Personal Finance in Your 20s & 30s For Dummies
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Whether you're buying your first car, or perhaps buying your first car without help from a parent, this list highlights some tips and strategies for making the most of your car-driving experiences and doing so in a financially prudent fashion.

Don't buy a car in the first place

Car ownership is costly. If you don't need a car, don't buy one — particularly if you live in a city with reliable public transportation, or you rarely need a car. Use the subway or bus and save your money. As with renting a home or apartment instead of buying and owning one, sometimes in your life you may be able to do without your own car, and other times you'll feel that having a car is 100 percent necessary. Enjoy the times when you can do without a car because you may save a good deal of money and hassle.

Owning a car requires multiple expenses that can really drain your wallet. In addition to insurance and gas, there's a seemingly never-ending list of maintenance and repairs. And having a car in a big city can be a hassle —parking tickets, parking your car on the street, moving your car on designated street-sweeping days, and so on.

Pay cash: shun leasing and borrowing

When you do decide to get your own car, do your best to save in advance and pay for the car with your cash savings. For many folks starting out, doing so means setting their sights on a good-quality used car.

Taking out a loan to buy a car or leasing a car are generally much-more-expensive ways to get a car because of the interest you pay (in the case of a loan) or the higher rates (in the case of leasing). Car dealers who are in the business of leasing or originating car loans will, of course, have a different agenda and push these methods because they profit from them. Don't be fooled by zero percent interest loans, either — dealers will sock you with a higher car price to make up for such low-cost financing.

Consider total costs

When you compare makes and models of cars, be sure to consider more than the sticker price. Among other cost considerations are fuel, maintenance, repairs, insurance, and how rapidly the car depreciates in value.

Among the best independent sources for such information are Edmunds and MortorTrend.

Compare new with used

Because a new car depreciates most rapidly in value in the first couple of years, buying a car that's at least a year or two old usually provides you with a better value for your money than buying a new car.

Don't assume, however, that buying a used car is always a better value. For example, during a severe recession such as the one the United States experienced in 2008–2009, new cars made comparatively better sense than many used cars. The reason for this was a matter of simple economics and supply and demand. More people opted for buying a used car. Fewer folks put theirs on the market, holding off on buying a new one until the economy got better. These two forces squeezed used-car supply and increased used-car prices. At the same time, fewer consumers were buying new cars, forcing dealers to slash new-car prices.

Understand a car's real value before negotiating

After you home in on what make and model of car you want, make sure you arm yourself with the essential information as you shop around. For new cars, you should know (and can easily find out) what the dealer's cost is for each vehicle. You can find this information at Consumer Reports.

For used cars, a number of sources can assist you with quickly valuing a vehicle based on its condition, features, and mileage. Among the best sources for used-car valuation information are Kelley Blue Book and Edmunds.

Take care of your car

Besides the obvious financial benefit from staying on top of your car's servicing requirements (getting your oil changed regularly, rotating and properly inflating your tires, and so on), you also reap safety benefits as well. That's why you should be proactive about your car's maintenance.

Explore your servicing options

Finding a good auto mechanic — someone who's competent and honest — is no small feat! You're not likely an expert in the various components and operating systems of your car, so you're largely at the mercy of the mechanic telling you that you supposedly need to have something addressed on your car

The primary advantage of taking your car to an authorized dealer (such as taking your Honda to a Honda dealer) is that the dealer has the proper equipment and technology to test and service your car. The downside to dealers is that they may have higher prices and may push doing packages of significant work at major mileage milestones (for example, 30,000 miles, 60,000 miles, and so on) that may not need to be done.

Numerous local garages can do the work, and the primary advantage with those can be convenience (choosing one near your home or office) and possibly lower rates. However, an unscrupulous mechanic may push doing work that doesn't need to be done, and you also need to be on the lookout for competence issues, as an independent mechanic may not be able to service the full range of problems on your car's make and model.

Drive safely

Driving faster than 60 miles per hour (70 mph for some car models), accelerating too fast, and having to jam on the brakes wastes gas and adds to the wear and tear on your car over time (and therefore is costly). And what about the people traveling with you? Driving is probably the most dangerous thing you do on a regular basis, so it's not just about your money but also the health and safety of you, your friends, and your family who take trips in your car.

Take a lean and mean insurance policy

Most states mandate minimum levels of auto insurance. In my experience as a financial counselor reviewing folks' insurance policies, including their auto insurance, people often have the wrong types of coverage — missing things they really need while wasting money on other things they don't need.

Track tax-deductible auto expenses

You may be able to deduct certain auto expenses related to the use of your car for your job, especially if you're self-employed. Be aware, however, that your expenses for commuting in your car between your home and office aren't deductible.

You can deduct your out-of-pocket expenses (such as gas and oil) that are directly related to the use of your car in charitable work. You can't deduct anything like general repair or maintenance expenses, tires, insurance, depreciation, and so on. If you don't want to track and deduct your actual expenses, the IRS allows you to use a standard rate per mile to figure your contribution. You can deduct actual expenses for parking fees and tolls. If you must travel away from home to perform a real and substantial service, such as attending a convention for a qualified charitable organization, you can claim a deduction for your unreimbursed travel and transportation expenses, including meals and lodging. Such deductions are only allowed if your travel involves no significant amount of personal pleasure.

About This Article

This article is from the book:

About the book author:

Eric Tyson, MBA, is a renowned finance counselor, syndicated columnist, and author of numerous bestselling financial titles.

Tony Martin, B.Comm, is a nationally-recognized personal finance, speaker, commentator, columnist, management trainer, and communications consultant. He is the co-author of Personal Finance For Canadians For Dummies.

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