Is it Time to Buy a New Car? Making a Big Financial Decision Together
Last week my husband and I sat down and had a chat about our finances and our shared expenses. Expenses related to vehicles like gas, registration, repairs etc.. all land in the “shared expenses” category for us.
We paid off a smallish loan this month (yay!) and got together to decide what move to make next, now that the monthly expense of the loan payment is gone. We had been tossing around the idea of buying new car lately, and spent some time mulling over whether to go for it now, or wait.
My History with Cars (and Paying for Them)
I have never been much of a car person. That said, I’ve owned my own vehicle since finishing my undergraduate degree. In fact, the first vehicle I owned was a little red Honda Civic hatchback I bought at an auction in New Zealand in 2002. I paid very little for the “well loved” car, even at that time, and I’m pretty sure that I paid for it in full.
It was very interesting, to say the least, driving it off of the auction’s lot and figuring out the right hand drive - and all of the roundabouts going clockwise! Some wonderful road trips were had during my time there. I looked through all of my New Zealand pictures as I was writing this post and could not find one picture of my car! This really goes to show just how little of a car person I am.
Over the years, I’ve owned several used vehicles. I have tended to rely on my line of credit to purchase these vehicles and would pick away at the balance over time - but never really in an intense and determined “I’m going to pay off this loan!” kind of way. I’m sure I’ve paid an enormous amount in interest over the years. The cars were all pretty reliable brands like Toyota, Honda, and Volkswagen. The newest vehicle I’ve ever purchased was a 2-ish year old Toyota Corolla shortly after my separation in 2015. I needed a reliable, no hassle vehicle and this was absolutely the right decision at this transition time in my life. Oh, and a slight brag coming here, but look at all of the camping gear I could squeeze into it! I still miss that car!
My trusty Toyota took me and the kids camping several times!
Our Current Situation
When Tyler and I decided to move in together in 2019 and officially “blend” our families (we each have two kids), I traded in the Corolla and we purchased a 2014 Honda Odyssey for our newly formed family of six (gotta fit all of those kids!). It was in great shape and had very low kilometres on it so it was the perfect choice for us. Tyler also had a 2015 Acura TLX which was in really good shape that he decided to keep. The balance of the van purchase after our contributions was put on a line of credit that we have now paid off. Although it only took us a few years to pay off the loan, we still paid a pretty penny in interest on that line of credit.
It’s been great not having a car payment in the budget and the vehicles are still relatively low in maintenance expenses. In YNAB, we set aside $300 per month (using a “monthly saving builder” target) for maintenance and registration costs and this has covered everything comfortably for both vehicles. Here’s a report showing just how much this expense can fluctuate each month, but how on average we are spending about $221 per month. As a side note, this report also shows just how handy the YNAB spending reports are. We had a pretty expensive May in this category ($1580 - for various maintenance costs that all came at the same time) but the money was sitting in the category waiting to be used AND I can quickly see that our average is actually $221 - making me comfortable keeping our $300/month target.
Our Auto Maintenance and Spending report from YNAB
The Big Decision
As much as a certain step son would LOVE for us to get a new car right now, we’ve decided to hold off for some time and save up for our next vehicle. Our vehicles still have relative low mileage. Maintenance and repair costs will likely go up a bit, but they are very reliable vehicles and we don’t anticipate anything major happening in the near future (famous last words, I know, but that’s what an emergency fund is for). We will have new drivers in the household too (more precisely, a new driver every two years for the next six years!).
The plan is as follows: now that we’ve finished paying off that loan I mentioned (and my back is much happier, but that is another story), we are going to take the amount we were paying ($400/month) and put it towards our new vehicle fund.
We are going to contribute $400/month to a tax-sheltered non-retirement account and invest it in a relatively conservative investment. In ten years, and assuming 4-6% interest, we will have $58,000 to $64,000 in the account. If we decide not to wait that long (say five years), we will have a good chunk of change ready to go towards the new vehicle. We’re definitely looking at an electric car, so there may come a point where the costs of running the two gas cars outweigh the costs of buying and financing a new EV (with a hefty down payment) over the long run.
Spending the Time to Consider a Big Financial Move Together
We spent quite a bit of time talking this one through. I even put together a spreadsheet - I love spreadsheets so this was not a hardship at all 😃. We talked about the future value of our current cars, inflation, interest rates, whether the EV would go up or down in price, and the costs to maintain our vehicles as they start to get old. It was definitely not as straightforward as looking at what our monthly payments would be if we were to take out a loan.
Conclusion
We talked it through, decided to wait at least five years, and did a lot of research that will help inform our decision going forward (and I learned some fun spreadsheet formulas). When the time comes to make the purchase, we are lucky to have a kid who will spend hours (days, who am I kidding) researching the actual vehicle for us, and we’re definitely going to need his services!
My advice: for big purchases such as buying a car, take the time to talk it through with your partner and do a lot of research on the full cost of the purchase over several years. It really pays off to focus on these big financial moves together.
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