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Financial Lessons From a Younger Me - My New car Money mistake.

Posted on | May 19, 2009 |

Regular readers of this blog know that my wife and I  recently moved to a new house. Well, while unpacking the many boxes of paperwork that moved with us, I discovered a real gem from the past - my old car loan.

It was a blast from the past I didn’t want to remember..

I say it’s a gem, but like the hope diamond - it’s one I’d rather I hadn’t found. It just brought back many painfully stupid financial decision my wife and I had made in my exuberant youth. But I also realize it is a pearl of wisdom that can teach others, as well as remind myself not to make the same mistakes again. I hope you can learn from my car buying mistakes.

This is the story of how I spent $35,897 on a $23.207 car.

Mistake #1: buying today with tomorrow’s income.

It was the late 90’s, and my wife and I were a couple of DINKs . Our lives were financially free, with money to burn and the unlimited prospect of future income. We were just out of college, and knew we’d be making much more money 3 years from then. We figured we could afford whatever car we wanted. We refused to settle.

If only I could travel back in time and smack my ill informed, misguided self. Life would be a lot easier for us now, living as SIWKs, if we hadn’t wasted so much money in our younger days.

Mistake #2: Being lazy.

We did VERY little shopping around when we bought this car. What little we did was pathetic. We wanted a Subaru Outback. We were the out-doorsy type back then, and we live in a part of the country that gets serious snow in the winter and we wanted (told ourselves we needed) all wheel drive. Our “homework” consisted of test driving an Outback, and a ford escort wagon and comparing the two!

Lets’ face it - we were going to get an Outback no matter what, and this was all a pretense of being informed shoppers. But the big money mistake here was never even looking into financing. We never comparison shopped for car loans, never thought about auto rates. We got financing through the dealer!

Mistake # 3: Focusing on the wrong things.

We never shopped around for financing, and didn’t think about it. When it came to “affording” the car, we just thought about monthly payments.

That’s what this post on The Simple Dollar blog titled, If You Ask “What’s the Monthly Payment?” You’re Asking the Wrong Question is all about. We were asking the wrong question because it felt good.

Long story short, we leased the car.

Our payments were $365 per month! We spent nearly as much on that car as we spent on our rent!

Mistake #4: Not learning from past mistakes.

Since we didn’t do our homework, we never shopped for the best financing, but we also never checked our credit score. It turns out, our credit was pretty bad. My wife’s credit was practically non-existent so we had to go with mine. In the end, we accepted a loan on a brand new car for 10% interest! Never lease a car with bad credit!

The 10% interest was bad enough, but looking over this ancient relic of paperwork I realized just how bad it was. We never gave a thought to what we would do once the lease expired. It was our only car, and we panicked and bought the car.

The car sold for $23,207 new. We leased it for 3 years at 10% interest for a total of $13,142. After which we purchased the car for $14,863 total, with $4987 in financing charges for a total price of $22,745 - on a car we had already leased for 3 years!

For those of you playing along at home that’s a grand total of $35,887 on a $23,207 car over a 8 year period of time.

Conclusion.

We were lazy, and figured we were young and could afford it. We weren’t thinking about how long we’d be working for this car or how much it would really cost.

If I had invested that money in my 401k alone I’d have well over $100k - even after the recent hit from the bailout fiasco!

In the end we learned a very powerful lesson about paying attention to our finances and our credit record.

I improved my credit score by 237 points, resolved to become debt free and stay that way and will never buy a new car again!

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