This week I took my 2005 Hyundai Elantra in for a routine oil change and inspection. At 215,000 miles, I try to take good care of it. It’s the best car I’ve ever had. I’d noticed the acceleration hasn’t been very good lately, and asked the mechanic to check it. Despite that concern, I was pretty confident I’d be out of there in an hour.
What’s that saying? Pride goeth before a fall.
Thirty minutes later he came out and started listing all the things it would need to pass inspection: a new clutch, rear struts, front struts...an expensive and growing list began to emerge. It’d be $1800 to get it to a point where it’d pass inspection, with no guarantee that would be the end of it.
You know the feeling when you just know it’s time to replace a car? There’s a little voice that talks to you as the mechanic gives you prices.
$700. “That’s fine Erin, do it. If it lasts another year, it’ll be worth it.”
$1000. “I need to sit down for a minute...I’m feeling a little sick to my stomach.”
$1800. “No. Erin, don’t be dumb. That’s too much on a car this old. What if it needs another $500 repair soon?”
So the $1800 repair cost was basically a death sentence for my car.
Luckily, I follow Rule Two and have been saving to replace this car for a while.
Now let me be clear: I don’t care about cars. At all. I don’t care what color it is. I don’t care about the horsepower, the sleek interior or the dual injected thingamabob. Don’t tell me about these things. I do not care. I don’t even care about power windows. I’ll crank those bad boys down myself if I need to. My list of must haves in a car is pretty short: dependability, good gas mileage, air conditioning and a way to play music.
If it has other things, cool. I think people get all excited about features when they’re car shopping, and you know what? Two weeks later you’re just driving your car. The excitement fades pretty quickly.
As much as I don’t care about cars, I care even less (if that’s possible) about car shopping. I did not want to spend weeks searching and searching for the “perfect” car, wondering if the one I found could be trusted, dealing with different dealers. Ugh.
He had a few cars on his lot that I liked, and he’s very low pressure. He also services what he sells, so he has to face me. I test drove a few and settled on a 2011 Hyundai Sonata. The Sonata is definitely a step up from what I’ve been driving. I told my mechanic it was zippy to drive, and he said, “Well yeah, the clutch actually works on that car.” Ouch.
So here’s the problem: This is the car I want and it was more than I’d saved. He had some other cars that I could have paid for outright, but they were older or had higher mileage. I don’t want to have to buy a car again for a while. I’ve tried that approach before, buying an older car with higher mileage. It didn’t go well.
As I weighed my options, I realized I made two errors in preparing for this: I’d underestimated how much I’d need for a good second-hand car (I realize everyone defines this a little differently), and I overestimated how long this car would last. I really wanted to get this car to 250,000 miles. I really thought I’d be driving it two more years and had more time to save.
That’s a nice dream, but I shouldn’t have been planning on that. Moving forward, I’m going to save much more aggressively for the next car. I’ll save more each month, set a higher goal amount, and give myself a shorter time frame to get to the goal. I budget, I can do this.
(A little aside here: You can do this too. Right now, look over your budget and find another $50 for your car replacement category. Start budgeting $50 more each month. Over 5 years that’s an extra $3,000 for a car. If you can find $100, you’ll have $6,000 more. You’ll thank me later. Seriously, stop reading and do this.)
We agreed on a price of $11,100 for the new car (This includes a trade-in amount for my old car.) I did my homework and this was a fair price. The car had great reviews and is in great shape. I have $7,000 in new car category and another $1000 in my car repair category. I’m short $3,100.
What should I do?
I could tap my emergency fund and just pay for the car outright. I considered this. But that would leave my cash reserves uncomfortably low. I went home to do some research and explore my options.
The interest rate on a car loan through my credit union is 2.74%. After looking over the budget, I realized I could pay this off within a year, probably within six months. Depending on how quickly it goes, it will probably cost me less than $50 in interest at the most. That didn’t feel too bad.
So I decided that a little bit of interest in the short term was worth the peace of mind in not draining my cash reserves. So that’s what I did, I borrowed the difference.
What was interesting to me was how easily I worked through this decision. It was a bummer to have to replace the car now. But I’m keenly aware of my financial situation. If I’d been unaware of my financial situation, I would have felt more panic. It would have been harder to trust the answer to “Can I afford this?”. But I’m budgeting. I look at my whole financial picture frequently. It’s ingrained in me. I could have almost made this decision without even opening YNAB. (Almost.)
I know not everyone would make the same choice. Some folks would buy an older car. Some would drain the emergency fund and pay for the car outright. Some people always buy new cars and some would have shopped around extensively. Honestly, I think these are all valid choices. It’s really about your comfort level.
I didn’t save as much as I’d wanted, but I did save a lot. Rule Two can help you even if you don’t end up hitting your goal. What if I hadn’t been saving at all? I’d be looking at a big car payment for a long time, or a less reliable car. It’s always better to have saved something. And even though my account balance has just taken a nose dive, I’m ok with that. I’m budgeting and the dollars I’m spending are doing exactly what I wanted them to do.
So that’s it. I’m now driving a pretty sweet ride. Since everyone deals with replacing a car at some point, so I thought I’d share my process. Before YNAB, this would have been an absolute crisis. Now, it’s just a bump in the road.
(See what I did there?)