This content is provided courtesy of USAA.
By J.J. Montanaro, CERTIFIED FINANCIAL PLANNER™
You’ve heard of the cobbler with holes in the bottom of his shoes or the plumber with leaky pipes, right? How about the financial planner with the atrocious car-buying record? As I’ve noted here before, that would be me. I won’t bore you with all the details (they wouldn’t fit in this small space and would evoke more pain than I can endure at this moment), but rest assured I’m writing this piece as part of my own personal healing process in the hope I’ll do better in the future. As the old saying goes (without the “please”), “Do as I say, not as I do (please). It’s for your own good.”
Going with what makes sense. Buy what you can afford. Roughly 10% of your gross pay should be dedicated to transportation. I realize that everyone’s different and the numbers change based on income level. However, what should be similar is that you should be buying transportation that fits into your budget, a budget that includes eliminating debt, saving for emergencies and putting away money for longer term goals like retirement.
Going prepared. First, check your credit report at annualcreditreport.com at least 6-12 months in advance. This will give you some time to work on getting your score higher if necessary. A lower interest rate resulting from a higher score can make a big difference in your payment. A good score will also allow you to get approved for a car loan before you hit the dealer and take that negotiating tactic off their table. Another key component of going prepared is to do your research. Use the online resources available to understand the rebates, special financing deals and pricing for the vehicle you’re interested in.
Going low. Make the most of low interest rate and rebate programs. It may be that getting financing from your bank or credit union and taking advantage of a dealer rebate in lieu of the low interest rate financing will work best.
Going long term. No, I’m not talking about your loan. There, I think a three- or four-year loan is ideal. I’m talking about driving that car till the wheels fall off. Frankly, this has been my biggest challenge over the years. One note of caution here: With this as your plan, you may be tempted to buy one of those extended warranties the dealer offers (granted, “offer” is probably not an accurate characterization of the interaction). It could be a good idea, but check the price.
Going all-in. No, I’m not talking about pushing all your chips in on a huge car purchase. Just the opposite. Make sure you consider the all-in costs of ownership. Here we’re talking about taxes, insurance, and gas along with the purchase price. Remember, you’ll be saddled with more than the car payment once the vehicle is yours.
So there you have it. I feel better already. Hopefully my pain and past mistakes will keep you from a similar experience. Do right on your next car purchase — after all, does that “Do as I say” thing ever really work?