Beware the beaut deal

I’VE always thought that I was pretty smart when it came to buying cars. But maybe I’m just a cheapskate.

In more than 25 years of driving, I’ve bought just five sets of wheels. In order, a 1980 Holden Gemini, a 1984 Ford Laser, a 1991 Ford Laser, a 2001 Holden Commodore and a 2009 Holden Epica.

Not a whiff of European elegance anywhere in that lot.

Though, I must admit, the salesman of the thoroughly uncool Epica, tried. He described it as a “European-designed, Korean-built car, with an engine made by Porsche”. I still remember him smirking like Peter Costello as he was saying it. He couldn’t keep a straight face. I don’t even know if it was true.

Didn’t matter. I bought it anyway. And it’s the only new car I’ve ever taken delivery of. I only bought that one new because Kevin Rudd was offering small business HUGE tax incentives to buy new cars during the worst of the GFC.

Seemed silly to waste a government giveaway like that, given I had to buy a car anyway, as the last one had been broken into so many times it couldn’t be locked.

So, the $64,000 question.

If I add up what I paid to buy those five cars, how much did I spend? Actually, I get a little change out of $64,000. Enough to buy a few slabs of European lager. Which, knowing me as well as I do, is probably what I did.

I’m not quite alone amongst my friends. But if “nice” cars were a pre-requisite for admission, I’d be pretty close to friendless. Some of them spend $64,000 on a new car every few years.

How much were my $64,000 worth of cars worth when they got traded in (or now, as we still own two of them)? About $14,000. So, in 25 years, I’ve dropped about $50,000 on car values. About $2000 a year.

The $50,000 sounds bad. The $2000 a year does not. Especially compared with what I know others lose on their autos each year.

I spend so little on cars because, in my opinion, they are the greatest wealth-sucking vacuum on the planet. More people lose more money on cars than on any other consumer item.

Cars don’t get better with age. On the bright side, the dollar value they drop each year gets less, the closer they get to the wrecking yard.

A minority will disagree, but cars are a necessity of modern life. Therefore, how do you make cars do the least damage to your finances?

One, spend as little on them as you can. The less you spend on a car, the less it can depreciate. A $65,000 car will generally fall in value to about $30,000 after three years. A $20,000 second hand car might fall to $10,000. You’ve just saved yourself $25,000.

Do that a few times and you’ve got a house deposit. Do it for a decade or two and you could nearly have bought an investment property. Which is what I think I’ve done.

Two, a car that that can be purchased tax effectively is better than a car that can’t. If you write your car off against tax (which is, of course, preferable to a pole), then it leaves more money in your pocket.

If yours is a small business, where your accountant is depreciating the car against the income of the business, well, there’s a tax saving. If your employer is prepared to offer novated leases, then the net cost to you will also be less.

Three, don’t turn them over so often. Just when you think you would like to update your car, hold on to it for another couple of years. You’ll save another $10,000 or so each year. Then buy the car you would have bought two years ago, which is now two years older. Another $10,000 a year.

I’m creating a money mountain!

Four, avoid debt. Preferably, pay cash for cars. For a start, it will mean you pay less for them. Sure, some of these 0 per cent or 3 per cent deals sound great, but read the fine print. And if a “great” deal convinces you to spend $10,000 or $20,000 more on a car than you were initially prepared to spend … you’ve been suckered again!

Bruce Brammall is the author of Mortgages Made Easy and managing director of Bruce Brammall Financial ( ). E:


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