Have you ever gotten a bad piece of financial advice? You’re not alone. We’ve all had a “helpful” friend or relative that’s given us a pointer in the wrong direction. The good news about bad advice is that we can still learn from it - we can learn what not to do.
It’s time for Part 5 of our series about “The Worst Financial Advice You’ve Ever Received.” With each article in the series, we’ll share the bad advice you can get, the surprising and sometimes funny examples others have run into, and ultimately what you should focus on instead.
Bad Advice: “Buy your cars new - it’s worth it!”
The dealer wants you to buy new. The car loan company wants you to buy new. And even your overprotective mother wants you to buy new.
Joe Hx fell into the mother-guilt trap:
“Last time I needed to buy a car, my mom urged me to buy a brand new one instead of a reliable used one. Now, I love my mom, but she’s never been the best with finances, so I should’ve known better than to follow her advice. Nevertheless, I bought a brand new car - only seven miles on the odometer at the time of purchase.”
After all, new cars are more reliable, safer, and that makes them a good deal, right?
While it may be true that new cars have some additional safety features, those features (and the other bells and whistles) come with a hefty price-tag. Cars typically lose 10% of their value in the first month, 20% by the end of their first year, and 60% by the end of their fifth year.
That $40,000 car could be worth just $16,000 after five years - a depreciation cost of $400 a month. Add that to a monthly payment and you could easily spend $45,000 over five years for a car worth just a third of that value.
Good Advice: “Buy Used, Don’t Replace Until You Have To, and Invest the Difference”
Jason from Winning Personal Finance was able to resist the urge to buy new. By his math, the money saved by buying used (and investing instead) could be worth millions of dollars by the time he turns 65.
Jason didn’t just save by buying used, he’s also saved by choosing not to replace his car until needed and avoided adding a second car to his family’s fleet:
“It’s been suggested to me many times that I upgrade my 2006 Altima and add a second car for our family. Thankfully, I’ve passed on these suggestions."
But what do you do when you need to get a replacement car?
Tom Drake from Maple Money has a strategy that saves him a lot of money, while still getting the benefits of reliability in his purchases:
“I’ll buy a roughly 2-year-old vehicle, paying about a third less while still having low mileage and some warranty.”
Transportation is often one of the largest expenses in a family’s annual budget. Don’t let it become any bigger than it needs to be! Be smart with your car purchases and you can have a smoother financial ride.