This is a guest post from Joel Berry.
I recently had a talk with a friend about why I haven't purchased a new car. He can't understand why I still drive a 1995 Geo Prizm. I can afford to buy a new car, but I choose not to. The fact is, driving an older car saves me money!
To prove my point, I ran some numbers. I was surprised by how much money I've saved by driving this car for so long.
Used vs. new
I bought my Geo Prizm in 1995 with 5,000 miles on it. It now has 140,000 miles on it and still runs fine. I paid off the car in 1999. It is now 2008. I haven't had a car payment in nine years.
How much has this saved? Our payments for this car were $250 a month. Over nine years, I've gone 108 months without making a payment. At $250 a month, that's a savings of $27,000.
Over the lifetime of the car, I've spent less than $2000 in repairs. Subtracting this from my savings still leaves me with $25,000 extra over buying a new car right after the Prizm was paid off.
Using past history as a guide, I can assume that my car will need more repair as time goes on. The most recent repair cost me $1,000. Let's assume the worst and say I would spend $1,000 a year for every year that I keep the car from this point forward. Now, let's compare that to the cost of buying a new car.
Assume that I could buy a newer car for about the same $250 payments I had on my Prizm. (I think that number is a little low, but let's just assume.) That means my annual cost for a new car would be $3000. If we figure that I'll spend $1000 a year repairing the Prizm, it still saves me $2000 a year over buying a new car. If I were able to keep the car for four more years, that would add $8000 to the $25,000 I've already saved.
I will have basically saved $33,000 by driving my old car for a total of 17 years.
But wait! That's not all! I've also saved money in several other ways not accounted for in the numbers above. Some examples:
- Cheaper insurance
- No down payment
- I've freed up money so that I didn't have to take on as much debt for other expenses
I've also kept the Prizm long enough that the items I did have to replace early on for the car are now covered by a lifetime warranty. Any time my starter, alternator, struts, or brake pads wear out, I can get replacement parts for free from Autozone. I can fix the car for just the cost of labor, or fix them myself.
There are some drawbacks to having an older car. I once had to have the car towed, and then was without a vehicle for five days while it was being repaired. I also spent a few weekends doing work on the car myself in order to keep costs down. The car is starting to rust. And, of course, it no longer has that new car smell.
I didn't include the cost of oil changes or tires in the numbers for repairs. I figured this was normal wear-and-tear that would have occurred no matter which car I drove.
My goal is to drive the Geo Prizm for another four years. I am going to put away $300 a month. (I'm putting away $300 instead of $250 because the price of cars has gone up since 1995.) I'm putting this money in an ING Direct account to use for car repairs and a down payment on another used car. If this works out, I should have $10,400 set aside for a down payment on my next car, and will have spent an additional $4000 in maintenance for my current car.
I realize this might not work for everybody. And who knows? My next car might not be as good as the Prizm has been. But numbers like these are why I have opted not to buy a new car yet. I have better things to do with my money than to keep up with the Joneses.
J.D.'s note: I think Joel's story is awesome. Though I complain incessantly about how much I want a new Mini Cooper, the fact is I'm following Joel's plan, too. I'll drive my Ford Focus into the ground. This story reminds me of Dave Ramsey's Jami Dwyer.