As you probably know I drive a modest vehicle (Toyota Corolla) that is decent as far as vehicles go but is also far from new (2008).
As consumers we get bombarded with ads from car dealers with all types of incentives to buy a new vehicle – electronics, cash incentives and even a trip to Vegas. The dealer that I purchased the vehicle from has called, emailed and sent letters asking if I would be interested in trading up to a new car, promising that it would be worth my while.
New cars are tempting – I love cars, so it’s even worse for me. Seeing all the latest features in the newest model makes we want to trade in my current car for a newer, fancier one.
Crunching the Numbers
If I were to trade in my vehicle right now for something more modern, faster and sleek I’d probably be faced with some steep costs right off the bat.
I’d pay around $20,000 out of pocket after a trade in which means I’d either have to save up some cash in my bank account or raid by TFSA to pay for it – neither of which is ideal.
Then I’d probably face an increase in my insurance costs. I pay about $60 per month right now for insurance which would undoubtedly go up. Let’s say that went up to $105 per month, which means I’d pay an extra $540 per year extra in insurance just for upgrading to a new car.
As an accountant I’m obviously biased towards looking at numbers – and the numbers on a new car seem pretty ugly. The last letter I got from my car dealer stated they promised they could make the monthly payments on a new car lower than my current payments. The car is already paid for, so it would be tough to beat the current car payment of $0 per month.
Upgrading to a new car is one way to spend $20,000 but what if I was to use that money elsewhere?
If I decided to invest the money instead I would be inclined to buy dividend stocks, so I’d want to consider how much I would earn in 10 years if I invested the $20,000 instead (I use 10 years because I would want to keep the vehicle for 10 years).
Assuming a return of 5% annually, in 10 years I would have over $32,000. This means I would get over $12,000 for nothing – just for investing the money instead of spending it on a new car.
Finding a Middle Ground
One of the nice things I’ve been doing lately is spending a bit more on my current car so I can avoid the temptation to upgrade to a new car.
I get the car detailed about once every year and it makes a huge difference – it’s like getting that new car smell and feel but without the added cost. Winters can be tough on a vehicle and when I get it detailed it feels like it’s a brand new car (at least on the inside).
Getting the car detailed costs about $240 but I think it’s worth every penny – it makes the car feel like new and it.
Conclusion – new cars are always tempting, but I can resist the temptation by crunching the numbers and splurging once a year on getting the car detailed – it gives me that new car smell once a year and helps me avoid the temptation of getting a new car.
How do you avoid the temptation of upgrading to a new vehicle?