2022-09-20_New_Car_vs_Used_Car
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00:00:30.000 | - Welcome to Radical Personal Finance,
00:00:32.000 | a show dedicated to providing you with the knowledge,
00:00:34.000 | skills, insight, and encouragement you need
00:00:36.000 | to live a rich and meaningful life now
00:00:38.000 | while building a plan for financial freedom
00:00:40.000 | in 10 years or less.
00:00:41.000 | My name is Joshua Sheets, I'm your host,
00:00:43.000 | and today we continue our series on how to buy a car.
00:00:46.000 | This is episode four in that series,
00:00:48.000 | and today we're gonna talk about deciding
00:00:50.000 | if you should buy a new car or a used car.
00:00:54.000 | First episode in the series was decide
00:00:56.000 | whether you should buy a car or not.
00:00:58.000 | Second was decide what kind of car you should buy.
00:01:01.000 | Third was decide how much you should spend on a car,
00:01:04.000 | and then today we're gonna talk about buying
00:01:06.000 | a new car versus a used car.
00:01:08.000 | Now let's begin with the obvious bit of advice.
00:01:12.000 | If you agree with the analysis in the previous episode
00:01:16.000 | that you should, if you care about wealth,
00:01:19.000 | limit the amount of money that you expose
00:01:21.000 | to things that go down in value,
00:01:24.000 | then the numbers that I discussed
00:01:26.000 | in the previous episode might make your decision for you,
00:01:30.000 | might make it very obvious.
00:01:33.000 | The previous episode, I encouraged you
00:01:35.000 | to set a budget for about 10% of your household income
00:01:41.000 | to be spent on a car.
00:01:44.000 | So if you just go with that rule,
00:01:45.000 | that will quickly get you to wealth.
00:01:47.000 | I talked about it, it can go higher,
00:01:49.000 | perhaps as high as 50%,
00:01:51.000 | but let's start with a 10% number.
00:01:53.000 | If you're going to budget 10% of your annual income
00:01:55.000 | towards the virtuous price of a car,
00:01:57.000 | your annual income will make your car buying choice
00:02:00.000 | fairly obvious.
00:02:02.000 | If you earn $50,000 per year,
00:02:04.000 | you have a $5,000 budget to buy a car with.
00:02:08.000 | You're not gonna buy a new car.
00:02:10.000 | You're gonna go and you're gonna find
00:02:11.000 | a high-quality used car in that $5,000 price range.
00:02:15.000 | On the other hand, if you earn $2 million a year,
00:02:18.000 | and thus your annual car buying budget is $200,000,
00:02:21.000 | you're not gonna buy a used car.
00:02:23.000 | You're gonna go and purchase a new car
00:02:25.000 | whenever you want to.
00:02:26.000 | And so if you follow that formula,
00:02:28.000 | it's going to make your decision obvious in many cases.
00:02:32.000 | However, there are various other mitigating factors,
00:02:36.000 | and many people struggle with making the decision
00:02:39.000 | if I should buy a new car or a used car,
00:02:43.000 | especially when the numbers are much more available,
00:02:45.000 | much more reasonable.
00:02:47.000 | And people look at this and say,
00:02:49.000 | "Well, what about the long-term effect?
00:02:51.000 | "Why don't I buy a new car and keep it for a long time?"
00:02:53.000 | Et cetera.
00:02:54.000 | And so today's show,
00:02:55.000 | I'm going to discuss the marketplace of buying cars
00:02:58.000 | so that you'll know how to coach yourself
00:03:00.000 | into whatever decision is appropriate for you.
00:03:04.000 | Let's begin with the numbers,
00:03:05.000 | because the numbers do matter.
00:03:08.000 | If a new car and a used car
00:03:14.000 | were both available to you at the same price,
00:03:18.000 | then in virtually all circumstances,
00:03:21.000 | you would choose to buy the new car, right?
00:03:25.000 | If you have a budget of $50,000
00:03:27.000 | and you're going to go and buy a car,
00:03:29.000 | and you can get a brand new car for $50,000
00:03:32.000 | or you can get a used car for $50,000,
00:03:35.000 | in most cases, you would buy the new car,
00:03:38.000 | because after all, newer is better.
00:03:41.000 | I can think of a few arguments against the new car.
00:03:45.000 | Usually this would have to do with something like technology.
00:03:49.000 | For example, a market that I know, diesel pickup trucks.
00:03:52.000 | Now, with all of the emissions restrictions
00:03:55.000 | on diesel pickup trucks,
00:03:56.000 | although new diesel pickup trucks
00:03:58.000 | and new diesel trucks in general are really wonderful,
00:04:02.000 | you can--
00:04:04.000 | many people prefer to buy something that's older,
00:04:06.000 | that has the old technology,
00:04:08.000 | that doesn't have the emission systems
00:04:10.000 | to avoid the expense of those things going wrong.
00:04:13.000 | And so you would choose to buy--
00:04:15.000 | but in most cases, you would buy the new car.
00:04:17.000 | We could make the exact opposite.
00:04:19.000 | Right now, there are some cities in Europe
00:04:21.000 | that are banning cars because of, again, emissions,
00:04:25.000 | banning cars of a certain age or vintage.
00:04:27.000 | And so there are some old cars
00:04:29.000 | that are basically becoming worthless
00:04:31.000 | because they can't legally be driven
00:04:33.000 | into certain jurisdictions.
00:04:35.000 | And so that would be another example
00:04:36.000 | of where you would have to go to a new car.
00:04:40.000 | So if cars were priced the same for new and used,
00:04:45.000 | then you would purchase a new one, naturally.
00:04:48.000 | However, obviously, cars are not priced the same.
00:04:52.000 | The normal car marketplace tells us
00:04:56.000 | that a vehicle loses 20% of its value in the first year
00:05:01.000 | and 15% of its value every year thereafter.
00:05:04.000 | And this makes sense.
00:05:06.000 | Let's pretend that you're looking for a pickup truck
00:05:09.000 | and a year ago, I went down to the dealership
00:05:12.000 | and I paid $50,000 for a pickup truck.
00:05:15.000 | But today, I've decided I don't want to own it anymore.
00:05:17.000 | And I've got a one-year-old pickup truck
00:05:20.000 | that I'm willing to sell to you.
00:05:22.000 | And you'd like to buy a nice, new, expensive pickup truck,
00:05:26.000 | and you're thinking about buying mine.
00:05:28.000 | Well, if the new one at the dealership costs $50,000
00:05:30.000 | and mine costs $50,000, you're not going to buy mine.
00:05:35.000 | You're going to go to the dealership.
00:05:36.000 | Similarly, if the dealership charges $50,000
00:05:39.000 | and I tell you I'll sell you mine for $49,000,
00:05:42.000 | you're going to go to the dealership to get the new one.
00:05:45.000 | It's not enough of a savings.
00:05:46.000 | And we know that basically I need to come off my price
00:05:49.000 | by about 20% to account for the mileage, the wear and tear,
00:05:53.000 | the lack of dealer options, the lack of the thrill
00:05:56.000 | of new car ownership, etc.
00:05:57.000 | That when I get to around $40,000,
00:06:00.000 | which would be 20% under the new purchase price of $50,000,
00:06:05.000 | I'll be able to attract a buyer.
00:06:07.000 | Somebody will come along and give me $40,000
00:06:09.000 | because they get an almost new pickup truck
00:06:11.000 | at a 20% savings, save their $10,000.
00:06:14.000 | Every year thereafter, we're going to go down by 15%.
00:06:17.000 | So let's use some numbers.
00:06:18.000 | Again, new vehicle, $50,000.
00:06:20.000 | End of year one, the vehicle is worth $40,000.
00:06:22.000 | At the end of year two, the vehicle is worth $34,000.
00:06:27.000 | So we've gone from $50,000 of value,
00:06:31.000 | and in two years of ownership,
00:06:32.000 | we'll have $14,000 of depreciation.
00:06:35.000 | It's a lot of money.
00:06:37.000 | End of year three, the vehicle will be worth $28,900.
00:06:41.000 | End of year four, the vehicle will be worth $24,565.
00:06:47.000 | Basically half.
00:06:50.000 | This is why buying new cars is really best reserved
00:06:55.000 | for those who have enough income and enough money
00:06:58.000 | that they can easily and comfortably lose this money
00:07:02.000 | without it bothering their financial situation.
00:07:04.000 | For somebody who is getting started,
00:07:07.000 | who is building wealth,
00:07:08.000 | losing $25,000 over the course of five years of ownership
00:07:14.000 | is a big price tag if there are alternative options.
00:07:19.000 | A new vehicle by the end of year four
00:07:21.000 | will usually be worth about half what it is in year one.
00:07:25.000 | So why is it that we can go and we can shop the used marketplace
00:07:28.000 | and feel so good about making that recommendation?
00:07:32.000 | The reason is cars are durable goods.
00:07:35.000 | They last for a very long time.
00:07:38.000 | Unlike some items that are single-use items
00:07:41.000 | and you would never buy it used,
00:07:43.000 | unlike some items that very quickly are not worth anything very, very quickly,
00:07:49.000 | cars have a long expected lifespan.
00:07:52.000 | I think a reasonable lifespan for just about any car
00:07:55.000 | is somewhere between 20 to 30 years.
00:07:58.000 | You could argue that there are cars that are older.
00:08:01.000 | That's true, but basically 20 to 30 years feels right to me.
00:08:05.000 | If I think about in the year 2022,
00:08:08.000 | driving a vehicle that's a 2002,
00:08:11.000 | that feels totally fine to me.
00:08:13.000 | I don't see any problem with that.
00:08:14.000 | I would probably start shopping for another new vehicle,
00:08:16.000 | but I'm not worried about a 20-year-old car.
00:08:19.000 | If we can get to a 30-year-old car, that would put us in 1992.
00:08:23.000 | That feels a little bit ancient.
00:08:27.000 | Ideally, I think somewhere in that 5 to 10-year-old car number
00:08:33.000 | is a really great sweet spot where a vehicle still has a lot of life left in it.
00:08:37.000 | If you're buying vehicles in that range,
00:08:40.000 | you can save quite a lot of money on depreciation.
00:08:44.000 | Let's pretend that you could go out,
00:08:46.000 | you could buy a 4-year-old vehicle for $25,000,
00:08:49.000 | and then you were going to drive it for 4 years.
00:08:52.000 | You would still have depreciation.
00:08:54.000 | Your $25,000 vehicle, because it's not new,
00:08:58.000 | it wouldn't have the 20% in the first year,
00:09:00.000 | it would go down by 15%,
00:09:01.000 | but at the end of year 4,
00:09:03.000 | it would decline in value from $25,000 to $13,000.
00:09:07.000 | Now, the decline in value represents not just money that is disappearing,
00:09:13.000 | it represents a genuine cost to you.
00:09:16.000 | You could take the bus everywhere,
00:09:18.000 | but instead of doing that, you are choosing to pay for a car.
00:09:24.000 | Some of those costs are obvious, such as fuel, insurance, repairs,
00:09:28.000 | but some of those costs are simply the wear and tear,
00:09:31.000 | the using up of the vehicle,
00:09:32.000 | and that's what depreciation represents.
00:09:34.000 | It represents the using up of the useful lifespan of the vehicle.
00:09:38.000 | That $25,000 car at the end of year 4 would be worth $13,000.
00:09:42.000 | You would still lose $12,000, but $12,000 is better than $25,000.
00:09:48.000 | If you really, really wanted to be frugal,
00:09:51.000 | your best bet is to shop for cars somewhere in the 10-15 year old price range.
00:09:59.000 | At the end of year 10, a $50,000 car would sell for $9,265.
00:10:06.000 | And if you operated that vehicle for 5 years,
00:10:09.000 | you would have $5,000 of depreciation.
00:10:12.000 | It would go from $9,265 to $48,36 of value from the end of year 10 to the end of year 14.
00:10:21.000 | So that's where you could, in theory, operate a car at the lowest depreciation cost
00:10:27.000 | while still having a reasonable vehicle with a good amount of lifespan.
00:10:31.000 | But that is also where you start to get with other things,
00:10:34.000 | where the vehicle starts to look old, starts to look a little bit dingy.
00:10:38.000 | It might not be as mechanically reliable as you would love it to be.
00:10:42.000 | You might not trust it, etc.
00:10:44.000 | It might have other expenses that are associated with it.
00:10:47.000 | So we want to keep these financial considerations in our mind
00:10:50.000 | when thinking about new cars versus used cars.
00:10:53.000 | People who always buy a new car, keep it for 2 or 3 years,
00:10:58.000 | and then sell it and buy another new car,
00:11:01.000 | they always operate a vehicle at its most expensive part of its depreciation schedule.
00:11:08.000 | They have the highest depreciation expense during those years.
00:11:13.000 | If you can afford it, go for it.
00:11:15.000 | If you don't mind doing that, you enjoy having the new car, the latest technology,
00:11:18.000 | all the latest and greatest, go for it.
00:11:20.000 | But if you're trying to make a decision that covers and allows you to spend less money,
00:11:25.000 | that's where it's the most expensive for you to operate a vehicle.
00:11:28.000 | So you're looking for a vehicle that's new enough to give you what you need,
00:11:33.000 | and yet old enough in order to save you money on depreciation expenses.
00:11:40.000 | Now that we've talked about the money, I want to pivot and talk about some of the features.
00:11:45.000 | Notice that in my recommendations, we didn't begin with the money.
00:11:52.000 | I started by encouraging you to decide what kind of car you should buy,
00:11:56.000 | and then to think about your budget.
00:11:59.000 | Now as we talk about buying a new car versus a used car,
00:12:03.000 | you'll want to think about those features,
00:12:06.000 | and you'll want to think about those attributes and what you actually need.
00:12:11.000 | Because there are certain features or certain things that might not be available to you
00:12:16.000 | in the used marketplace.
00:12:18.000 | I want to begin with an overall discussion of why used cars make so much sense
00:12:23.000 | in a country like the United States.
00:12:25.000 | Because the United States has a different marketplace.
00:12:28.000 | If you are a frugal person, you enjoy driving a vehicle
00:12:33.000 | and not having a lot of money spent on depreciation,
00:12:36.000 | I want you to thank the many people that don't worry about that kind of frugality
00:12:41.000 | and go out and purchase a new car.
00:12:44.000 | Because the reason that people who give financial advice so confidently say,
00:12:49.000 | "Oh, just go buy a great used car in the United States."
00:12:52.000 | The reason they can say that is simply that quality used cars are easy to come by
00:12:57.000 | because you have a huge market of people that are buying new cars.
00:13:03.000 | The United States has a huge population.
00:13:06.000 | The United States is a road-centric, a driving and personal vehicle-centric economy.
00:13:14.000 | And the United States has a very strong middle class.
00:13:18.000 | And that strong middle class relies upon a very high-quality banking system
00:13:25.000 | which makes huge amounts of money available for purchases of consumer items like cars.
00:13:32.000 | Because of this, virtually anyone who wants to can go out and purchase a new car.
00:13:38.000 | And because new cars are fun, they feel nice, they look good, they make people feel good,
00:13:43.000 | many people go out and buy them.
00:13:45.000 | And so because so many people buy them, we have a very powerful, robust used car marketplace.
00:13:52.000 | This is not the same in other parts of the world.
00:13:55.000 | If you change any of those factors that I have just stated,
00:13:59.000 | you go from a large population to a smaller population,
00:14:03.000 | if you go from a large middle class to a smaller middle class,
00:14:07.000 | if you go from an economy that thrives on debt to an economy that doesn't thrive on debt,
00:14:16.000 | then you have a very different car buying marketplace.
00:14:18.000 | To me, I think one of the best places to look at this is the difference between the United States and Mexico.
00:14:24.000 | If you ever want to see this, all you need to do is just go to the border,
00:14:28.000 | grab any road down into Mexico,
00:14:30.000 | and go spend a couple of hours driving across the southern border from the United States to Mexico.
00:14:35.000 | And what you will see is a long and regular train of vehicles being driven to Mexico.
00:14:41.000 | Usually the way that they work is they take two cars,
00:14:46.000 | and they work up basically a makeshift tow bar on the front of the second car,
00:14:51.000 | and they drive convoys of a car towing another car down to Mexico.
00:14:56.000 | The reason is because they're entrepreneurs who are coming to the United States,
00:15:00.000 | buying vehicles in the United States from the US marketplace where they can get them much cheaper,
00:15:06.000 | and then taking them to Mexico where the used vehicles are not as available,
00:15:10.000 | and then reselling them.
00:15:12.000 | Because Mexico has a smaller population, a smaller middle class,
00:15:16.000 | not as much easily available credit for purchasing new cars,
00:15:20.000 | and because of that, Mexico doesn't have as big of a selection of high quality used cars.
00:15:27.000 | Thankfully for many Mexicans, they have access to the American markets,
00:15:30.000 | where an entrepreneur goes up, gets the car, and brings them down.
00:15:33.000 | They go all the way down through Central America.
00:15:36.000 | But the farther you get away from the United States,
00:15:38.000 | the more difficult it is to get a cheap used car like you can get in the United States.
00:15:43.000 | So recognize that if you appreciate the value of used cars,
00:15:48.000 | their availability depends upon the new car marketplace.
00:15:53.000 | The reason this is important is you might find yourself picked up
00:15:56.000 | and placed into a different situation in a different economy,
00:16:00.000 | and all of a sudden you realize, "Wait a second.
00:16:03.000 | This whole new car/used car argument that I've thought of my whole life
00:16:07.000 | doesn't apply here in my local economy.
00:16:10.000 | Here in my local economy, there's not nearly as big of a savings with my getting a used car.
00:16:16.000 | My car retains its value more because of these economic factors."
00:16:20.000 | The other thing you want to consider about buying a used car
00:16:23.000 | is simply the quality of the vehicle based upon its usage conditions.
00:16:30.000 | If, for example, you were going and starting some kind of aid organization
00:16:38.000 | in a remote outpost in Central Africa somewhere,
00:16:42.000 | it would be very unlikely that the first thing you would do would be to say,
00:16:46.000 | "I'm going to go and choose to purchase a used vehicle."
00:16:50.000 | The reason is if you take all these factors that I've already discussed
00:16:54.000 | and you add to it the intense usage conditions of these vehicles,
00:17:00.000 | you'll have a hard time getting a good quality vehicle that'll last you for a long time.
00:17:04.000 | Or maybe you go to the mining country in Australia,
00:17:07.000 | someplace where the environment itself is very, very tough on vehicles.
00:17:12.000 | Your car becomes useless much more quickly due to the environment.
00:17:18.000 | It may be to the very bumpy and difficult roads that the thing is hammering over,
00:17:22.000 | which just drives the car to pieces.
00:17:24.000 | It might be the very salty conditions, whether it's a mine in Australia
00:17:29.000 | or salty northern state car where the car is going to rust out much more quickly.
00:17:34.000 | All of a sudden, now, buying a used vehicle is not as attractive to you
00:17:39.000 | because the used vehicle has a compressed lifespan.
00:17:42.000 | It doesn't have as much useful life available to you.
00:17:46.000 | If you desire to have a vehicle that is widely available in the market where you live,
00:17:54.000 | and if there's a wide supply of vehicles,
00:17:56.000 | then that's where buying a used car can make a lot of sense for you.
00:18:00.000 | A few examples.
00:18:02.000 | Let's say that you just want a car, and your requirements for a car are fairly simple.
00:18:08.000 | It should have four seats, four doors, an air conditioner, a cruise control, an engine, a motor,
00:18:12.000 | some wheels that make it go down the road, and it shouldn't be too dinged up.
00:18:16.000 | You can buy any number of brands will satisfy you.
00:18:19.000 | There's a wide availability of cars that will work for you,
00:18:22.000 | and you can apply that to virtually all the major categories.
00:18:25.000 | I want an SUV. I want a mid-sized SUV.
00:18:29.000 | You have tons of options available to you.
00:18:31.000 | I want a pickup truck, a half-ton pickup truck, tons of options available to you.
00:18:36.000 | But if you want something specialized, then you might find yourself in a difficult condition.
00:18:43.000 | I'll give you an example.
00:18:45.000 | For me, I value having vehicles that have a lot of seats.
00:18:51.000 | Anyone who listens to the show knows that.
00:18:53.000 | I like to have enough seats for my family.
00:18:55.000 | I need six for my family, and I like to have seats for friends that go along with me.
00:18:59.000 | So if I go out in a marketplace, let's say I'm looking at an SUV,
00:19:04.000 | and I want to buy an SUV, like a Suburban,
00:19:10.000 | I can find a lot of seven-seat Suburbans.
00:19:14.000 | That'll fit my family, but it's not enough for me.
00:19:16.000 | I want more. I want more seats.
00:19:19.000 | I can find eight-seat Suburbans.
00:19:21.000 | But if I go out looking for a nine-seat Suburban, they're not very easy to find.
00:19:27.000 | Now, I can buy brand new from the factory a brand new nine-seat Chevy Suburban
00:19:33.000 | with a bench seat up front, bench in the middle, and a bench in the back.
00:19:36.000 | But those are very difficult to find in the used market.
00:19:40.000 | Now, of course, a lot of the old ones, people just take out the front captain's chairs,
00:19:43.000 | put in a bench seat, et cetera.
00:19:45.000 | There are ways that you can adjust it.
00:19:47.000 | But I'm just trying to use an example to say there may be certain equipment that you have that's specialized
00:19:52.000 | that allows you to not find exactly what you want in the marketplace.
00:19:57.000 | Maybe you want an all-wheel drive minivan, but you have a hard time finding that,
00:20:01.000 | or some other feature of a vehicle that makes it unique to you.
00:20:05.000 | You really want the ultimate hauler pickup truck.
00:20:11.000 | You want a one-ton, dual-wheel, long-bed, single-cab pickup truck.
00:20:16.000 | Those, you don't really find them in the used marketplace.
00:20:19.000 | And so you might have equipment requirements that have basically stripped away the whole marketplace from you,
00:20:26.000 | and that might point you to saying, "I need to actually order a vehicle from the dealership
00:20:31.000 | that's going to come in specified exactly as I need it."
00:20:35.000 | So if you need something specific, if you need something unique that's not available easily in the used marketplace,
00:20:41.000 | that's a good reason to buy a new car.
00:20:44.000 | Another good reason to buy a new car has to do with what you're intending to do to the vehicle
00:20:52.000 | and how long you can recoup the value of your modifications to the vehicle.
00:20:58.000 | Now, my example here is something I think about a lot about, with things like overland expedition vehicles.
00:21:05.000 | There are many people, many people like to modify their vehicles.
00:21:08.000 | They're going to add certain things, equipment, things that make their life a lot easier.
00:21:12.000 | And frequently, these modifications will cost quite a lot of money.
00:21:18.000 | Companies do this all the time. They have a vehicle. They need to install a certain set of equipment package on the vehicle.
00:21:24.000 | And if you're going to be adding 20 to 40 percent of cost to the vehicle of modifications,
00:21:32.000 | you want the maximum lifespan for those. So let's use an example.
00:21:36.000 | Let's say that you are running a railroad maintenance company.
00:21:41.000 | And so you need new vehicles for your company.
00:21:44.000 | But the first thing you have to do when you get a new vehicle is pay a whole lot of money to install all of the specialty undercarriage equipment
00:21:53.000 | that's going to be attached to the vehicle. The little roller things that allow it to roll on the railroad tracks.
00:21:59.000 | You need to install safety equipment, lights, warning lights, usage equipment, special brackets, special equipment, special service bodies, radios, etc.
00:22:09.000 | The cost of the new vehicle is a less significant factor than the cost of the modification equipment.
00:22:19.000 | And so you wouldn't want to try to go out and buy an old vehicle that was five years old just to save money,
00:22:26.000 | because the money that you would save in the depreciation expense is dwarfed by the cost of adding on the new equipment.
00:22:34.000 | In addition, in that example, the new equipment needs to be put onto a truck where everyone knows exactly how things are.
00:22:40.000 | You can't take the risk of buying a vehicle that's already been modified.
00:22:44.000 | And you also need the vehicles to all be the same. So you need to buy 30 trucks at once, not one truck at a time.
00:22:52.000 | And it's going to be hard to go out in the used marketplace and find 30 trucks that are exactly built to the specifications that you need.
00:22:58.000 | So you order from the factory the vehicles that you need.
00:23:01.000 | Now, when you move into an individual person, obviously the decision is a little different.
00:23:05.000 | But the same principle applies. Let's say that you want to build a round-the-world jeep, a round-the-world expedition jeep.
00:23:14.000 | And you want to have a jeep, and you're going to do all kinds of stuff to it.
00:23:18.000 | You're going to put a refrigerator in it, you're going to take the interior out, you're going to rework this,
00:23:22.000 | you're going to add all kinds of brackets and doodads and all kinds of stuff under the hood, etc.
00:23:27.000 | If you've got a modification list that's $15,000 worth of modifications that you're planning to do to your vehicle,
00:23:33.000 | and you go out and you think about doing this to a used vehicle, just so you can save a few bucks, maybe you'll do it.
00:23:41.000 | But it becomes very attractive to say, "Let me go ahead and get a new vehicle just so everything is right how I want it,
00:23:46.000 | and then I'll spend the money on my modifications."
00:23:49.000 | Because you want to--those modifications go from $15,000 in value to basically zero
00:23:55.000 | the day you bolt them all in, in terms of the retail--resale market.
00:24:00.000 | So you just want to be able to use them for a long period of time.
00:24:03.000 | So you want a vehicle that's going to have the maximum available lifespan for you,
00:24:07.000 | and you want a vehicle that's going to have been modified exclusively by you.
00:24:11.000 | These are some of the individualized considerations that may make a lot of sense.
00:24:15.000 | I'll give you another example.
00:24:17.000 | I'm into the world of four-wheel drive vans.
00:24:20.000 | I don't want an SUV, I want a van, but I want it to be kind of a cool four-wheel drive van.
00:24:26.000 | So I would go to a company--if I wanted to get this, I'm going to go to a company like Quigley or one of the other van modifiers,
00:24:33.000 | and I'm going to have them put in a 4x4 system into a van.
00:24:37.000 | That's going to cost me $15,000 to $20,000, depending on what we're talking about.
00:24:42.000 | And so if I'm going to do that, then I want to make sure that it's done to the vehicle that I want it to be done to.
00:24:52.000 | And so could I save a few bucks by getting an older vehicle and taking it?
00:24:55.000 | Maybe, but that might mess up the modifications, there might be something wrong with the van,
00:24:59.000 | and everything on the van is five years old.
00:25:02.000 | And so I would probably go ahead in that situation and buy a new van,
00:25:07.000 | and then go and spend all the money on the modification so that I have the maximum useful lifespan of that modification.
00:25:15.000 | You'll notice that I've talked a lot about maximum useful lifespan.
00:25:19.000 | This brings me to the other factor.
00:25:23.000 | A new vehicle is most expensive in the first few years from the depreciation expense perspective,
00:25:33.000 | which is the thing that we can calculate.
00:25:36.000 | The longer you keep a vehicle, the more that depreciation expense tends to balance out.
00:25:45.000 | If you buy a new vehicle, and you keep it for a really long time,
00:25:51.000 | it's probably not that much more expensive than a used vehicle.
00:25:57.000 | And in fact, it could actually be argued that it's a lot less,
00:26:02.000 | especially if you have increased confidence in the vehicle, and if you've had a chance to modify it or have it exactly how you want.
00:26:10.000 | So again, if your standards for a vehicle are, it needs to have four tires and a steering wheel and go down the road with me in it,
00:26:17.000 | then any car will do.
00:26:19.000 | And so you can buy a good quality used car, and it's fine, you're not going to change it.
00:26:23.000 | But if you're buying a vehicle that's more specialty purpose in some way,
00:26:27.000 | you may want to order it exactly how you want it and then keep it for a long time.
00:26:32.000 | And if you keep a brand new vehicle for a long time, the overall cost of ownership on an annual basis comes down a lot.
00:26:41.000 | Let's run through some of those numbers so you understand where they wind up being.
00:26:44.000 | Again, you buy a new vehicle for $50,000.
00:26:47.000 | At the end of year five, that vehicle is worth $21,000.
00:26:50.000 | At the end of year 10, the vehicle is worth $9,000.
00:26:53.000 | At the end of year 20, the vehicle is worth $1,824.
00:26:59.000 | So your 20-year cost of depreciation would be basically $48,000 over the course of 20 years.
00:27:07.000 | If you buy a vehicle for $25,000 and keep it for 20 years, your depreciation expense is still less.
00:27:18.000 | You start at $25,000 and you end up at $969 if we're doing precise math.
00:27:23.000 | But you probably don't keep it as long because it doesn't have the full 20-year lifespan or the full 20 or 30-year lifespan.
00:27:33.000 | And so you probably go out with the 20--if you buy the five-year-old vehicle for $25,000,
00:27:38.000 | you probably go out at 15 years and you trade it up.
00:27:42.000 | And then you start a whole new depreciation schedule with the more expensive depreciation up front.
00:27:47.000 | So your 20-year cost of ownership, if you keep the new vehicle for 20 years and the used vehicle for 15 years
00:27:56.000 | and then have to go and get another one, then your total cost of ownership is probably very similar.
00:28:02.000 | And this leads me to the point that if you put these things together, if you have some kind of specialty need
00:28:07.000 | or if you're going to do something like modifying a vehicle and you're going to keep it for a very long time,
00:28:12.000 | then it makes a lot of sense for you to go ahead and buy a new vehicle so that you can use it as appropriate
00:28:19.000 | for your family or for your goals for a very long time.
00:28:23.000 | There's a guy that I like to read in the overland space. His name is Jonathan Hansen.
00:28:27.000 | And he is a longtime journalist in the world of overlanding and whatnot.
00:28:35.000 | His primary vehicle is a 30-40-year-old Toyota FJ60 or FJ40 that has 300 and something thousand miles on it.
00:28:44.000 | That's his primary vehicle that he uses for expeditions, for guiding expeditions, back road stuff, etc.
00:28:49.000 | And he will keep that vehicle forever. He's had it forever and he'll keep it forever because it's appropriate for his purpose.
00:28:56.000 | So a guy like that buys his vehicles for specific purposes.
00:29:01.000 | And he's choosing vehicles that he is going to keep for, again, a specific purpose.
00:29:10.000 | So a number of years ago, he and his wife decided they were going to set up a more comfortable vehicle
00:29:19.000 | that they could use for back road camping, etc.
00:29:23.000 | He's done this all around the world, but he wanted one in the United States.
00:29:26.000 | And his approach and his idea was very simple.
00:29:28.000 | He was going to have a Toyota Tacoma with a pop-up truck camper from 4 Wheel Camper.
00:29:34.000 | He calls it just a Toyota and camper, J-A-T-A-C, if you want to see his build.
00:29:38.000 | But when he was doing that, he was following, in that example, he's going to be following what I talked about,
00:29:45.000 | of adding on equipment and having everything exactly set up.
00:29:49.000 | And you're going to spend a lot of money getting your camper on it.
00:29:54.000 | You're going to spend a lot of money modifying the vehicle.
00:29:57.000 | So what he did in that situation was he went and he bought a brand new Toyota Tacoma
00:30:02.000 | that he could have exactly how he wanted it, how he could order it with the specific equipment that he wanted,
00:30:07.000 | with the specific features that he wanted, etc.
00:30:10.000 | So from day one, it could be matched to the camper, and it could be all of the equipment,
00:30:15.000 | all of the modifications could be done exactly to a new vehicle that he has,
00:30:20.000 | knowing that that vehicle is going to be kept for a very long period of time.
00:30:24.000 | Now, most applications don't have this level of requirement.
00:30:29.000 | Most people aren't even going to modify their vehicles to any meaningful extent.
00:30:32.000 | But if you are, then I think that's a very compelling reason for you to work out your budget and go for a new vehicle.
00:30:40.000 | I'm laboring these points to try to emphasize that everything is going to come down to your specific answers,
00:30:49.000 | to what kind of car you want, and what the features and characteristics are of that vehicle.
00:30:57.000 | If you're very easy to please and you just need a vehicle that gets you down the road,
00:31:02.000 | you can get a great buy in the used marketplace.
00:31:05.000 | If you are very easy to please and you have a few features that you're looking for,
00:31:10.000 | but you don't have a long list, right?
00:31:13.000 | You want to have a sports car, but I'm willing to consider any number of makes and models of various years, etc.
00:31:20.000 | You can easily find that in the used marketplace.
00:31:22.000 | But as your list gets more restrictive of specific things that you want,
00:31:27.000 | specific features that may only be available on new vehicles,
00:31:31.000 | specific characteristics or expressions that are not popular,
00:31:37.000 | then you may have a hard time finding those in the used market.
00:31:40.000 | And that might be where you get pointed towards the new cars.
00:31:44.000 | As you're thinking about this, do your best to be honest with yourself
00:31:49.000 | and not to indulge in the passion of the moment.
00:31:56.000 | If you're young, you should question yourself very significantly.
00:32:01.000 | Am I really going to do this?
00:32:03.000 | I'll just give you an example.
00:32:04.000 | I remember when I had just graduated from college.
00:32:06.000 | A friend of mine went and bought a brand new Honda Fit.
00:32:11.000 | It was a cool car, but he knew that he was--
00:32:18.000 | It wasn't to me.
00:32:20.000 | I didn't tell him he should or shouldn't have done anything.
00:32:22.000 | But of course, he was justifying the decision to buy a new car versus a used car.
00:32:28.000 | He was going all over the features of the Honda Fit about how--
00:32:31.000 | "Look how it's wonderful and look how the seats fold up and it's so cool."
00:32:35.000 | I thought it was cool at the time as well.
00:32:37.000 | He made these comments.
00:32:38.000 | He said, "I'm going to keep this car forever,
00:32:41.000 | so therefore I'm going to justify buying this brand new car."
00:32:45.000 | Well, that feels like the right decision when perhaps you're 22 years old.
00:32:52.000 | But you get to 32 years old or to 42 years old,
00:32:55.000 | and you find that the Honda Fit is often not the kind of vehicle that you--
00:33:01.000 | It's just not a great long-term vehicle.
00:33:03.000 | It's not that it couldn't be, but most people's standards and lifestyles change.
00:33:08.000 | You get to the point where you don't want a small car.
00:33:10.000 | You want something with more space.
00:33:12.000 | You have children. You don't want them in a small car.
00:33:14.000 | You want a minivan.
00:33:15.000 | The small car that seemed super cool at one point,
00:33:19.000 | all of a sudden you want more comfort or you want more style
00:33:21.000 | or you want a truck or something else,
00:33:23.000 | and all of a sudden the car gets sold.
00:33:26.000 | You fool yourself due to inexperience into thinking,
00:33:30.000 | "I'm going to keep this forever,"
00:33:32.000 | when in reality you're probably not going to keep this forever.
00:33:35.000 | This happens at various stages.
00:33:37.000 | I remember a financial advisor that I used to work with.
00:33:40.000 | This financial advisor started out frugally,
00:33:45.000 | drove a several-year-old Honda Accord when he was getting started,
00:33:49.000 | and then a couple of years later he was doing fine and decided,
00:33:53.000 | "You know what? I'm going to go and buy a new car."
00:33:55.000 | So he went and bought a brand new Prius, and he wrestled with it.
00:33:58.000 | He's like, "You know, this car is going to be great for me long-term,
00:34:01.000 | and I'm going to keep the car forever.
00:34:03.000 | It's a Prius. It's a wonderful car, etc.
00:34:05.000 | I'm going to keep it long-term."
00:34:07.000 | Well, then two years later he was doing even better financially,
00:34:10.000 | and it didn't fit him, fit his image, to be driving a Prius.
00:34:13.000 | So he sold the Prius and bought a BMW.
00:34:16.000 | Now, you can do it. It's totally fine.
00:34:19.000 | It's your money. You can spend it on what you want.
00:34:20.000 | If you want to spend it on a car, go for it.
00:34:22.000 | I'm never going to be the guy who guilts you
00:34:24.000 | for buying the kind of car that you want.
00:34:26.000 | I'm talking about it from a decision-making perspective,
00:34:29.000 | and I say these two stories because both of these guys
00:34:33.000 | told me specifically that they were buying a new car
00:34:39.000 | and they were justifying it by keeping it for a really long time.
00:34:43.000 | But in reality, very rarely do people keep their cars for a very long time.
00:34:48.000 | And in both of those situations, if those guys had said,
00:34:54.000 | "You know what? I think this is the car I want,
00:34:56.000 | but I'm just going to go ahead and guess that it's two or three years old,"
00:34:59.000 | and then traded up two or three years later,
00:35:02.000 | they would have saved $10,000, $15,000, $20,000, $30,000,
00:35:05.000 | depending on the specific details.
00:35:08.000 | $30,000 is too much, so $10,000 or $15,000 in both of those examples.
00:35:12.000 | So if you're not sure that you're going to keep something for a long time,
00:35:16.000 | don't buy something expensive.
00:35:18.000 | I'll give you another story, a personal story.
00:35:22.000 | When I went traveling the country a few--back in 2018,
00:35:29.000 | I didn't know how long I was going to travel the country.
00:35:32.000 | And so I wanted to get a vehicle that was new enough for me to--
00:35:38.000 | new enough for me to do the job, that was safe,
00:35:42.000 | that fulfilled the requirements, et cetera,
00:35:45.000 | but I didn't want to get something that was so new
00:35:47.000 | that if I didn't wind up keeping it for very long,
00:35:51.000 | that I would lose much in depreciation.
00:35:54.000 | So I didn't do it perfectly,
00:35:55.000 | and I'm not claiming that I had made perfect decisions.
00:35:57.000 | I'm just using this as an example.
00:35:59.000 | I started by buying a too old of a vehicle, a van, that didn't work out.
00:36:04.000 | Got rid of the van, bought a diesel pickup truck.
00:36:06.000 | Through the whole saga of the diesel pickup truck,
00:36:09.000 | I specifically chose to buy one that was old.
00:36:12.000 | I bought one that was new enough to have a powerful engine
00:36:15.000 | and to have widely available parts,
00:36:17.000 | but I chose to buy one that was old
00:36:19.000 | because I didn't want to lose money on a resale value.
00:36:23.000 | So I think I paid something like $7,000 for the pickup truck.
00:36:26.000 | I took the pickup truck all across the country with my family,
00:36:32.000 | put 15,000 miles or so on it,
00:36:35.000 | and then lo and behold, eight months later,
00:36:39.000 | we decided to end our trip early, and we left the country.
00:36:43.000 | I sold that pickup truck, I think for--
00:36:46.000 | I forget the exact numbers, but a modest profit,
00:36:48.000 | a couple thousand dollar profit.
00:36:49.000 | I think I sold it for like $9,000 or $10,000, something like that.
00:36:53.000 | So I was able, by buying something that was old,
00:36:56.000 | I had a total cost to me of $0.
00:37:00.000 | The numbers were a little bit more complicated
00:37:02.000 | because I also had a trailer, and I wound up with two pickup trucks, etc.
00:37:05.000 | Long story short, with all the gear that I bought,
00:37:08.000 | buying the whole rig several times over and all the hassle and everything,
00:37:12.000 | I walked away, and I hadn't spent any money.
00:37:15.000 | I didn't lose money, and I didn't make money on the whole deal across the board.
00:37:18.000 | By the time I bought everything and sold everything.
00:37:20.000 | The reason I was able to do that was because I bought stuff
00:37:23.000 | that was mostly already depreciated.
00:37:26.000 | Mostly already depreciated.
00:37:28.000 | Now, before I tell you the story of my friend,
00:37:31.000 | I want to emphasize that if I were doing it over again,
00:37:34.000 | I wouldn't necessarily have bought a newer pickup truck,
00:37:36.000 | but I would have bought a newer camper.
00:37:38.000 | I underestimated the hassle of a camper that was too old,
00:37:42.000 | and so I had to do things like replace the hot water heater, etc.
00:37:45.000 | Those things were more expensive than the depreciation expense of the camper.
00:37:50.000 | If I were doing it over again, I would buy a couple or three-year-old camper
00:37:54.000 | instead of--I forget how old it was at the time--
00:37:56.000 | but the old pickup truck worked fine.
00:37:58.000 | Now, pivot to a friend of mine.
00:38:02.000 | A friend of mine decided that he and his family wanted to go on a similar trip.
00:38:08.000 | This friend doesn't have a ton of money,
00:38:10.000 | but the friend had had quite a lot of money build up in his house.
00:38:15.000 | So he sold his house.
00:38:16.000 | They had a big profit from the house,
00:38:18.000 | and they decided to buy a rig to travel the country.
00:38:21.000 | But, of course, they had a bunch of money sitting in their pocket,
00:38:23.000 | and so they went and they bought a brand-new camper,
00:38:26.000 | and they bought something like a 2-year-old big giant dually pickup truck,
00:38:31.000 | which was a much bigger--much more truck than was necessary
00:38:36.000 | for them to pull this relatively simple 30-foot bumper pool trailer.
00:38:40.000 | They drove across the country, spent six months on the trip,
00:38:44.000 | but coming back, at the end of it, they didn't want to travel anymore.
00:38:49.000 | They spent all their money traveling across the country,
00:38:51.000 | and they wound up in a situation where they had all this money locked up in stuff.
00:38:59.000 | So they didn't have any money. They just had a camper.
00:39:01.000 | The camper had been--they'd had to modify the camper,
00:39:05.000 | which, of course, harmed its value a good amount.
00:39:08.000 | And then the camper was just used and abused by a family.
00:39:11.000 | It was banged up.
00:39:13.000 | They had a flat tire. A tire blew out, messed up the side of it,
00:39:15.000 | and then used the side.
00:39:16.000 | When you use it every day, the stuff gets used up.
00:39:18.000 | And then the pickup truck also has gotten used up by their family.
00:39:21.000 | And while it still had a significant amount of value,
00:39:24.000 | because it was so new, it had quite a lot of cost.
00:39:29.000 | So when you compare our two stories,
00:39:31.000 | because I bought something that was old and it was just good enough,
00:39:35.000 | I wound up having $0 of depreciation expense on the trip.
00:39:40.000 | And so my only expenses on the trip were, of course, fuel and insurance and activities, etc.
00:39:47.000 | But my friends had all of those same expenses,
00:39:51.000 | plus probably $40,000 to $50,000 of depreciation expense,
00:39:57.000 | doing basically the same exact trip.
00:40:02.000 | So if you care about money, buy as much--
00:40:06.000 | then think about it and try to operate vehicles where they have a lower depreciation curve.
00:40:12.000 | And if you have a specialty application, then go ahead.
00:40:15.000 | Buy a new vehicle if necessary.
00:40:17.000 | Buy something that does what you need.
00:40:19.000 | Don't cheap out. Don't buy something that doesn't do the job.
00:40:23.000 | But a lot of times you can get the job done
00:40:27.000 | and operate a vehicle that is a lot cheaper on the depreciation curve.
00:40:31.000 | And if you're in the wealth-building stage, that will get you wealthy much faster.
00:40:38.000 | And then once you're wealthy, then go ahead and buy the new vehicles then.
00:40:41.000 | Go ahead and buy the brand-new motorhomes and the brand-new stuff
00:40:44.000 | and enjoy kind of those things once you're wealthy.
00:40:47.000 | Because while on the outside, if I just compare the two trips
00:40:52.000 | I just outlined to you, my rig, my truck and trailer,
00:40:58.000 | didn't look like a guy who had money.
00:41:02.000 | It looked like--it was okay.
00:41:04.000 | It wasn't Beverly Hillbillies, but it didn't look like a guy who had money.
00:41:09.000 | But I enjoyed the trip because I had no financial pressure,
00:41:12.000 | and I have nothing but good memories from it.
00:41:16.000 | My friend, that trip wound up basically sinking them
00:41:20.000 | because--I mean, it basically destroyed them--
00:41:23.000 | because the trip came with a whole bunch of financial pressure.
00:41:27.000 | And so my memories of the trip are basically purely positive,
00:41:32.000 | whereas my friend's memories are mixed with a lot of regret of now being broke.
00:41:38.000 | And so I would rather myself not say no to the opportunities that life offers.
00:41:45.000 | I have someone else that I know who is forever going on and on
00:41:48.000 | about what the ideal thing is in terms of equipment.
00:41:53.000 | He wants to drive to Costa Rica.
00:41:55.000 | Well, he wants to get a perfect vehicle that has all the gear and has all the stuff,
00:42:00.000 | and he wants to spend $200,000 on a vehicle.
00:42:03.000 | My answer has always been buy whatever car is available to you--car, van, whatever--
00:42:08.000 | and make it work and go.
00:42:10.000 | Why? You don't know. Tomorrow is not promised to you, so just go for it.
00:42:14.000 | There are tiny little vehicles in every country around the world.
00:42:17.000 | You don't need all this expensive overlanding gear to drive to Costa Rica.
00:42:21.000 | Just get in what you got and go.
00:42:24.000 | And so I want to live, but I don't want the living to cost a huge amount of money.
00:42:29.000 | So I hope this helps you to think about it and to consider some of the various factors.
00:42:34.000 | Deciding if you should buy a new or used car.
00:42:37.000 | Probably your budget is going to make the decision fairly obvious for you.
00:42:42.000 | You're not going to get away from depreciation expense,
00:42:45.000 | and you want to control the amount of money that you spend on stuff that goes down in value
00:42:51.000 | at every stage of the wealth-building process.
00:42:53.000 | And this requires you to defer pleasure until you are wealthy.
00:42:57.000 | Once you are wealthy, you're making a huge income, you have a lot of money in investments,
00:43:01.000 | then you'll be able to buy the things that you want to have,
00:43:05.000 | and you just spend the money on it, and the depreciation is not a big deal at all.
00:43:10.000 | So your budget will probably make the decision for you.
00:43:15.000 | If you're in one of those interim scenarios where you need something that's not available in the used market,
00:43:22.000 | or you're going to have a long time perspective, you're going to heavily modify the vehicle,
00:43:26.000 | or you need a certain feature that you can only get on a new vehicle,
00:43:30.000 | then those will be decisions that you'll have to make yourself.
00:43:36.000 | I want to finish with simply talking about new cars versus used cars in terms of the risk of them having large expenses.
00:43:45.000 | Because one of the things that I used to hear a lot, I don't really hear this much anymore,
00:43:49.000 | but there used to be a whole set of cliches that people would have surrounding used cars, right?
00:43:54.000 | Buying a used car is buying someone else's problem.
00:43:57.000 | Or, you know, used car is going to have a lot of expenses to keep it going.
00:44:02.000 | It is true that when a vehicle reaches a certain age, it's going to require significant levels of expenses.
00:44:10.000 | Mechanical stuff breaks down.
00:44:12.000 | Mechanical stuff breaks down even if it is used properly, even if it's maintained properly.
00:44:17.000 | Rubber hoses wear out, window seals crack, paint gets oxidized,
00:44:24.000 | mechanical pieces reach the end of their useful lifespan.
00:44:28.000 | Everything has a useful expected lifespan.
00:44:33.000 | But I do not think that buying a used car is going to necessarily be that much more expensive from a maintenance perspective than a new car,
00:44:44.000 | if you have been thoughtful about your choice.
00:44:48.000 | The day you buy a brand new car, its various components start breaking down.
00:44:54.000 | The day it was made, the various components start breaking down.
00:44:57.000 | And some of those components will not be obvious to you.
00:45:00.000 | So a new car, for example, the starter motor will have plenty of life left.
00:45:05.000 | Maybe a starter motor will last an average of eight years.
00:45:08.000 | I'm not sure. I'm not a mechanic, but let's just use a number.
00:45:10.000 | Eight to ten years or seven years.
00:45:12.000 | So you've got seven years of life on the starter motor.
00:45:14.000 | But your battery on a brand new car will deteriorate just as quickly as the battery on a used car.
00:45:22.000 | Depending on the quality of battery, you've got two years of lifespan from that battery.
00:45:26.000 | And here I'm not talking about an electric car. I'm just talking about a starting battery.
00:45:29.000 | Your tires will deteriorate on the new car just as quickly as they will on a used car.
00:45:35.000 | With tires, you have a safe operating lifespan of something around five years.
00:45:39.000 | So you've got five years of life on those tires.
00:45:41.000 | And your brand new car is guaranteed to have those expenses, just like your used car.
00:45:48.000 | If your brand new car has a battery life of two years, in two years with your almost new car, you're going to have to be putting a new battery in it.
00:45:54.000 | Just like if you have a used car, in two years you're going to have a battery in it.
00:45:59.000 | And basically every other mechanical component has the same expectation.
00:46:03.000 | The starter motor is going to have a certain lifespan associated with it.
00:46:07.000 | Your CV joints are going to have a certain level of lifespan associated with it, etc.
00:46:12.000 | Cars are not this mysterious black box where basically stuff just doesn't work.
00:46:18.000 | There's a reason for it.
00:46:20.000 | And most of the reasons that cars break down are simply that a component has reached the end of its useful lifespan.
00:46:27.000 | There might be some damage, but that's why cars break down.
00:46:30.000 | So you can go out and you can get in your 13-month-old car that came with some cheap junky battery from the dealership.
00:46:40.000 | And you try to start it and it won't start because it needs a new battery.
00:46:43.000 | Just like you can go out and get in your 23-year-old car and it won't start because it needs a battery.
00:46:48.000 | So the first thing you need to do when you think about mechanical components is you need to ask yourself,
00:46:54.000 | "Is this a component that has worn out that has anything to do with a new car versus used car?"
00:47:02.000 | I recently replaced the engine mounts on my used vehicle.
00:47:07.000 | The engine mounts were worn out. They were causing some problems, various problems.
00:47:12.000 | So I replaced the engine mounts.
00:47:14.000 | Once I've replaced those engine mounts, those engine mounts had a lifespan of, say, 15 years, whatever it was.
00:47:21.000 | Now that they're replaced, I've got another 15 years from the engine as what I can expect from the vehicle to perform its job.
00:47:30.000 | I put brand new engine mounts in it. They're all done.
00:47:33.000 | I've got another 15 years before I have to replace those engine mounts.
00:47:36.000 | So when you look at a vehicle, it's not a black box.
00:47:41.000 | A used car, oh, it's just going to have repairs all the time.
00:47:44.000 | What often happens to people who are ignorant about mechanics is they buy a used vehicle that the components have been wearing out
00:47:55.000 | and they don't proactively get involved with what's going to need to be replaced.
00:47:59.000 | And so then they have a bunch of mechanical repairs that hit all at one time
00:48:04.000 | and they think that those mechanical repairs are because the car is old.
00:48:08.000 | Well, in a way it is, but you have to understand, are these mechanical repairs that are normal maintenance items that are true of any car?
00:48:15.000 | Or is this something special and unique to the car itself?
00:48:20.000 | You can keep probably any, let me modify, you could keep any vehicle going, driving on the road indefinitely if you're willing to replace all the components.
00:48:32.000 | You can drive almost any vehicle to a million miles.
00:48:35.000 | If you doubt that, go to Cuba and look at all the cars from the 1940s and 1950s and 1960s that are still going down the road.
00:48:42.000 | They're going down the road because the people replaced the components and they keep the cars going.
00:48:47.000 | Not because those cars were somehow better in the ones that were sold to Cuba were better than the ones that were sold to the people in Detroit.
00:48:55.000 | It's simply that's what they have and they have to keep them going.
00:48:58.000 | So you do reach a crossover point where I don't want to keep that 1950s car going.
00:49:03.000 | But that crossover point is not when a vehicle is five years old or ten years old or fifteen years old.
00:49:09.000 | What you're looking for when you get a used vehicle is you're looking to know, number one, is it a vehicle that is built well?
00:49:16.000 | Is it a quality brand that's known for good manufacturing processes with good design, good engineering,
00:49:22.000 | so that the vehicle will keep working for a significant amount of time?
00:49:26.000 | And you're looking to see if the vehicle has been maintained.
00:49:29.000 | Have the necessary maintenance items been done on the vehicle or have they been deferred?
00:49:36.000 | If they've been deferred, then you might wind up facing a whole bunch of expenses to fix a whole bunch of stuff that the previous owner just put off and deferred.
00:49:46.000 | The condition of the used vehicle matters massively, much more so than the new car, because the new car doesn't have any maintenance that's deferred.
00:49:55.000 | It's all ready to go.
00:49:56.000 | But when you get into a used car, you have to calculate in your mind or in your inspection in some way what's going to need to be done and when.
00:50:04.000 | And look at it logically.
00:50:07.000 | Cars do not break down as much as they used to.
00:50:10.000 | Components are better.
00:50:11.000 | Virtually everything about the car is better.
00:50:14.000 | And unless the vehicle has been damaged, the core components of the vehicle, the drivetrain, the engine, the transmission, the drivetrain is pretty much going to be fine.
00:50:24.000 | That's why a company can offer a 10-year warranty on its drivetrain, because the engine, the transmission, those things, as long as the oil is changed, etc., everything's going to be fine.
00:50:35.000 | The other component parts are just component parts that are replaceable.
00:50:39.000 | That's what happens.
00:50:40.000 | That's how cars work, is you have to replace those parts.
00:50:43.000 | So don't automatically think that because you're getting a used car, it's just going to cost you a lot more money.
00:50:49.000 | It will probably cost you more money in maintenance items, but it's not because the car is worse than the new car.
00:50:57.000 | It's simply that the new car is right at the beginning of the repair curve, and it's got the maximum lifespan for each of the component parts.
00:51:05.000 | The new car, five years in, if the tires aren't used up before that, needs new tires.
00:51:10.000 | Two years in, needs a new battery.
00:51:12.000 | Seven years in, needs a new starter.
00:51:14.000 | Needs a new wiper motor.
00:51:15.000 | Blah, blah, blah, all the stuff.
00:51:16.000 | It breaks down over time because that's what happens.
00:51:22.000 | Calculate that in, but don't think that it's the end of the world.
00:51:25.000 | The depreciation costs on a new car are generally going to be far in excess of the maintenance costs of a used car.
00:51:37.000 | What's the exception to this?
00:51:39.000 | Well, the big risk of a used car is buying something that has been abused, something that has been mistreated.
00:51:45.000 | So, what are some things that can happen?
00:51:47.000 | Maybe the car was flooded.
00:51:49.000 | It had water damage.
00:51:51.000 | If your car gets flooded by a storm surge and a hurricane, every single part of the vehicle is suspect.
00:51:58.000 | Not only do you have obvious issues of rust underneath it, but every electrical thing on it is destroyed.
00:52:05.000 | Every wire is destroyed.
00:52:06.000 | Everything is destroyed.
00:52:08.000 | So, if you went out in the used marketplace and you bought a car that was flooded, now everything changes.
00:52:15.000 | If you bought a car that was abused, quite simply, the oil wasn't changed regularly.
00:52:19.000 | The fluids weren't adjusted regularly.
00:52:22.000 | Then the car is not going to last as long.
00:52:25.000 | Unlike it being simply a component part of replacing a starter motor or something like that,
00:52:31.000 | you're going to have to overhaul the engine, rebuild the whole engine, or replace the engine.
00:52:35.000 | This stuff is not cheap.
00:52:38.000 | Normal use of a vehicle, normal wear and tear, is perfectly acceptable if the car has been cared for.
00:52:46.000 | But abuse of the vehicle or unusual damage, things like I've mentioned, that's not acceptable.
00:52:54.000 | So, you have to figure out a way to control that risk.
00:52:57.000 | How do you control the risk?
00:52:59.000 | You have opportunities like Carfax or other car reporting systems that keep track of the features that are known in the car.
00:53:10.000 | Those things can help sometimes.
00:53:13.000 | But what I like to do is I like to buy a vehicle where I can know the history, where I can know the history in some reliable way.
00:53:22.000 | So, I would prefer not to buy a vehicle that has changed hands a lot of times.
00:53:27.000 | I would prefer not to buy a vehicle that's gone into the auction system for car dealers.
00:53:33.000 | I would prefer to buy a vehicle from a private party where I can know all of the history of the vehicle
00:53:39.000 | and I can assess whether the vehicle has been cared for properly.
00:53:43.000 | In another episode, I'll talk about should you buy from a private party or from a dealer, and I'll cover this then there.
00:53:50.000 | But the dealer system is probably your biggest risk.
00:53:54.000 | One of the benefits of dealers is they might give you some protection, some purchase protection and warranty to some degree the condition of the car.
00:54:01.000 | But the problem with the dealer system is it's basically a blind auction, and you don't know why the car is sitting at auction.
00:54:07.000 | Why was this car sold after five years?
00:54:09.000 | Was it sold because somebody just wanted to upgrade or was somebody getting rid of a problem?
00:54:13.000 | And there's no controls to know whether someone's getting rid of a problem.
00:54:16.000 | Where did this car come from?
00:54:17.000 | Did it come from my town?
00:54:18.000 | Did it come from the other side of the country where it was in a flood of some kind or something I don't know about?
00:54:24.000 | So you can minimize those risks in this way.
00:54:28.000 | Buy a car.
00:54:29.000 | If you're going to buy a used car and you want to minimize the mechanical risk, buy a used car where you can know that it was taken care of.
00:54:36.000 | Some of that knowledge will come from seeing the condition of the car, having a mechanic review it, making sure that, yes, there's no evidence that the car was abused.
00:54:45.000 | Some of it, though, will come from knowing the story of the car.
00:54:48.000 | And for me, I've never bought a car where I wasn't confident in the story.
00:54:54.000 | What I mean by story is I want to know who owned it.
00:54:56.000 | I want to know who owned it before them, what happened with the vehicle.
00:55:00.000 | And I want to make sure that story is consistent with a vehicle that has been cared for.
00:55:05.000 | The best way to do this is to buy a car that's being sold by somebody that you know who's had the car for a long time.
00:55:12.000 | Then you can trust the person, you know the story is true, et cetera.
00:55:17.000 | Sometimes you can do that, sometimes you can't.
00:55:19.000 | More on how you can do that in just a moment.
00:55:22.000 | Another way that you do it, though, is by when shopping, shopping for a vehicle that's going to have a story that you can rely on and shopping for a vehicle where you can prove the story is true.
00:55:35.000 | So what I mean is if you're shopping for a car that is 15 years old, that car is most likely going to have passed through many different owners.
00:55:44.000 | But if you're shopping for a car that is 3, 4, 5, 6, 7 years old, frequently you can find a one-owner vehicle.
00:55:51.000 | And you can confirm on the paperwork that, hey, this vehicle was sold to George Smith.
00:55:56.000 | George Smith is the guy selling it to me.
00:55:58.000 | It's been registered here.
00:56:00.000 | You can get dealer records of maintenance or the guy might have maintenance records, and you can feel really confident taking care of the car.
00:56:08.000 | In addition, if you're -- meaning, sorry, you can feel confident that the car has been taken care of.
00:56:12.000 | In addition, you can possibly go to George Smith's house.
00:56:15.000 | And right at George Smith's house, you can see how does George take care of his things.
00:56:19.000 | You look at this car, you look at the other car, how's George's lawn, how's his garage, how's the paint on his house.
00:56:25.000 | Pretty much how you do something is how you do everything.
00:56:29.000 | So most of the time, the way that somebody cares for one thing in their life is going to reflect how they care for other things in their life.
00:56:36.000 | So you can go and you can buy a car from a one-owner guy who's selling it, and you can see the story of it.
00:56:43.000 | You might also buy a car where you know the story, where it was a reliable story.
00:56:48.000 | So, for example, the pickup truck that I bought, I bought the truck from a municipality.
00:56:52.000 | I found it online.
00:56:53.000 | It was from Tampa.
00:56:54.000 | It was owned by the pavement DOT company or whatever in Tampa.
00:56:59.000 | And so it was a truck that was owned and maintained as a commercial truck.
00:57:03.000 | That meant it wasn't as pretty-looking as other vehicles, but I was confident in the mechanical condition because it was a fleet-owned truck.
00:57:10.000 | And it was good enough for me, and that truck was a wonder.
00:57:13.000 | I didn't put a dime into the truck.
00:57:15.000 | I guess I did replace the battery and the tires, but nothing mechanically wrong with the truck.
00:57:20.000 | It was in perfect mechanical condition because I bought it being sold by a municipality.
00:57:25.000 | So whether it's a single owner, whether it's a municipality, et cetera, what I prefer to do is buy vehicles when they're being sold by people that I know.
00:57:35.000 | And so I'll tell you my trick.
00:57:38.000 | I would, because of the unknowable condition of a used car, it's worth a premium to me to actually buy a vehicle from somebody that I know.
00:57:46.000 | In many cases, I can get a better deal, but I want to buy a vehicle from somebody that I know.
00:57:51.000 | And as long as they've owned the car for a few years, that's ideal.
00:57:55.000 | Because even if they're the fifth owner of the car, if the car hasn't had a ton of problems from them in the last three years, it's probably not going to have a ton of problems from me other than the normal maintenance items.
00:58:07.000 | And so whenever I see a friend who has a vehicle that I think is appropriate or adequate or something that's nice for me, I always tell them, "Listen, if you ever want to sell the car, let me know."
00:58:18.000 | And what I will do is replace my cars before I need to replace my car.
00:58:23.000 | Just replace them proactively when a vehicle becomes available.
00:58:27.000 | So if I know that I need another minivan, I know a friend who has a minivan, and this is the kind of friend who is likely to buy a new minivan fairly regularly, and they're going to go buy a new one, I say, "Listen."
00:58:37.000 | I actually did this with somebody.
00:58:39.000 | I said, "Listen, you're probably going to replace your minivan in a few years. You've had it since new.
00:58:44.000 | I'll pay you 10% more than what the dealership will offer you."
00:58:48.000 | They don't want to go and sell it in the private market, so they have a guaranteed buyer.
00:58:51.000 | They go to the dealership, they get a quote.
00:58:53.000 | I'll stroke them a check for 10% more.
00:58:55.000 | I'll buy a vehicle that was a one-owner vehicle, and then I'll just go ahead and get rid of whatever my older vehicle is at that point in time.
00:59:01.000 | So if you do that, you can get good quality vehicles as long as you have the money to buy them when they become available, and you eliminate the risk of an unknown lemon of some kind.
00:59:13.000 | Because you're buying from somebody that you know, somebody that you trust.
00:59:15.000 | What that does is it massively decreases your selection.
00:59:19.000 | You're not choosing the color of car that you want.
00:59:21.000 | You're not choosing the specific features of the car that you want.
00:59:24.000 | So you need to be, for that strategy to work, you need to be relatively easy to please.
00:59:29.000 | If you have a long list of features that you want and specifications, you're not going to be able to do that.
00:59:35.000 | But if you want to buy used cars, and you want to get great deals, and you want to avoid the risk of it, buy them from people that you know.
00:59:42.000 | And drop hints along the way.
00:59:44.000 | Just yesterday, I got a message from somebody that I did this with.
00:59:48.000 | And this person has a big van.
00:59:50.000 | And I said, "Hey, listen, if you ever want to sell your van, let me know."
00:59:53.000 | And I'm probably not going to buy it.
00:59:55.000 | But the point is, I got the call.
00:59:57.000 | "Hey, Joshua, we're going to sell our van. I don't know if you have any interest in buying it.
01:00:00.000 | Here are the details of it. Here's our price, etc."
01:00:02.000 | And then I can choose whether I want to do it or not.
01:00:05.000 | That's how you mitigate the risk of buying a used car.
01:00:09.000 | It's the best opportunity that I've got.
01:00:11.000 | New cars frequently have lower risk.
01:00:14.000 | There are lemons, genuinely lemons.
01:00:16.000 | There are lemon laws that do apply.
01:00:19.000 | And you can mitigate the risk of buying a new car by shopping carefully on Make, Model, etc.
01:00:25.000 | We'll talk about that in a separate episode.
01:00:27.000 | But if you're shopping for a used car, don't buy the idea that you're going to inherit someone else's problem, etc.
01:00:33.000 | You're not.
01:00:34.000 | You can drive vehicles that are perfectly adequate.
01:00:39.000 | You can buy good quality vehicles that don't leave you on the side of the road.
01:00:42.000 | The key is to buy a known quantity vehicle and make sure that the maintenance items are attended to.
01:00:50.000 | If you don't want to be left on the side of the road, the simplest thing that you can do is replace your battery proactively.
01:00:57.000 | Don't wait for your battery to fail.
01:00:59.000 | Replace your battery every two years.
01:01:01.000 | Replace your starter motor every five years or so.
01:01:04.000 | Ask your mechanic to give you, with your car, some recommendations.
01:01:09.000 | And do proactive mechanical work and you can eliminate the risk of being left on the side of the road.
01:01:15.000 | And that applies, of course, to any vehicle.
01:01:17.000 | I hope this has been useful to you.
01:01:19.000 | New cars or used cars, they're both great.
01:01:23.000 | And you can feel free to decide for yourself based upon your income, your wealth goals, your lifestyle goals, the things that you want, etc.
01:01:31.000 | Decide what's best for you.
01:01:33.000 | And I hope that this discussion has helped you in that process.
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