When Should You Upgrade an Old Car?

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comparison is the thief of joy
“I’m not getting old, I’m becoming a classic”

Over the past couple of years, I keep get variations of the question,

“Why is your car so shit?”

Apart from the fact that my friends, family and colleagues have poor manners, I’m not really sure why anyone is that interested in my choice of vehicle. Should I follow their advice or hold on to my old car for a bit longer?

The car is 11 years old, brought as an ex-demo with cash.

It is rarely clean, full of all sorts of things I may need (spare shoes, clothes, kids activities). It has some minor scratches and dents.

In the 10 years I have owned it, I have changed the tyres twice and the battery once. I have serviced it more or less on schedule and never (touch wood) had a mechanical issue.

It’s actually just out of the generous 10 year warranty that encouraged me to buy it in the first place.

The level of interest in the car I drive by in-laws, friends, neighbours and colleagues surprises me.

My Car History

One valuable financial lesson my parents taught me was that cars are just a mode of transportation. They taught that treating a car as a status symbol was silly, and would “keep you poor”.

I was extremely fortunate to have my first vehicle loaned to me by parents for my first year of work, during which I saved up for my first bomb.

It was a 20 year old car, not very reliable and came with plenty of repair bills. I upgraded when it passed onto a better place, to a 15 year old beater. This lasted me a good few years, and when it died I caught the bus for 12 months and saved up cash for my first brand new car.

The personal finance community generally don’t recommend buying a new vehicle.

Vehicles depreciate most in the first few years, making it more efficient to buy a vehicle 3-5 years old.

At the time however, I was wary of buying a “lemon“, and the price difference between the ex-demo and a second hand didn’t seem worth taking a risk.

As a family growing up we always owned old cars. They broke down, and that’s never convenient. But dad had some mechanical knowledge and usually fixed them up himself.

I don’t know a thing about motors. I tolerated two unreliable old cars whilst less financially stable. Now in a strong financial position, I don’t want to deal with an unreliable vehicle.

I bartered hard and refused to add on extras they were trying to flog, despite significant pressure from the salesman. I purchased my new ex-demo car for $20,000 cash as a registrar earning ~$150,000 gross. Which is a touch over Captain FI’s suggestion for a car budget of 2 months net salary. So far so good.

The personal finance community also preaches holding on to vehicles as long as possible. Not every agrees though. Suncorp think exactly the opposite to the finance community, that you should buy a new car every 3-5 years and sell it before it gets “Old”.

Despite the fact my vehicle, according to the comments, looks a bit rough, I’m somewhere in the middle. Once the car becomes unreliable, it’s time to upgrade. I’m hoping to get another 5 years. It’s a Mitsubishi, if it were a Toyota or Honda I would hope for more.

When is a Car Old?

As soon as you drive the car off the dealer’s property, it is no longer new.

When it becomes “Old” is relative. Over $100,000 km is often quoted as a psychological point at which cars are considered old and lose more value. Many people sell their vehicles before this point. Only 31% of car purchasers have owned their previous vehicle for 10 years.

When a car becomes unreliable really depends on the make, regular servicing and vehicle use. A car starts to look old depending on how much you care for the car, wash it and protect it from damage.

Pros of Upgrading Your Old Car

Around a third of people admit to buying a new car because it makes them feel successful. There’s a lot of insecure people around.

People want to display wealth, to imply significance and influence. The wealth doesn’t actually need to be real. Many think they can afford a vehicle if they can afford the monthly payments!

Many of your colleagues, friends, neighbours and family will be impressed with your new purchase, and congratulate you the first time they see it.

Perhaps a better approach is to work on self esteem. Stealth wealth has many advantages.

There are more practical advantages of a new car though.

A brand new car should be reliable, and will be under warranty for a few years.

Even a newer second hand car may be more reliable than an old bomb. It’s easy to buy a lemon though, so get a pre-purchase inspection unless you have great mechanical know how.

A newer car should have better safety features, although the gains in vehicle safety made with new advancements are diminishing. The biggest impact on crash safety came with the introduction of seatbelts.

Some of the newer brands are pure electric, or have hybrid technology. These should lead to lower running costs over the long term, particularly if you drive a lot of kilometres.

Cons of Upgrading Your Old Car

A new car is only new for a day. Even if you love the attention and external validation it brings, these benefits are likely to dissolve in a week or two. As soon as someone you know buys a newer or cooler vehicle, yours won’t look so shiney anymore.

It’s hard to know whether you will enjoy your new vehicle as much as you think you will until you have been driving it for a while. It’s a good idea to rent your potential vehicle to try it out for a bit longer than a test drive. Buyers remorse would be pretty painful after forking out tens of thousands of dollars.

Opportunity cost. By spending $20,000 on a vehicle, you cannot spend it on other things. Invested, that $20,000 can multiply over decades wisely invested. It could slow you down in your acquisition of your first investment property, or in buying a new home. That money could be used to allow you to reduce work hours, and free up your time.

There are extra costs associated with upgrading your car. Insurance tends to be more expensive the newer your car is. There is an extra premium if it is a make commonly involved accidents. If you are looking to keep car insurance costs down, check out my Budget direct Car insurance review.

Your choice of car strategy can make a huge difference to your wealth accumulation over a life time

If you don’t have the money saved to purchase a new vehicle, a loan is necessary. Paying interest on a depreciating asset is making it far more expensive, and increasing the damage it does to your financial situation. Sometimes you are stuck having to take a loan to purchase a vehicle, if you need it to get to work, and there are honestly not viable public transport options available. In this case, a cheap car should be purchased with a minimal loan that is paid off asap. Start saving as soon as the loan is paid off so that you are better prepared when this car needs replacing.

When to Sell your Old Car

Of course this is very individual, based on your own priorities and values.

Someone obsessed with cars is likely to accept the financial sacrifice and trade up more often. Those of us who see a vehicle simply as a mode of transportation will hold on to them far longer.

Personally, I am definitely in the latter camp.

The thought of choosing a new vehicle does not fill me with excitement. In fact, the incredible number of options available is overwhelming. I have simple requirements (air con, reversing camera, wheels…). The choice of vehicle will probably come down to safety features, fuel efficiency and price. If choosing a new vehicle feels like a chore, you are likely to hold on to the old one for longer!

When to Upgrade

This depends on your stage of life and financial security.

If you are on target to hit your goals, and you can save the cash for a nice car that you will enjoy, go for it! But buying your dream car (or even a decent one!) before you have taken steps to secure your financial future will hold you back.

Borrowing to buy a car should be avoided if possible, and minimized if it can’t.

If you are at a stage where money is still really tight, or mechanically knowledgeable you may be willing to put up with a break down here and there. Once the money situation is on track, most won’t want to deal with an unreliable vehicle.

2021 does not seem a good time to upgrade you car. There is a shortage in microchips, and months long waiting lists for new car delivery. Second hand car prices have increased as a result. If you can, avoid purchasing any car within the next 6 months (or more).

Why Do People Care So Much About What I Drive?

Back to the question of why does everyone seem to care so much about my choice to hang on to an ageing vehicle? At work it’s parked in a large car park anonymously. I could probably get away with not owning a car at all, so upgrading seems a bit excessive.

Even Warren Buffett drives a modest car that he brought at a discount!

When people are trying to pressure you into a decision that is completely irrelevant to them, they subconsciously want you to validate their choices in life. I think many feel uncomfortable when others make different choices. It’s more comfortable when everyone follows the same path.

So don’t pester your boss about their ageing car. We all make decisions based on priorities and values, and some of us value almost anything over the car they drive.

Your wealth accumulation journey starts as soon as you make the first step. Subscribe to Aussie doc for a weekly email to keep you up to date on track to your goals.

Aussie Doc Freedom is not a financial adviser and does not offer any advice.  Information on this website is purely a description of my experiences and learning.  Please check with your independent financial adviser or accountant before making any changes.

This Post Has 2 Comments

  1. Aussie Minimalist Doc

    I laughed out loud at”why is your car so shit?”. I used to ask why one of our top CTx surgeons drove a 30+yo station wagon. Since joining the FI community, I totally get it now. Plus he was so secure within himself, he had nothing to prove. Thanks for the post!

    1. docfreedom

      thanks Aussie Minimalist doc. I guess the old car doesn’t fit expectations. Stuff wasting money on depreciating assets though!

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