Drive the Old Car or Buy a New Car?

By Tara Struyk on 9 November 2011 (Updated 27 February 2014) 7 comments

When I was growing up, my mom drove a gray Oldsmobile Omega. By the time I was old enough to notice such things, it was an old car — much older, and clearly less luxurious, than those most of my friends rode to school in. When the plastic knob broke off the end of the shifter, it was replaced with a huge wooden one. When we hit a bump in the road, the radio hissed with loud static. Near the bitter end, duct tape held up the driver-side window.

When my mom finally got a new car during my second year of university, I was relieved. But when “Old Gray” recently came to mind, I found myself feeling less embarrassed than grateful. Here’s why. (See also: 7 Ways My Clunker Is Smarter Than a Hybrid)

Do You Want a Nice Car, or a Nice Pile of Cash?

My parents were fiercely (and at the time, inexplicably) loyal to their reliable old car. In fact, when I admired newer cars on the road, my mom would sniff, and say, “Yeah, but this one is paid for.”

At the time, I had no idea what that meant. I knew that both my parents had good jobs, so why couldn’t we have a new car like everyone else? The answer — the cost was just too steep, and in more ways than one. According to the Federal Trade Commission, the average cost of buying a new car is approaching $30,000. At an average interest rate of 6.5%, that $30,000 car would mean monthly loan payments of $586.98 per month for five years. Put that money into an investment that returns 5%, and you’ll end up with more than $40,000 in the bank in that same five-year period. Shelling out a lot of money to keep yourself in a nice ride is fine, if you can afford it. But with a national savings rate of just 4.5% of disposable income (not total income!), and many people arriving at retirement without a penny in the bank, chances are that a nice ride is further out of reach than most people realize.

Just about everyone is guilty of a little “keeping up with the Joneses,” but there’s a big difference between being able to afford something and being able to afford the payments. Next time you catch yourself envying what someone else is driving, think about what you might really be aspiring to. While I may have been rattling around in a beater as a kid, what this meant was not that my parents were poor, but that they were saving their money. And, as it turns out, that’s not as lame as I had assumed.

ARTICLE CONTINUES BELOW

Living in the Fast Lane Can Lead to Financial Crash and Burn

As my mom prepares to retire, I’ve found yet another reason to be grateful for Old Gray — because we didn’t ride around in a car my parents could barely afford, I don’t have to spend my adult life trying to figure out who’s going to finance my mother’s retirement. This is no small thing. A recent report released by Massachusetts Mutual Life Insurance Company stated that only 3 out of 10 American parents believed they were adequately preparing for retirement. Plus, those parents were planning to have to care for their own parents as well. 

My parents stuck it out with Old Gray for more than 20 years, which was pretty unusual then — and very rare by today’s standards. But, because of this and other similar choices, their retirement will not be something that will fall to me, which means that I have a shot at retiring comfortably too.

The (Somewhat Sensible) Way I Roll

Now you’d probably expect that I’d end this by telling you that I drive an old, reliable car. I don’t. I bought it used, and I went for reliable — but I paid the price for a turbo engine and heated leather seats. What that says about my desire to keep up with the Joneses may be another story altogether, but what I do know is that while I’ve taken some pains to drive a nicer car than my parents would ever buy, there is a limit to how much I would sacrifice for that experience — saving and investing will always come first. And if that means I’m still driving the same car 20 years from now, so be it.

Oh, and one more thing — Old Gray is still on the road. Perhaps my parents could have held on to it a little bit longer.

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Guest

When I bought it, my '97 BMW was a small luxury - it's entry level and cost about as much as a fully loaded Taurus. It fits my needs perfectly, is a pleasure to drive, gets 30 MPG, and I've maintained it religiously. I'm expecting another 100,000 miles out of it, by which time they should have the kinks worked out of the 100 MPG turbo-diesel pluggable hybrid.

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PKamp3

In some cases recently (well, since Cash for Clunkers), it makes sense to get a new car over an older one. The delta between prices isn't much, and you can sometimes get perks - a warranty to cover your repairs, 2 years of routine maintenance, 0% financing, etc.

I agree - on a $30,000 or a $40,000 car, you're usually off buying used. However, in some cases the math has switched to favor new cars (and even evil leasing, heh!). I think it's more important than ever to run the numbers before you show up at the car lot.

Guest's picture

This is a great post. Making smart financial decisions is all about careful forethought and projecting consequences into the future. It seems like a small concession to make to drive Old Gray and be able to save; when you are able to retire comfortably, nobody cares what you drove. Some things matter more than image, and saving and investment are certainly two things to care about. I am all for driving old cars: there is less stress involved. I was lucky enough to get a new car as a gift from my parents, but I ended up worrying so much about anything happening to it that if I could go back, I would rather have more money now and less stress driving an Old Gray.

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Hannah

Love this. I drove a 21-year-old car until very recently. The car was almost as old as me! It didn't make me look cool but it was nice being able to save the money instead of having a payment. I recently purchased a safe, reliable, 3-year-old car with cash as a replacement. It was well worth the wait!

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Guest

Very good post.
I was in swing between upgrade my car or sticking with my 11 year old white horse!
This article wakes me up.

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Guest

Good article. I recently had to buy a new car for work so it definitely applies to me. What I've learned is if you are going to buy a new car don't buy more car than you can afford. And don't pay more than you have to. Use sites like http://www.truecar.com and edmunds.com to find the best prices on the cars you want.

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JeepLuvr

I personally love my old SUV, it's a 1995 Jeep Cherokee 2-Door, 2-Wheel Drive, 5-Speed Manual Transmission with 241,000 miles. I used to be that 7 or 8 year old that would be like, "Why don't we get rid of this junker and get something newer and more cool?" Deep down, I really did/do love it. When I was 13 I started to notice around my area that there were lots of Jeeps and there was a huge aftermarket for lift kits, big tires and all kinds of great modifications to make it just as cool as any new car on the road and if not, even better! By the time I was 15, I told my Mom I wanted the Jeep as my first vehicle. I thought about things rationally. Jeeps are reliable. They can be modified to be made better! They are one of the longest lasting vehicles in the United States. Mine was fully paid off and I had no car payment. Full Coverage Insurance was cheap on it! Needless to say, I am now 16 and roll around in my Jeep all the time and dare anyone to say anything to me about it. It has been through thick and think with me and my family and will keep it probably until I die!