Elaine From Massachusetts asks: "Given the fact that more people are traveling further for better paying jobs -- How does your concept of purchasing a car cash apply? I travel a total of 100 miles a day round trip for work. Travel time is about 1 hour 15 minutes peak times and when it snows it can take over 2 hours. YES, a new job closer to home would be ideal but close to home does not have anything but small mom/pop stores and Wal-Mart / gas station/ Auto Zone/ Home Depot/ Sears.... no big companies that pay like HP, EMC, 3Com or Verizon. The current truck I am driving has 250,000 miles. It is TRYING to make it through the winter.. Help!"
Mike: Hi Elaine,
We try to purchase used cars in good shape for cash. Generally, we shoot for around $5000 for a car with 50K miles or less. We have not always had the cash, and in that case, we've bought the $5000 car using a zero percent credit card. We don't recommend that because you still have to pay for it eventually and using credit just delays the inevitable. If you do use credit, I'd still bite the bullet and pay it off as fast as you can even if you get a no interest loan.
Regarding your question about long traveling distances, there are only two options that we can see. Either expect to pay a lot for traveling expenses or move home and work closer together. We used to live in a remote area in rural Idaho. I drove 100 miles each way to work and it was 70 miles to the nearest town where we could go shopping. There weren't many places to work in the town of 400 where we lived and most of those paid only minimum wage. Eventually, we had to move to a city where we were closer to jobs.
If all of the workplaces are far from home and the shopping is far from home, it seems like the easiest way to reduce traveling costs is to move closer to the city where you work.
Alternatively, you could develop a web business or some other home business, but beware that web businesses take just as much work as any other business and take time to set up before they make money. The "up" side is that if you're living in a house that has been in your family for 7 generations, you can keep your house and also reduce your traveling cost.
I may have misunderstood the question, but whether or not you have a new car does not seem relevant to your driving distance. If you want a more fuel efficient car, you can buy a gently used car with cash and be way ahead on your costs rather than buying a new car. When we did the math, we figured that buying a brand new car to save money was not a good idea. If you want a new car and you are willing to pay for it, go ahead and get one. If you don't need to save money and you really want the car, that is a choice that you are free to make.
As far as costs, though, consider this: If you buy a new car for, say $25,000, you will pay substantially more than the $25,000 cost if you get a car loan (because interest and fees add additional cost). If the new vehicle gets gas mileage twice as good as a $5000 used one, the amount you spend on the price of buying the new car will far exceed the amount of gas money saved over the life of the car, not to mention the higher insurance and license tag costs.
If we were in your situation, I'd start looking for a good deal on a used car in good shape that I could hopefully buy with cash by the time the truck goes to truck heaven. If you look at a lot of cars and if you check them out carefully, you can get a better deal than you might think. If you don't know anything about cars, enlist a friend who does to check it out for you. When you think you've found "the one", you can pay a mechanic to check it out for you to make sure it is in good condition. This usually costs around $50.
For us, we would continue to buy used cars if our income was higher and then use the extra money to pay off any debts or invest the savings in something permanent like real estate.
Just to be clear, don't feel like you need permission to buy a new car if you want one. If you can afford a new car and are prepared to pay for all of the costs, go ahead. Our point is that financial matters are all in a balance and in order for everything to work out, all of the money you spend has to work out to less than all of the money you bring in.
If you do decide to buy a car new, don't make that decision based on the fact that a car salesman says you can get a loan. Make sure you do the math and feel comfortable with the cost. The salesman wants to make money and it's not his problem if you have trouble making your payments.
I hope this helps!
-Michael
