From William Frietsch: “Buying used cars is a religion of mine. I’ve bought two or three year old used cars since I was 16 years old (I’m now 62). The money I’ve saved versus buying new cars I’ve invested in the stock market with very good results. One of my rules is never to buy from a dealer, always buy from an individual. You can tell a lot about how the car was cared for by the way the person maintains his home and yard. In addition, you can buy the car cheaper. Typically, you can buy it for the midpoint between wholesale and retail since the individual can’t get retail since he doesn’t have financing capability, warranty etc. But if he trades it in he will only get wholesale so an astute buyer can pick it up for somewhere in the middle.”

Ah, used cars. As you’re probably sick of hearing me say by now: forget Calvin Klein or Chanel – that new car smell is by far the most expensive fragrance in the world.

Consider that a new $20,000 car is probably worth just $15,000, if that, a few weeks after you drive it off the lot. So in that sense, if you’re someone who buys a new car every couple of years, the new-car smell costs you $2,500 extra a year.

Well, $2,500 a year of after-tax money is not a small thing over a lifetime. Obviously, somebody has to buy new cars or eventually there wouldn’t be any used ones (though Cuba sure has held out a long time); and obviously, the greater the demand for used cars, the higher their prices become relative to new ones, so the less you save by buying them.

Still, a 24-year-old who saves $2,500 a year on his auto expenses all the way through age 74, and invests that savings to return 7% after tax, will come out $1 million ahead. Who couldn’t use an extra million in her golden years?

 

 

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