There are few things as exciting as getting a new car: the “new car smell,” the test drive, the sound system, sunroof, heated seats… the feeling of “everything is new.” And these days, cars are advanced computers on wheels (and that means even the non-self-driving kind).
With that said, yours truly recently bought a new car – the first new car in 15 years! The old 2005 (Certified Pre-Owned) B-mer went 180k miles and could have gone another 100k but with a bit of maintenance here and there. Time for a new vehicle. But what new car to buy? New or used? Sedan or SUV? Buy or lease? And the cost: go expensive or reasonable in cost?
Any major purchase – housing, appliances, transportation, kids’ education, and the like – needs to be evaluated both from a financial and emotional perspective. The emotional side is fairly obvious, but the financial side has obvious and not-so-obvious factors. Cash flow considerations are obvious and not-so-obvious.
The obvious parts of the cash flow consideration:
- Do I have the money in my bank account to write the check?
- Am I making a down payment or buying the vehicle outright?
- Buying a car outright is a huge positive for monthly cash flow although having a large enough sum of cash on hand can be challenging – depends partly on stage in life and job level/security.
The not-so-obvious factors of the cash flow consideration:
- What is my credit score? (Even cash purchases require a credit inquiry.)
- If leasing or borrowing – Am I ready for the longer-term commitment to a car payment?
- If paying cash, what method of “paying cash” will be readily available? (This factor can be surprisingly complicated!)
- If I go with the expensive vehicle now, will I be sacrificing other things that I want and need now (or even later)?
- Conversely, if I go with the reasonably priced car now, will I leave open the possibility for the car or other things I really want later? (This consideration is even heavier with the college tuition decision.)
All of these considerations may seem obvious but buying a car – or house or second home or paying kids’ college tuition – involve large dollar purchases with swift time frames that are loaded with emotion and practical factors. There are short-term and longer-term financial implications. The idea is to minimize immediate financial stress and maximize longer-term happiness and enjoyment. In this era of buying houses sight unseen in some cases or buying cars online without the test drive, these spending decisions need to be made with an awareness of the obvious and not-so-obvious.
Ask me what car I bought!