Investment Basics: Buying A Car

by Cindy Diccianni

When evaluating your overall financial goals, it is vital to understand how different types of cars may affect your long-term finances.

A car is a depreciating asset, which means that it goes down in value as it ages, and most of the money you put into a car you will never get back. This suggests that you should put off buying a car until you absolutely need one, and that you should not spend more on it than is necessary for a good, safe vehicle. A house, on the other hand, appreciates, or increases in value through the years, and home ownership can make an important positive contribution to your long-term planning and investing.

When buying a car, consider the following:

1. Define your car ownership goals

Buy a car that fits your needs. Consider the various options, for example: fuel efficiency, cost, large or small size, mini van or sedan. You also want to ensure the car is comfortable for you and your family.

2. Collect information on different makes and models

North Americans love their cars and there are often many emotional factors that play into the selection of an automobile. Do some homework when it comes to warranties, manufacturers and part replacement costs. These can vary depending on the make and model of your car. Also consider the resale value on the car you are looking for. Many makes and models depreciate quickly while a select group tends to hold their value over time. This can be important if you expect to trade or resell it later.

3. Determine how much you can afford to spend

The cost of the automobile is greater than the monthly payments when you add in car insurance, repairs and gas. Often these additional factors can add as much as $300 or more per month to the costs. Know your budget amount; in other words, you need to know how much you actually have to spend each month on a car. The insurance costs will be relative to where you live and work. Living in a city can be more costly and often the insurance premiums are reflective of the risks associated with living there. If you have a moving violation record or a high incidence of accidents, these factors will substantially increase your insurance rates. It is important to call your insurance company to get a price on the insurance costs for the car you are looking at.

4. Investigate written publications and the Internet

Do your research. Thousands of books, articles, booklets, and websites provide resources and tips on buying a car, both new and used. Some contain checklists and pointers on how to make an intelligent car-buying decision. Start with Consumer Reports and Changing Times magazines; they both rate different new models and rank them on safety, economy, performance, and handling. These ratings will help you compare makes and models in the category you're looking for. The NADA Official Used Car Guide has information on used car prices. Also let the Internet assist you. It is an easy way to screen the cars of your choice. Two reliable sites include www.kellybluebook.com and www.edmunds.com. On these sites you can find a variety of topics on used cars.

5. Review the ratings on the car

Do your homework and make sure that the car has the safety features that you are looking for. This will impact your insurance and the costs you can expect later as the car gets older.

6. Determine what you want

This is the hardest part! Wanting and needing gadgets in a car are the biggest cost centers and the hardest to determine. All the extras are fun and nice to have, but many are just extras to make the car more appealing. Try to stick to what you really need. Nice options to have that can be well worth their "weight in gold" are safety related features - airbags, antilock brakes, traction assist, and the advent of communication devises like "OnStar". These are big selling features and provide true value to the consumer.

7. Explore all of your alternatives

Visit many car lots and different dealers. Don't make any quick decisions or commit to anything prior to going home and sleeping on it. Car buying is very emotional and sales people will attempt to capitalize on this, which can lead to buyers' remorse and to your making a decision that may not be best for you. Do not buy based on your emotions. Be rational and walk away for a day. Go back a few days later after yo have had the opportunity to think about it rationally.

8. Analyze the positives and negatives of each alternative

Using one of the checklists you have found, you should analyze the "pluses" and the "minuses" for each of your finalists. If purchasing a used car, have a mechanic that you trust look it over. This will be money well spent. A great mechanic can find hidden problems or give you the green light to buy.

Selecting the best alternative can be helpful for you in the final selection of the car that you think makes the most sense economically and emotionally as well as meeting your needs. Make an offer and be prepared to do a little haggling to settle on a price. Never go over the price you have set in your mind as the most you want to spend. Remember to consider the costs of gas, repairs and insurance. Also it is best to evaluate your experience and review what you would do differently the next time you have to purchase a car. Proper planning will be greatly rewarded.

Cindy Diccianni is a Registered Nurse, a Certified Senior Advisor (CSA), a Certified Long Term Consultant (CLTC), a Registered Investment
Advisor and a Registered Representative with Leigh Baldwin & Company member NASD and SIPC. She is affiliated with Ortner, O'Brien & Ortner Advisory Group, Inc. and co-founder of Nurturing Your Success, Inc.
Her passion is assisting clients in creating financial freedom. You may
visit Cindy at www.nurturingyoursuccess.com, write to her at Cindy@nurturingyoursuccess.com or call her directly at (610) 251-9393.