For most of us, having access to a car is a normal part of life. We use it to get to and from work. We need them to buy groceries, shop for clothes, see our doctor or dentist, travel to and from church, and a whole host of other things. Basic transportation is part of life and yet most do not understand some of the opportunities that exist in terms of wise money management. Don’t misunderstand. Except in the case of some vintage automobiles, most cars cannot be expected to appreciate in value. At the same time, it is possible to buy, use, maintain, and eventually sell automobiles in a way that can make quite a bit of difference in your financial situation over time.

We will start with a long-range goal that everyone should be working towards: You want to be in a position where you can pay cash for the cars that you need. It may take a while for this to be the case but if you work in that direction and then carry it out, it can be a big part of your overall financial success. This is not to say that you will actually pay cash for the automobiles that you need, only that you will have that option at the time you make the purchase. From time to time there are reasons why you would want to finance your automobile purchases but you want to be in a position where you have that choice and can either finance it or pay cash, depending on what is the best deal for you. What you want to avoid is getting “upside down” on a car. This means that you owe more on the car than the car is worth. This can happen because the car may depreciate faster than you pay for it and leave you with more debt than value. If this happens to you, you need to reconsider the methods that you are using to purchase cars.

Here are two basic strategies, both of which depend on saving a regular amount each month into a car replacement fund. When you buy a car, you will pay for it either by saving in advance (where interest works in your favor) or after the fact (where interest works against you). Either way you pay for the car. The only choice you have on any given car is whether you pay in advance or after the fact.

Assuming that you currently own a car, read through the section below on how to maintain it and keep it serving your needs for as long as it makes economic sense to do so. If you are currently making payments continue to do so, but when it is paid for, continue to put aside your former monthly payment into an account earmarked for a replacement vehicle. Then, in the future when you decide to purchase a replacement vehicle, you will have your savings and the remaining value of the car to offset the amount that you will need to borrow. By continuing this process over several vehicles you can gradually increase the amount of savings that you have for this purpose and eventually get to the point where you have the resources necessary to purchase a replacement car with cash.

The remaining question is: Should I buy a new vehicle or a used one? It all depends on how long you intend to keep the car. If you are buying a car that you intend to maintain and keep for a long time, then buying a new car can make a lot of sense. You get the car (including options) that you want and if you maintain it well there is no reason why it cannot last a decade or longer. If you want to buy new, go ahead but plan to keep it for a long time so that you can amortize the first year’s depreciation (and each subsequent year’s depreciation) over a long period of time. In other words, since a car’s value declines more rapidly when it is new and less rapidly as it gets older you can spread out the depreciation (decline in value) over a longer period of time if you plan to keep the car for a long time.

The other strategy is to avoid new vehicles and buy a car that is one or two years old. This limits you to what is available on the used market at the time that you are buying and you may have to compromise some of the things that you want and settle for what is available. With this strategy, you do not experience the drop in value that normally occurs in the first few years. This can mean that the car stays much closer to the price that you paid for it than a car purchased new. Some people who use this strategy do so because they want to change cars more frequently and this allows them to do so without losing too much each time they purchase a car. It makes more sense, however, even with this approach to car ownership to maintain the car and keep it for a long period of time.

Another methodology that needs to be addressed is buying new and trading it in after a year or two for another new automobile. Each time you do this, you lose a lot of value and make owning an automobile more expensive than it needs to be. If owning a late model car is important to your career then give consideration to this and concentrate on your career. Under these circumstances, the car is more than basic transportation; it represents a part of your business and this often overshadows what may be best from a personal financial planning perspective.

Ultimately, the cost of a new or used vehicle can be summarized as “so much a mile”. There is an excellent web site that does this for you that is listed at the end of this section. It covers new automobile and recent year used car costs. They use purchase price, anticipated depreciation, anticipated repairs and operating costs specific to your zip code to show you how much you can expect to pay for each mile you drive. It will then compare that “per mile cost” with the “per mile cost” of similar vehicles so that you can make an informed decision.

There are two additional things you need to consider when buying a new or used car that many people forget about until a decision on what to buy has already been made. You need to consider the additional insurance costs that will be yours when you buy a new or used car. Chances are that the car you are buying has more value than the one that it is replacing and so you will need to make sure that you can afford the additional insurance payments that will kick in when you buy the car.

Second, you need to remember that the initial cost of licensing a car often includes sales tax for the cost of the automobile or at least a portion of it (Some states charge you sales tax on the purchase price less the value of the trade-in or the price of a car that you have just sold). These two items can amount to several hundred dollars, maybe even into the thousands. When you are considering a new or used automobile, you need to make sure that these two items are part of your planning or the sticker shock will be even more dramatic than it already is.

Once you own it, there are a few basic things that you can do to make sure that it lasts a long time. There has been tremendous improvement in the reliability of cars over the past two decades and with regular maintenance, you should be well served by a quality new or used car.

One of the most important things that you can do is make sure that you change the oil as recommended by the manufacturer. Regular service should also include the transmission fluid, the air filter and the engine coolant. Have these checked each year and make sure that you keep the car running efficiently. Make sure that you maintain the correct tire pressure because being either over inflated or under inflated will mean additional maintenance and operating expenses.

When you drive, listen for unusual noises. This can help you arrange for small repairs before your car breaks down and needs a much larger (and more expensive) repair. If you have a standard transmission, learn to drive without riding the clutch. Learn to shift properly and your transmission will last longer. Finally, be aware of how you stop and start. While the temptation is to be fast off the line and stop quickly, your car and its power train and brake system will last much longer if you practice starting and stopping a little more gently.

Leasing tends to make the most sense when the automobile is used predominately for business (This does NOT include commuting to and from work). If having a late model car is important to your business and the costs associated with leasing a car can be deducted from your income tax or charged to a business, this is a valid way to go. If none of this applies to you then you will end up paying more to lease a car than you would have paid had you purchases it outright. This is true regardless of how often you plan to acquire a new car. Think about it. The company that leases you the car needs to cover all of the costs associated with that automobile AND make a profit. If you buy the same automobile, you only have to cover all of the costs associated with that automobile and don’t have to help keep the leasing company in business. Regardless of the way you ultimately decide to go on this question, make an informed decision and know the financial implications of the route you take.

WEB SITES:

GENERAL INFORMATION SITES

http://www.carbuyingtips.com
http://www.kbb.com
http://www.hwysafety.org/
http://www.autobytel.com/
http://www.nhtsa.dot.gov/
http://www.edmunds.com/
http://www.usaaedfoundation.org/auto/bc01.asp

FINDING THE TRUE COST TO OWN A VEHICLE

http://www.edmunds.com/apps/cto/CTOintroController?tid=edmunds..directoryalpha.directory..1.*)

LEASING

http://www.leaseguide.com/
http://www.mindspring.com/~ahearn/lease/lease.html