@Jon -Thanks Jon your perspective. It gave me food for thought. On the whole though, I disagree.

For most 20 and 30 some-things a new car cannot be called an efficient investment. The difference in cost, even with 0% finance is huge. Yes you avoid maintenance costs and repairs but in most cases these maintenance costs are tiny compared with the amount saved by buying used. I think your example was more down to poor car choice (by your own admission), and bad luck.

If the decision is made consciously there’s nothing wrong with buying a ‘better’ or ‘newer’ car -but I wanted to bring up in the article that it comes with a massive, life-changing price attached, especially compared with what you could have in a few years if you make a conscious effort to save and invest the money rather than purchasing a new car.

@Jeremy – mobility is indeed very important and perhaps I am underestimating it -but public transport is not so bad, and even with modest use of taxis I feel that the savings made have been worth the inconvenience. I encourage other 20 some-things to consider being car-less for a while: if you save wisely and do not squander the money saved on other wants you’ll find it much easier to accumulate pennies for your future self. And Jeremy, I’m sure ‘the ladies’ would appreciate that too!

You picked an interesting subject to talk about. Reading some of your posts from the US it occured to me how we look at things from a UK perspective.

I would say we have a car culture here. If you go somewhere like Switzerland, they don’t like cars at all, bikes are king…. and they have all the money… hmmmm… perhaps your pro-bike stance holds water… dunno

Anyway, I largely agree with your points. As an IT guy, you hear loads of stories about people going out to buy a sports car and end up selling them within a few months. Buying a nice car is very easy, keeping and running it (ongoing costs) is another ball game. This will probably have a greater impact on your finances, more so than taking the loan out to buy it in the first place.

However, mobility is very important in modern life so you should never underestimate the importance of owning your own car. The sooner you get driving the quicker you get experience and the better the insurance premiums will be.

I think the key is to pick the right car for you. If your a high flying marketing guru with tons of cash why not buy a Bugattie Veyron and dump the bike. After all, the ladies appreciate a a good car and it beats giving them a croggy (I’m not being rude).

People can be quite emotional about cars and they are often more than just transport, they are a hobby as well, and in some cases, ah ha, even an investment.

Blue Horseshoe loves Anacott Steel.

Best deal on the market at the moment: buy a Kia Ce’ed on 0% finance, pay it off ASAP, sell it on while the 7 year warranty is still valid (highly likely, in truth, and a massive incentive to second-hand buyers) and you could end up with a much more efficient investment. Plus the MOTs will almost never cost you anything providing you do the basis maintanence.

I wouldn’t argue that you may grow some pennies given the tips suggested, Adam, but motoring is going to be one of those subjective areas where I can see the potential immediate ease, and benefits, outweighing an opportunity to invest.

But I can’t comment directly as I have been damn lucky with acquiring vehicles so far!

But I do think that in evangelising saving even in the face of losing money (e.g. in a savings account with a pitifully low interest rate) is failing to take account of the concept of opportunity cost (http://en.wikipedia.org/wiki/Opportunity_cost).

In the case of my example, Person A doesn’t just lose out monetarily. He loses the opportunity costs of 2 years of fault free motoring and the pleasure of owning a new car.

The problem with opportunity cost is that it’s very open to personal interpretation, but I hope that you can see that there will be some situations for everybody in which spending is preferable to saving once opportunity cost is accounted for (granted, being new to this personal finance malarky I’ll be happily corrected if I’m wrong).

Going back to motoring, a perfectly valid point we’ve missed is the concept of the car-share, which removes a lot of purchase cost and initial outlay.

@TheOtherAdam -I love this strategy, thanks for sharing -it is exactly what I think is the best way to go about owning a car for those of us in our 20s, particularly for young male drivers whose insurance is incredibly high. We have the whole rest of lives to work towards better cars -it can be a real strain on your finances if you move up in car too quickly and you’re not going to want to move back down.

@Sean -I love that you’ve brought some debate to this post. I see your reasoning but you’ve not included any mention of risk: having a big car loan that needs paying off could put your financial life in risk if something happens to your source of income. You also lose flexibility -someone saving up for a car by making the same payment into a savings account could always stop paying themselves the payment if they needed to, but you can’t stop a car loan as easily.

You make a great point about savings and interest rates though -currently you’re not going to earn much on your money, but bigger picture, having it there puts you in a position to do more ‘risky’ things with your other money, like investing, for even bigger returns: see my other post:

Why it’s great to lose money in a savings account:
http://magicalpenny.com/saving-money-and-losing-it/

Lastly, whilst I love your car and admit the UK government scrappage scheme (the UK version of Cash4Clunkers in the US) muddies the waters a bit on this debate, I feel that for most of us, on modest incomes, having a shiny new car sets a dangerous precedent. And if we hold back from buying new until later on in life, the rewards far far outweigh that great new car smell.

@Sam. Another high quality comment. Thank you. You make a great point on maintenance as it can make a huge difference. That said, I’d be the first to admit that maintenance can, for many, seem too complicated (even if it’s not) or not be much fun. As with all things, it’s a matter of finding a healthy balance: for some, replacing a part every few months might be worth it if it means they don’t have to go out into the cold and oil or clean something at the end of a long day. But similarly, I’m sure if you take the time to learn how to do even basic maintenance you can save more than most people think.

Also, both you and Sean make good arguments for and against in the new Vs used debate: a new car does indeed need less maintenance and have good fuel efficiency, and yes Sam, a newer but used car is a great alternative. Both points reminded me of two great posts at The Simple Dollar that I think are worth a read:

http://www.thesimpledollar.com/2009/10/01/how-the-traditional-rules-of-frugal-living-often-vastly-undervalue-time/
http://www.thesimpledollar.com/2008/06/17/twelve-ways-to-make-your-car-a-better-investment/

Ultimately though, stripping away all the other points, I hope you take to heart that lowering your auto expenses in your 20s can have a massive impact on the choices available to you later on in life. To me, controlling car costs is a ‘big win’ when it comes to growing your pennies.

Before buying a car, you need to work out how it fits into your lifestyle. you could save a lot of money by buying a cheap used car, running it into the ground and buying another in the near future. Also, taking Sean’s 10 year timescale, buying a used car thats 3 years old saves on cost instead of buying new (still with reasonable emmissions and running cost ratings), but then selling it in 7 years and buying another 3 year old car, as when the car reachs the 10 year mark, expensive components will be in need of attention and significant cost can be avoided by simple trading it in and getting a newer model.

Of course with all big purchases, you need to understand the product, be it a car, a house etc, to really get the best deal cost wise. You shouldnt just think of ways to save money for a purchase in the future, when you’ve left whats you’ve already got outside to rust. Cause then your pennies go on replacing what you already had but couldnt be bothered to care for.

Let’s assume you’re in your 20s, and you’ve decided that you want a new car to last you well into your 30s and perhaps even until you get that mid life crisis car. First of all, unless you happen to buy a Toyota, you’re going to save significant money on maintainence over a used car over the 10 years you might have it. If you’re sensible, you’ll also buy a car with low CO2 emissions, saving you more money per year in car tax.

Now let’s look at the purchasing, taking some of your advice and finding a new car with a 0% deal. Person A decides he doesn’t want to get into debt. He’s going to put the equivalent monthly repayments into an average savings account, paying say .5% above BoE base rate. Person B says ‘stuff it’ and takes the loan out on the car. Who’s going to be better off in 2 years time?

Thanks to the wonders of inflation, it’s Person B! Not only does he have a car which is paid for, he’s had two years use out of it. But surely Person A can buy his new car now right? Wrong! inflation means the car company has put the cost of a new car up by £1000. So person A has another few months of saving, AND ends up paying more for the same car as Person B. What a loser!

Obviously the real winner is Person C, who likes to cycle. But do you see my point?