Monday, November 12, 2012

Fix the vehicle or buy a new one?

Here's a question that we've had to really think through a lot in the past few months:

When is better to just purchase a new vehicle instead of keep paying to fix an older one??

This question has risen up a number of times as we've paid at least a couple of thousand dollars in the last 2 years to keep our vehicle running.  It's currently headed back into the shop this week, and we've got a rental vehicle so that Steve can continue to earn money while our van is costing us money.

I've been watching the posts that come through my RSS Feeds from Dave Ramsey, and he talks a lot about this topic.  People are constantly asking him about their own personal situation, as if they are sure he will say, "Yes, now is a good time to go into debt by purchasing another vehicle," but it never happens. 

Here's what Dave says over and over again: 

When you are driving a $1,000 car and a $2,500 transmission goes out, that car goes to the junkyard and you get $500 out of it. It's a throwaway–that's what it's for.

If you are driving a $5,000 car, you have to stop and think about whether to put a transmission in that and whether that makes sense. Overall, mathematically, until you get down to that level of car, if your car keeps breaking down, you can mathematically fix a car forever until you get down to $1,000 value. You can mathematically fix a car for cheaper than you can buy another one.

If you have a $10,000 car that always breaks and upgrade to a $20,000 car, that's $10,000 worth of repairs you could have done. How long can you keep something running for $10,000? Forever! If you have a $5,000 car that's breaking down all the time and you buy a $10,000 car, that's a $5,000 difference. How long can you work on a $5,000 car with $5,000 cash? A long time!

Mathematically, repairs almost never drive the decision until you're down to a $1,000 car. You really can't mathematically make the decision to sell a car because the repairs are eating you up. It never works out.

So here's how that works out for us.  We don't have a lot saved up for a new vehicle yet, because we are still working on getting our emergency fund back into place after it took a severe beating this last summer.

How much is our van worth?  According to yesterday's hours of research online, I have to come to the conclusion that our van is worth at the very least, $3500.  How much of a new van can we pay cash for right now?  About $3500.  What on earth would be the point of purchasing a new vehicle???

Some of you are staring at me like I'm crazy.  I can just hear you thinking, "What's the point??  Are you really going to keep throwing money into that old thing and let it eat you alive?"

Sure, I'd love to drive a shiny new vehicle.  Sure, I'd love to be able to take it into the dealer and say, "Fix this... it's on warrantee," and walk out of there with a fixed vehicle and no less money in my bank account.  Sure, I'd love to show up in a snazzy ride that everyone oohs and ahhs over. 

Let me ask you something:  Would I rather throw my own money into something that I own to keep it running, or would I rather borrow a bunch of money and throw way more of my own money at something that won't break down... at least for a little while.  And then when I still owe about half of it, it will start breaking down and causing trouble, and then I'll be throwing money at my vehicle AND at my loan!  Yay. 

That's not the way I want to live.  Ever. 

So we shall drive a beater and until it costs us more to fix it than it does to purchase a new one, we'll keep at it.  Besides... eventually, we'll have replaced so many things that we'll sort of have a brand new vehicle!  :)

We'll keep saving our money by NOT purchasing another newer vehicle that we can't pay cash for, and we'll keep repairing our current vehicle and staying out of debt. 

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