Buying a Vehicle with Cash

Why I Buy Vehicles with Cash – I Just Spent $2,500 on Repairs and I’m Loving It

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I just spent $2,500 on my 7 year old GMC Sierra with 173k miles on it to fix some major front-end components on the truck and I am loving it. Actually to be exact the bill came to $2,561.09.

OK, maybe loving it is a bit over zealous, $2,500 does set me back a bit. However, if you’re familiar with my perspective on buying used vehicles with cash you understand where I am coming from, if you’re not read on.

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Here’s The Story

I own a 2008 GMC Sierra I purchased back in 2010. It is my primary vehicle and has been a great used truck and up until this point I have had no major maintenance issues. I perform the standard maintenance on the vehicle like oil changes, brakes and tires as needed. The vehicle has a little over 173k miles on it and has been very reliable.

About a month ago I noticed some unusual sounds coming from the right front wheel and thought that maybe because my tires were old the sound was coming from the tire, so I purchase four new tires.

Unfortunately this didn’t correct the problem so I schedule the truck to be inspected at the local GMC dealership. After numerous conversations with their service consultant and shop manager it was determined that my truck needed some major work. I was skeptical at first, but then they showed me why it needed to be done.

My truck needed a new right front bearing, new ball joints on the upper and lower control arms (both sides), I had a broken sway bar stabilizer, the front end would need to be re-aligned and it was due for an oil change.

For those of you not familiar with the mechanical aspects of a truck, or if you could really care less, the repairs were necessary to keep the truck in reliable working condition. Considering the fact the vehicle hadn’t cost me a lot of money in the past, I decided to “pull the trigger” and get the work done.

Why I’m Loving It?

Again, loving it may be a bit strong, but the reason I am “ok” with spending $2,500 is due to my perspective on buying vehicles. My perspective looks something like this.

  • I always buy used because it allows me to forego the depreciation that takes place when you buy a new vehicle. Deprecation on the purchase of a new vehicle can be as much as 15% when you drive it off the dealership lot, and as much as 50% in the first five years of ownership. Buying a used vehicle 2-3 years old saves me money.
  • I always buy vehicles with cash. Taking out a vehicle loan is an expense and I don’t want to pay any more than I have to for a vehicle. In addition, as the vehicle depreciates I lose money (value) for something I am already paying more for. The math behind this type of vehicle buying scenario never made sense to me. If you’re trying to save money – it just doesn’t add up.
  • Figuratively speaking I drive them into the ground. The only way to get your money’s worth is to drive a vehicle until it is no longer reliable. My past experience with my vehicles is that I can typically get them to @200k before I need to consider a replacement. In general that’s about 10-11 years. The longer I have the vehicle the more money it saves me.

For me a vehicle is a necessity, but not an asset. An asset is something you spend money on and it appreciates in value like a mutual fund, a great stock or real estate.

No vehicle regardless of how much you spend, what brand you buy, or how well you care for it will ever be worth more money over time. (Unless of course you deal in collectibles.)

 

Effect of Compounding Interest

 

Re-Affirming My Approach

I wish I didn’t have to spend the money on my truck repairs. After all, short of investing it I am sure I could have found somewhere else to spend $2,500 that would have been much more gratifying. It’s not like I will impress anyone with the new bearings on my truck.  However, these types of unexpected expenditures re-affirm two money management viewpoints I believe are important.

Cash is King

Saving money – cash is a surefire way to keep from accumulating more debt and staying out of debt.  My $2,500 unexpected expense could have been much worse if I didn’t have the money saved to pay for it. Could you imagine charging a $2,500 expense on a credit card and accumulating a 22% interest rate annually?

Having an emergency fund or “beefing” up your savings to accommodate expenses like vehicle maintenance is a critical step to successfully managing debt – i.e. if you save money you won’t have any debt.

Buy with Cash

Buying a vehicle with cash and driving it forever may seem a bit extreme for some, but buying with cash saved me a whole bunch of money. On the front end of the purchase (no pun intended) I saved because the vehicle was already two years old. I took advantage of the depreciation that had already taken place. After the purchase I saved because I didn’t have a loan payment. I was able to take the money most people pay on a vehicle loan and stash it in the bank.

In the future those savings will allow me to save more money. And saving more allows me to prepare for my next vehicle purchase with cash – saving me even more.

 

Buy Vehicles with Cash

173k miles and still rolling.

 

What’s Next for The Sierra

As with my previous purchases, my plan when I bought the Sierra was to drive it for at least 10 years and/or run it to @200k miles. So the goal is to continue to maintain the truck doing minor maintenance and hopefully this $2,500 repair will be the last I need to make in the next three years. Once the truck is no longer reliable and starts to “nickel and dime” me, I will be in a position again to buy used, buy with cash and then drive that vehicle for another 10 years.

For many people the thought of buying a vehicle with cash can seem like an improbable task, kind of like winning the lottery. That’s because the idea of saving up a whole bunch of money can take time, and if you need a vehicle now it’s just not realistic.

However, consider this.

The average car payment in the U.S. is now $503 (seriously!), with an average loan being 68 months. Imagine foregoing that type of loan payment and putting it in your savings account.

$503 x 68 = $34,204

Or how about investing $503 in a mutual fund, earning 8% for 20 years. You’ll end up with.

$288,550.99

As you can see there are a number of other ways you can spend a vehicle loan payment that will actually save you more or make you more money.

Note: The average individual will own 7 vehicles over the course of their lifetime. If your vehicle buying strategy is to take out a loan each time, do the math and see how much you will spend in a lifetime. (Ouch)

If you currently have a vehicle loan payment don’t stress about the money you could have saved, I had a car loan at one time too. Rather start planning and saving for your next vehicle purchase with cash. Then the next time you have a $2,500 unexpected repair, you’ll be loving it to.

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What’s your perspective on vehicle purchases? Comment below.

 

Kevin is the owner of FTP and an author of the personal finance book series Filling The Pig. He uses his own past successes with debt, saving cash, investing and running his own home based businesses to teach others about Creating a Lifestyle of Opportunities.

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