Most people need a car, it is a necessity that gives us the freedom of getting from A to B.
Eventually, you’re going to want to buy a new one and that’s fine if you are being reasonable. However, there are a few myths you need to be cautious of that could push you into making an unnecessary purchase.
The first of these myths is “you must turn your car over every 3 years”.The thought behind this is that if you don’t continually upgrade your vehicle, it’ll lose too much value.What it actually means is that you will forever be in debt and constantly making repayments on your loan or vehicle.This money disappears in the background and there becomes a massive opportunity cost that you might have lost complete sight of. For example, that money could be used to build your retirement savings as regular contribution payments into your chosen superannuation fund.If you are used to spending less, why not actually use that potential surplus to build your net worth? Another myth is “the maintenance on an old car is going to be more than the repayments on a new car”.We humans are naturally drawn to vivid things. Making a $300 per week car repayment tends to be less noticeable to you when compared to an upfront $1,500 maintenance bill.But the reality is that those car repayments won’t be finishing any time soon and will continue to add up.If you were constantly looking at huge maintenance bills that were beginning to add up, then getting another car might be necessary.You don’t need to get an old beat up car, you also don’t need a brand-new car. Find the middle ground and buy a relatively nice and affordable car around the $15,000 mark. If you can afford to pay cash, even better.Believing these myths is benefiting someone; there’s a high chance it’s the person selling you that car and/or giving you that loan. The last myth to discuss is “you need to buy a new car just before you retire”.The thought process of this is understandable. You are looking in the future and thinking that buying a new car just before you retire, will help you see out your retirement and avoid the need of buying another one.However, there are 2 things that you need to think about:
- More than likely, you’re going to live longer than expected.
- If you were to take the $30,000 you were planning to spend on a new car, at age 65, and instead left it in your superannuation fund that will have 7% return; the money will double in circa 10 years. If you really do need to buy another car in the future, you can utilise the return generated by the money you decided to save.
Written by Ali Hogue.