Rethinking Your Ideas About Transportation
Cars can cost a lot of money: Payments or leases usually run several hundred dollars a month; maintenance and repairs are expensive; over-the-top gasoline prices can squeeze your budget; and registration and insurance can set you back a thousand dollars or more each year.
Looking into Public Transportation
If you live in an area where you can walk or bike to work and the grocery store, or if you have a reliable mass-transit system in your area, consider getting rid of your car.
To most people this is a revolutionary — if not repulsive — idea. Having a car is like having a name: Everybody has one! Well, actually, they don't. Plenty of people who live in large cities don't own cars, and they love it. And more and more environmentalists are touting the benefits of walking or biking or riding public transportation to work, so you're not completely alone there, either.
Even if you're not a city dweller or staunch friend of the earth, getting rid of your car can make sense. There's an immediate financial impact. If you're making monthly car payments, those will stop right away. And if your car is paid off, you'll get some cash that will help you pay your other bills.
Many people wonder how you'll get home for the holidays or take vacations if you don't have a car. The simplest solution is to rent a car when you need one. You may pay a lot for the rental five or six times a year, but that cost won't come close to the amount you now pay in car payments, insurance, maintenance, and so on.
Going the Bicycle or Vespa Route
Even if public transportation in your area isn't up to par, you may still be able to live without a car, especially if you live in an area with a mild climate. Cycling to work every day gives you two immediate benefits: 1) It saves you money; and 2) it gets you into shape.
Many companies now offer a shower at work, so if you get sweaty on the ride in, you can shower and change into work clothes when you get there. By installing a pack on your bike (called townies) that holds two sacks of groceries, you can also stop by the store on your way home.
If being completely reliant on your physical prowess to get you around town is a little much for you, consider investing in a moped, such as the popular vespas. These economical vehicles are like low-powered motorcycles, and generally run from $800 (used) to about $2,000 (gleaming and new).
If you can sell your car, buy a vespa, and saving bundles in gas, insurance, and registration might make getting a little wind-blown not seem so bad.
Keeping a Paid-Off, Reliable Car
Note that if you have a reliable car that's paid off, runs well, and costs a reasonable amount in gasoline, maintenance, and insurance, you're probably better off not selling it. A car like this is just too rare to part with.
Another situation in which selling your car isn't a good idea is if you're upside down in your loan — that means your car is worth less than you owe on it. If you're upside down in your loan and interest rates are lower than they were when you bought the car, look into refinancing your car loan.
Next time you buy a car, purchase the highest-quality model you can afford, put as much money down on it as you can, and arrange for the fewest number of payments possible. Then plan to drive the car — payment-free — for as many years as you can after you pay it off.
Deciding Between a Hummer and a MINI
If you're in the market for a car (new or used), you'll need to make an important decision: Hummer or MINI. Another way to put this is, are you going to go with a roomy interior and low mpg, or a small interior and high mpg?
The MINI (and similar small or hybrid cars) offers a few advantages:
They cost less. Sure, you can get a souped-up MINI (the S version, in the convertible, with all the available packages and options), but even that's not going to cost you as much as a Hummer. If you finance your car, this means that your monthly payments will be lower or you'll be able to finance your car for fewer months.
They get much better mileage. This has substantial financial ramifications over the next several years, especially given the recent jack in gas prices.
Your auto insurance may be cheaper. This didn't used to be the case, as smaller cars were also often less safe, so insurance for smaller cars wasn't any less than for larger ones. But today's small cars often do just as well in crash tests as larger, more expensive cars, and because the smaller cars cost less to replace, insurance companies charge less in premiums.
Parking is easier. You can park in all those parking-garage spaces that say “Compact cars only.” Finding parking for a smaller car is always easier.
Choosing Between Leasing and Buying
Except for a few business-related tax breaks, leasing a car will never improve your financial picture. Leasing a car amounts to borrowing it for a specified number of months or years and, at the end of your contract, giving it back. Leasing is attractive to many people because your monthly payments are lower than when you buy and the length of a lease contract is usually fairly short, which means you can get a new car more often than if you buy. But leasing it is really just having a long-term rental car.
If you must own a car, don't lease! Instead, buy a reliable car on the fewest number of payments you can afford and plan to drive it for 10 years. After you've paid it off, keep making the payments to your savings account so that you can pay cash for your next car.
In order to improve your financial picture, stop thinking of a car as an extension of who you are. Ultimately, if you're miserable because you're sinking deeper and deeper into debt and/or don't know how you're going to pay your bills this month, who cares what you're driving?
You also want to stop thinking of a car payment as a fact of life. Just imagine how much more breathing room you'd have each month if you didn't have a car payment. Well, leasing never lets you go there. You're locked in to making a payment every month, and when you're done paying, you still don't own a car. You just have to go out and get another one, and make the lease payments on it for several more years.
