a 1K repair and it’s only worth 3K bluebook. To replace it new would be 15K. We can fit someone skinny in the back between two carseats. We bought it because it was the only car we could afford to buy new with cash at the time. Now there are a lot more options! I have been thinking about what we should look for if we decide to replace the Accent. I really like having a smaller car because it’s easy to park… Read more »

JoeM
JoeM
5 years ago

I probably paid a little more than I should or could have, but in 2012 I got a 2010 Ford Focus SES that was Certified Pre-Owned with 28,900. All in with 5 year Ford warranty, it was about $18,500. So about $0.15-0.16 if I keep it for 150,000 miles. I think it was a little nice overpaying in the long run. I have a 1.9% loan through Ford, so interest is negligible. Regular maintenance is free since I have a warranty. I also drive 300+ miles per week, so the peace of mind of a newer car was a must.… Read more »

Emily @ Simple Cheap Mom
Emily @ Simple Cheap Mom
5 years ago

We’re a family of three. Cars for three are pretty hard to come by! So we’ve got a 5 seater. We set aside $100 a month for our next car. This car was a generous hand me down from our in-laws (12 years old), but our last car showed me that $10K is a tough budget. Seems there’s lots of older cars with higher mileage cheaper, not much around $10k, then more and more options when you go higher. Might just be our area though too.

parinda
parinda
5 years ago

We went through this exercise twice in the past year. We had a 10yr old 4-dr sedan, and needed a second vehicle which could haul up to 6 passengers. Our budget was around 10000 and my search led me to a 2008 Chrysler Pacifica with 72K miles. A few months later we found out we needed major repairs on the sedan. The repairs would cost more than the vehicle was worth, so we decided we would look for a new vehicle. Eventually we leased a Nissan Leaf for about $200/month. We traded the sedan for the down payment on the… Read more »

PJ@NetWorthNirvana
5 years ago

Obviously this doesn’t apply to you (and hopefully to most people reading this blog!!), but frequently the best way to find your new car is just by looking in your driveway… then deciding not to buy a new car. I used to think that something like that didn’t need to be specified until my neighbor took his 4 year old car to the dealership to fix the back window, which had gotten smashed at his son’s Little League practice. He brought in a perfectly good, low-mileage vehicle that was almost paid off and left with a brand new, snazzy SUV.… Read more »

JoeM
JoeM
5 years ago

Unfortunately my father, the one of never ending short-sighted financial decisions, is thinking of trading in his paid off 2008 Pontiac G-6 with ~64,000 miles on it for something new. He’s had the car since day 1. 64k miles in almost 7 years is laughably low. His brother, my uncle, owns the dealer he bought it from, and has detailed it and done all the service on it for free. It’s basically a brand new car, except without the more modern bells and touch screen whistles. He’s looking at trading the car in and getting a 6 or 7 (!!)… Read more »

Tom@TheCoghlanTeam.com
5 years ago

I like the idea of performing an analysis before you buy a car, but I think you are missing a few key things: 1. The most important thing to consider is what type of car you want to drive and whether safety, comfort, gas mileage, repairs costs matter most. I personally am willing to pay more for safety and comfort. 2. Not all cars last as many miles as you’ve estimated. It really does pay to look at research like Consumers Report conducts to see how often the car requires repairs, and what they cost. 3. Repairs are not the… Read more »

Beth
Beth
5 years ago

I was going to comment about the same issues 🙂 I paid more at the outset for a new, decent quality car (a corolla) but saved a whole lot in repairs and maintenance during the 13 years I owned the car. I traded it in while it was still worth something and now someone else is enjoying it. I had planned to buy used for my second car, but good used cars are hard to find where I live — and supply and demand doesn’t work in your favour! On a cost per year basis, it turned out to be… Read more »

JS
JS
5 years ago

Your #3 . . . That’s the same reason we ditched our Volvo. The underlying car (body and engine) was probably indestructible like the Volvos of yore. But it was all the little electrical crap and the ancillary items (e.g. the AC evaporator) that meant we never left the dealer for less than $1,000. Usually it was more like $1,400. And the car only had 142,000 miles on it. They just don’t go a billion miles like they used to. That drives me nuts because my supposedly lowbrow and unsophisticated 2000 Mustang GT never had a repair more than $600… Read more »

Mike
Mike
5 years ago

I agree about Volvo. I’ll never own one again, even if someone offers it to me for free. Got a great deal on a V70 at purchase, only to have reoccurring electrical issues over the following 4 years cost me thousands in repairs. I’m mechanically inclined, so I’d prefer to do repairs myself, but these were electrical issues that required Volvo-specific diagnostics to even find the issues, and the parts needed for repair were predominantly proprietary parts that had to be Volvo made to work with the car’s internal computer.

Rail
Rail
5 years ago
Reply to  Mike

What applies to Volvo can also be said of BMW, Volkswagen, etc. Cheers!

JS
JS
5 years ago
Reply to  Rail

That was the exact reason we leased our X3. More expensive in the long run, yes, but I didn’t want to be out of warranty and end up unexpectedly buying a $6,000 flux capacitor.

Anthony
Anthony
5 years ago

This post is completely neglecting the fact that some cars retain value better than others. That is, once I hit 140K mi, I’m not just going to throw my car away. If you’re selling a 10 year old Porsche with 140k miles you’re going to get considerably more money back than a Ford.

Note: I’m not justifying the Porsche over a Ford as more fiscally responsible, I’m simply suggesting the capitalization cost as calculated here is a bit unfair.

Nick @ Millionaires Giving Money
Nick @ Millionaires Giving Money
5 years ago

Great post. I like the simplicity of how you choose a vehicle based on needs as opposed to wants. The spreadsheet really helps too. The Smart Car looks tempting but is impractical for a family vehicle. I would choose the Volvo as we are a family of 3 and the price and cost per mile looks attractive. Thanks for the post. Have shared with friends.

zoranian
zoranian
5 years ago

Well, my first problem is that I don’t know how $300 a month for 4 years ends up only being $10,000 (with extra added to it from time to time). Obviously this is a savings account used for more than one goal or someone has been “borrowing” from their targeted savings, or maybe it’s for 2 cars? We’ve never had any problems buying used, but $15,000 is probably a better target price if you want a car that will last awhile. This last time was the first time I bought a certified pre-owned, which was nice because I didn’t have… Read more »

Lisa Aberle
Lisa Aberle
5 years ago
Reply to  zoranian

We saved $300 until we had $10,000 saved. Then we stopped. Next time, I think we’ll keep going since $10,000 doesn’t feel like quite enough. Your $15,000 recommendation seems to be more in line with what I am seeing.

Chelsea @ Broke Girl Gets Rich
Chelsea @ Broke Girl Gets Rich
5 years ago

I really like the idea of using a spreadsheet for instant visual comparisons of your options.

When I bought a new to me car about four years ago, I made a spreadsheet of cars that fit in my budget & compared things like list price, overall mileage, expected miles per gallon, and a few other things I thought were relevant.

Ultimately, I walked away with a 2000 Hyundai Elantra that had great gas mileage, was very well taken care of, and we negotiated the price down by $500. I couldn’t have been happier.

Charissa Quade
Charissa Quade
5 years ago

I thought you were describing my car when I started reading the article! It is getting to be time to start thinking about replacing my vehicle in the next couple of years as I am still in the middle of saving to pay cash for my next car.

I love the spread sheet idea to compare the options on a practical level. $15,000 seems to be a good number to aim for before going out to start looking. Thanks!

Mahmood
Mahmood
5 years ago

Amazing no mention of Honda cars? Its been very reliable car for me for many years now.

Jameson
Jameson
5 years ago

There were some early comments suggesting that it would be wiser to buy a car with a loan and invest the amount you would have paid for the car. Although this may actually make you more one right now, I don’t think it is worth the cost of the peace that comes when you don’t have the additional debt. We have had a car in the past that we thought we just had to have and had to get a loan for it (about $12k, not anything crazy), however, within six months I decided to sell it and buy something… Read more »

Ambhom
Ambhom
5 years ago

Thanks for sharing useful information especially this formula , I would be applying it ASAP before buying a car & would suggest others too.

Capitalized $ Cost/Mile = Cost/(Expected Lifetime Mileage — Current Mileage)

Joe
Joe
5 years ago

This is an excellent comparison tool. Thank you for posting it and explaining your process.

JessieMillson
JessieMillson
5 years ago

Great article. Reading the steps on how to choose the right vehicle has helped me realize a few things. I was always fascinated about buying Nissan Juke, however, not only is it out of my price range, but I also noticed their not-so-attractive life expectancy. I was never good in choosing the right car, but this article will definitely help me prevent to purchase the wrong one. Thanks again

Wally1
Wally1
11 months ago

Cars and trucks, something I know about. I am a real gearhead, what I mean is that I rebuild my own engines, transmissions, suspensions etc. I have had a love affair with the automobile since I was 5 years old. That said, if I can give anyone advice about cars, reliability and ease of maintenance is the key. While I do have a few newer cars, Toyota, Honda and Porsche, I prefer purchasing older vehicles, preferable nothing made after 1971. The mid sixty cars (muscle cars) might cost more for a very nice example, they drive great, easy to maintain… Read more »

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