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My friend just started working for a tech company after years of grad school, living on next to nothing. About a year ago, they bought a 2-year-old Subaru Outback. A reasonable, thrifty thing to do.
Now he's talking about trading it in for a brand new Outback, while "there's still plenty of trade-in value left in this car". I asked what new features was he hoping to get, and he said, rear seat vents so his 3-year-old could have separate controls, and a built-in GPS.
I've long since learned not to lecture others on wasting money, so I didn't say anything. But what sense is there in trading a car you just bought a year ago? He'll probably pay $8K or $10K just to have that new car feel and smell.
$10K isn't just $10K. If invested into your retirement accounts, it represents about $100K 30 years from now when you retire. Assuming of course an average return of 8% which is the historical norm.
Is it prudent to trade in a car so soon? Hey, my 2013 Prius V is starting to feel a little long in the tooth. Not as shiny as it was 12 months ago! Maybe I should consider a trade-in while it's still got some of its long term value! (joking) I plan to drive it into the ground, actually, and I believe that's the only way to maximize your investment (or rather, minimize your loss) in your vehicle. Isn't that still the conventional wisdom?
Well, had you really wanted to maximize your investment/minimize your loss, you would've purchased a used Prius, wouldn't you?
Perhaps your friend is jonesing for a new car as you were a year ago?
Would you feel the same had he splurged $8-10k on a vacation instead?
Not everything in life has to make financial sense.
Well, had you really wanted to maximize your investment/minimize your loss, you would've purchased a used Prius, wouldn't you?
Perhaps your friend is jonesing for a new car as you were a year ago?
Would you feel the same had he splurged $8-10k on a vacation instead?
Not everything in life has to make financial sense.
That part is true, but what his friend did is typical stupidity and can't be classified as "splurging." It reeks of an individual who doesn't think things through, doesn't plan ahead and generally makes a lot of stupid life decisions. There's nothing wrong with buying a new car or splurging. But there is a correct way to do both. If he really wanted to splurge on a new outback he should have bought one from the beginning and not wasted money buying a used car then changing his mind a year later.
A better vacation analogy would have been: He paid for a $3K vacation and then changed his mind at the last minute to another destination; thereby losing part of his original $3K. This could have easily been avoided just like the situation the OP posted about.
That part is true, but what his friend did is typical stupidity and can't be classified as "splurging." It reeks of an individual who doesn't think things through, doesn't plan ahead and generally makes a lot of stupid life decisions. There's nothing wrong with buying a new car or splurging. But there is a correct way to do both. If he really wanted to splurge on a new outback he should have bought one from the beginning and not wasted money buying a used car then changing his mind a year later.
A better vacation analogy would have been: He paid for a $3K vacation and then changed his mind at the last minute to another destination; thereby losing part of his original $3K. This could have easily been avoided just like the situation the OP posted about.
You know this much about the guy from his decision to trade in a used car he bought a year ago?
Perhaps he couldn't afford a brand new car a year ago since he just graduated. Perhaps he just got a big fat bonus and decided to splurge after years as a poor grad student. Perhaps he likes the looks of the redesigned 2015 Outback better.
I side with jaypee a little here. Maybe your friend attended "years of grad school" so he could get the job that would allow for a new car purchase every year or two. It's really ONLY his business (unless he owes you money) how he spends his money.
From 1968-1988 I traded for a new car every one to three years, often trading for two new ones in the same year (my car, wife's car). In 1988 I actually bought three new cars and a one-year-old pickup (my car, wife's car, pickup for rough use and a car for my son's graduation). I figured (wrongly) that I plenty invested for retirement and paid cash for all of them.
Point is, new cars are simply more reliable than older ones, and I could easily afford to pay a little extra for that reliability. They don't cost a whole lot more in the long run.
Case in point: My late FIL used to trade his car every year when the new ones came out. He had a standing deal with the local Ford dealer -- $500 for same model one year newer. The cars he traded in were like new, always under 10k miles on them, always garaged, kept clean, carpets always covered with towels, etc. The dealer always had someone waiting for my FIL's trade-in, because they figured it was "just like new" but they were buying it for a used-car price. Guess who really got the better deal.
Life is too short to be driving an old car you don't like. Sure, saving money for the future is the smart thing to do and should be done. But it doesn't mean you can't spend it. I invest so I can have nice stuff NOW. Not when I could be dead 20 years from now.
I side with jaypee a little here. Maybe your friend attended "years of grad school" so he could get the job that would allow for a new car purchase every year or two. It's really ONLY his business (unless he owes you money) how he spends his money.
From 1968-1988 I traded for a new car every one to three years, often trading for two new ones in the same year (my car, wife's car). In 1988 I actually bought three new cars and a one-year-old pickup (my car, wife's car, pickup for rough use and a car for my son's graduation). I figured (wrongly) that I plenty invested for retirement and paid cash for all of them.
Point is, new cars are simply more reliable than older ones, and I could easily afford to pay a little extra for that reliability. They don't cost a whole lot more in the long run.
Case in point: My late FIL used to trade his car every year when the new ones came out. He had a standing deal with the local Ford dealer -- $500 for same model one year newer. The cars he traded in were like new, always under 10k miles on them, always garaged, kept clean, carpets always covered with towels, etc. The dealer always had someone waiting for my FIL's trade-in, because they figured it was "just like new" but they were buying it for a used-car price. Guess who really got the better deal.
This would get my vote for the worst financial decision ever. SO your later FIL, traded in his car every year and paid all the taxes that come along with a new (used) car purchase.
His reasoning is faulty. Depreciation on the old car will be less than on a new car, especially considering it's the same model. If he were trading an M5 for a prius, that would be different. Subarus, especially used ones, hold a pretty good % of value. FWIW, I have an 07 model that I've owned for 4 years and the trade in value on it is still within 4 grand of what I paid back then. The car has held value better than anything I've ever owned.
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