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A guest post from My University Money on buying his first car. He walks you through his thought process as he justifies the car.. or not.

Please welcome the following guest post from My University Money, a fellow Canadian blog talking about what its like being a recent graduate, and working in the real world.  Please note– the photocredit is from photobucket and I chose the picture… If you find it distasteful, blame me! 🙂

Hello fellow young personal finance readers. I go by the pen name is “Teacher Man” due to the fact I recently graduated university and am in my first year of teaching high school. My partner and I have recently started up a website aimed at helping young people in high school, as well as those in various post-secondary avenues, and finally, students that have recently graduated and are facing ‘the real world’ for the first time. The inspiration for our website came about when we were reminiscing about our time in university and how if we knew then what we know now, we would have been a lot better off. Thus, My University Money was born. Our goal is to help young people in their quest to learn how to succeed in their educational, financial, and career pursuits.

My first car

Hyundai Model Pictures, Images and Photos

I have survived my first year of commuting in the car that my dad and I had picked out together when I started university. I had saved up some money and he said that for my birthday present every year he would pay the insurance if I bought the car. I still think I got a pretty good deal on that one. I went with my dad to buy the car, but I didn’t really do much talking. He said I needed a good, solid, “bigger” (re: North American) car.  I ended up with a 2002 Pontiac Grand Prix. It has served me faithfully over the past few years, but due to a long commute and my girlfriend moving in, it I time to look at a slightly more reliable option. My little brother has decided he can make use of the old car and I have decided to sell it to him a charitable price that still leaves me way further ahead than if I traded it in.

So I have recently embarked on this quest to find the perfect car for someone in my position. I have read roughly 199 personal finance articles on how to decide on and buy a car and I think I have a pretty good handle on things; however, I decided the only way to be sure of this was to share my thought process with some well educated readers and ask for their input. A big thanks to Young and Thrifty for allowing me the opportunity!

My financial situation

I guess before we start talking about mileage rates and finance offers, you should be aware of my rough financial situation. I graduated without student debt, and have recently taken on a mortgage. As a first year teacher I make about 50K a year before taxes. I find that I currently have about 1K a month in disposable income after all my paycheque deductions and expenses are taken out. My girlfriend is still in university and basically earns enough to pay her student expenses. I have saved up approximately 10K
either for a down payment on a car, or to buy a used one outright.

The options

This has been my thinking up until this point. I am looking for an ‘econo-box’ type of vehicle. Luxury isn’t a big deal to me at this point in my life, and I am just looking for something with low maintenance costs and good gas mileage. I still need a little room for transporting things and I am a pretty big guy, so I just don’t feel comfortable with the sub-compact class of cars. I believe my personal sweet spot is in the compact category, so I started looking at Civics, Corollas, Elantras, Sentras, Mazda 3s, VW Jettas, VW Golfs, Focuses, and the Chevy Cruze/Cobalt combination. I would be looking at the mid- level of features on pretty much every car because I want the A/C and cruise control. I definitely have no need for sun roofs and leather seats.

The Civic and the Corolla had the best and most consistent reputations, with the others following close behind (save for the Chevy Cobalt which everyone appears to agree is a definite money pit). Beyond initial quality, the idea of value is what I was looking for. I decided that a 2008-2009 used vehicle would probably be my best bet. It is commonly known that after the first few years most cars hit their ‘sweet spot’ in terms of valuation since depreciation has cut deeply into the initial price, but there are several good years left in the vehicle.

After looking through some consumer reports and comparisons the one vehicle that really stood out for me was the Hyundai Elantra. Basically, the car has been doing its best to become the more modern, cheaper, fuel efficient Toyota Corolla. Not a bad idea. Every report I read talked about how far Hyundai vehicles have come in the last decade and how their product now far outdoes their reputation. When I read that, I think there is value to be had (similar to how Y&T talks about her stock evaluations). The 2009 Hyundai Elantra won several in class awards and appears to be a solid pick. It may, or may not be better than the Civic, Corolla, or Mazda 3, but I guarantee is has depreciated the fastest! This is good news for a young guy looking for a bargain.

Just as I was coming to terms with my decision I had to look at the new Hyundai Elantra.  I recently read that it was the best selling car so far in Canada this year and I believe there are some pretty solid reasons why.

Here were my considerations when I made my comparison of buying a new car or a used car (2009).

1) Resale Value – Not concerned, I intend to drive it into the ground, so I don’t care
about being brand name reputation etc.

2) Prior Mileage – In my mind 40,000 km driven problem free (need to see a report)
means that the vehicle isn’t a lemon, while on the flip side that’s 40,000km less I’ll have
the car for.

3) Looks – I know I said I’m not a looks guy, but man the new Elantra looks sweet.

4) Warranty – New versus already half used up (I’m not mechanic so this is a big deal for me).

5) My Options – New means I get it exactly how I want.

6) Financing – Currently great deals on financing options. Could I just take out a long term 0.9% or 1.9% payment plan and be better off putting the money somewhere else?

7) Taxes – The lower price tag on a used vehicle means I pay a lot less tax than on a new one. Plus, if I buy used from another person I cut off the 5% GST.

8) Fuel Efficiency – With my girlfriend and I looking to put about 40,000km a year on the car for the next couple years and then probably 25,000km or so after that (when she finishes school) fuel efficiency is a big deal. I thought that maybe I could justify buying the new Elantra based on its great mileage numbers, so here is the comparison (almost all the miles will be highway, so that’s the only mileage I care about), bear with my rudimentary math skills:

2009 Elantra – 33 Highway or 7.13 per 100 km
2011 Elantra – 40 MPG or 5.89 per 100 km

Plan about 40,000 km per year next 2 years, 25,000km per year after that

2009 = 2852 L of gas per year for first two years
2011 = 2356 L of gas per year for first two years

I’m going to guess that the average price of gas over the next few yeas will be $1.35 a
litre and that is probably a little low.

Difference of 496 L x 1.35 per litre = $669.60 per year
310 L x 1.35 per litre = 418.50

4 year difference in gas mileage = $2176.20 (could be higher if gas is higher)

9) Price – The most important consideration. I am relatively certain I will be able to find a 2009 Elantra mid-trim for about $10,000. The new Elantra mid-level automatic comes in at 20,852 before any negotiating or deals. Just for comparison, the Chevy Cruze will set you back $20,445 under the same features.

My Conclusion

Without huge incentives I just cannot justify buying the new Elantra. I am a ‘recent graduate’ so I might get some leeway there, but I figure it would have to get down to about the $17,000 level before it would make sense to buy a new one. I just don’t see it getting there, so hello used car market. Buying the car straight up will drain my savings, but eliminate any interest on future car payments. This will keep my financial life simple, and I’m pretty sure it will be beneficial in the long run. As a final thought, I am interested to see what the next 3-4 years will bring in the evolution of cars.  If we want to look at adding an additional vehicle to the household then there might be some really great options out there relative to right now (with electric cars going more mainstream etc).

Readers: What does everyone think? Have I taken the majority of factors into consideration or am I missing something?

Article comments

Tsunami says:

I doubt any of you are interested in anything a guy over 70 has to say but I have been impressed with the comments here. I have no kids and was surpised with the level of maturity here.

My Wife of 43 years and I have always lived below our means and did so from the getgo now as retirees live a great life. Many months in Arizona all winter and drive an 04 Toyota Sienna plain Jane model and just love it. Battery went two months ago. Oringinal, and they just don’t make things like they used to better LOL

Thanks William, I definitely have been thinking along the same lines as you!

William says:

I’m a new grad now working in the finance industry that stumbled on your blog.

My initial reaction is to advise you to buy used if anything. Your monthly expenses have nowhere to go but up. Add 2% to your mortgage rate (assuming you have variable rate) and see what that does to your monthly payment. Unless you are extremely confident in yourself of your ability to raise funds you should place priority on building and maintaining a nest egg for a few years.

Just one opinion, but I do this for a living and have seen how a seemingly conservative budget can change and leave you wondering how you didn’t see it coming.

CityFlips says:

I have an ’04 Elantra and it’s served me really well over the past 3 years. I’ve only had minor repair needs and it gets good mileage. When I bought the car, it wasn’t my dream car by any means. I’ve grown to like it more and more though for sure.

Good ideas for sure Kanwal Sarai! I actually did have a brief look at the consumer reports and that is what turned me on to the value of the Hyundai brand. The 2009 Elantra was the best buy for its class! I guess I always just figured crash test ratings would be included in the overall safety records, but I agree that it is definitely something that should be taken into consideration.

You’ve taken the majority of factors into consideration, however I would suggest you add two more to your list:

1. Long-term Reliability
2. Safety (Crash test ratings)

For long-term reliability ratings your best resource is going to be Consumer Report. Sign up for the monthly online subscription (which is pretty cheap) and when you are done with your research cancel your subscription, you only have to pay for a month. The best money you will ever spend.

For crash test data checkout: crashtest.com you want to make sure the car you are buying is going to be safe. The crash test ratings might determine which car you end up buying

young says:

@Kanwal Sarai- Thanks for the great tips, Kanwal. Crashtest sounds like a great resource.

@Ed – It’s all good Ed, no offence taken. My buddies I graduated with went out to Alberta right after high school and earned 70K+ right off the hop, so I can see where building wealth out there is a completely different ballgame.

oh…that link to the story on Garth’s blog is not me… just coincidence of the names

young says:

@crazyfasteddy- oh dear… Sorry! Then it’s me who’s misinterpreting and assuming 🙂


Manitoba? geez..why didn’t you say so? You’re loaded there with those figures plus a good pension too!! Hey..sorry for any offence taken with my comments.. @young is absolutely correct- comments don’t belong here but I hit the ‘Submit’ button prematurely and have noticed I can’t go back and edit …

watching the leadership debate and all the hoopla on the upcoming election, one gets a wee cynical.. (gotta keep my defenses up with all the bashing I’m getting living in Alberta and loathing the Conservatives)

young says:

@crazyfasteddy- Sorry eddy! I need to figure out a way to get an edit your comments thing. I’ll try and look into it. I know MDJ has one on his blog and it gives you a good minute to edit the comments.

@ CrazyEddy – Well Ed, I will say your posts are definitely thought provoking!

I’ll try to reply to your statements as best I can:

1) My housing is a unique situation being that it is in rural Manitoba, so my house costed me 95K, meaning my mortgage payment is about $450. If you can find a place to rent for much under 400 you are a lucky man!

2) The only form of public transportation would indeed be the school bus, however as I am often at school an hour before the students (at least) and an hour after, this is not a legitimate option.

3) I am aware of the “true cost” of owning a vehicle. There is a Hyundai dealer about 45 min away. Most basic repairs can be done in any garage. The cost of owning a vehicle is a necessary one for me so I really don’t have much choice but to limit the cost as much as possible.

4) My teaching contract is not subject to strike. We automatically go to arbitration, and even if we did, I am confident my skill set and experiences would be enough to get a temporary income.

5) I get a raise every year for the first 10 years. It’s built into the contract. After that, teacher’s salaries are indexed to inflation in MB for the most part.

I appreciate the view of money as capital as opposed to consumer-based. I am familiar with the “Rich Dad vs Poor Dad” theme and I think I understand where you’re coming from; however, if you can’t change the fundamental premises that I A) need a means of transportation suitable for the situation and B) need a place to sleep, then I’m not sure we can do much other than to be smart about limiting the costs involved with the situation.

@echo… $50K gross is not a lot of money.

Echo says:

Wow, sounds like you’ve given the future a lot of thought and are just holing up in your bunker waiting for it all to end. The rest of us need to live and get around somehow.

Can’t find parts? It’s an ’09 Elantra, not a $50k Mercedes for crying out loud.

sorry if I sounded so negative on my first reply… my advice was for you not to drive or not to buy a home… but to look into the future a bit more closely….yes you do have to sleep somewhere and if your mortgage is the same as rent you are already paying too much especially if you are in that home by yourself… I was full of optimism fresh out of school too… you will see how much of an asset that home is when you sell it.. here’s a good example off Garth Turners blog (he’s a bit extreme in the pessimism but it does give a good example)

As far as a car is concerned..Edmonton is close enough to a winter wasteland is it not? Are you not a teacher? Most schools even in rural areas have public transport…do all the kids get driven to school these days?? I thought that was just city kids! nevertheless you got places to go and places to be… which is fine…when buying a car same advice..look into your future more… look into what replacement parts cost… especially when you live out in the boonies…auto parts cost more do they not? Does your mechanic even fix Hyundais? How long does it take for him to get parts? Suddenly you gotta take time off work to get your car fixed… Can you fix alot of stuff yourself? The more bling the car has, the more things that can fall apart…ie..new Hondas and toyotas have tire pressure sensors now… extra $$$ to buy tires b/c they gotta set those blasted things… Look at insurance as I said before.. taking out any financing you need collision on the car to protect the financier… at your age, and you being male, you might as well give up your left arm.

Take a good look at your potential earnings… you may think you’re making big bucks at the moment but what’s the future outlook? If your teaching contract is due and a possibility of a strike is coming, do you really want that car right now? When’s your next raise? If things like food and gas are going up so fast these days, using all that whopping $250 per week of disposable income on a car turns into VISA bill payments for the other stuff unless your income improves…

just some other things to consider… though it does seem like you have your mind made up already and you’re just looking for some acclamation as to why you blew all that money on a car…

young says:

@Crazyfasteddy- Hmm not to be condescending here, but your Electrical Engineering degree didn’t seem to help you with reading and understanding written content properly- if you see in the last paragraph, Teacher Man said he’s NOT buying the car… as he can’t justify it being a new grad. You are assuming he is buying the car because “your’e just looking for some acclamation as to why you blew all that money on a car”. I don’t think you need to go down to the level of criticizing people who are sharing their story and say that $50K a year being a new grad is “not a lot of money”. We don’t need to do that on this blog, thank you very much… if you want to continue being disrespectful and judgmental of different people’s situations (since we are all from different parts of Canada and the living costs are different in each part– could we all not just get along? :)), then you are welcome to do that on the greater fool blog, not here. 🙂

@Anon – I actually worked as a border guard for a few summers so I am pretty familiar with these options. The truth is that 2 years ago you would definitely be right; however, since so many people like yourself have realized this option the car dealerships have gotten much closer to even. You are also wrong on the tax facts, you do in fact have to pay GST just like you would in Canada (and PST if your province has it), there are just no ‘duties’ or other taxes on the vehicle if it was made in NA. On cars that are 3+ years old it is not worth the bother of the paper work and time to possibly save a couple hundred bucks. Also, many companies will not honour their warranties if the car was originally from another country.

@Crazyfasteddy – While I can appreciate the alternative point of view, something tells me you have never lived in rural Canada before Eddy. A reliable means of transportation is a must when you are covering fairly large distances, winters are extremely cold, and there is no public transportation. As for my mortgage, it would have costed me about the same to rent as my monthly mortgage payment is, and I need to sleep somewhere, so I have a feeling it will work out for me:) Also, last time I checked houses and land are not depreciating assets over the long term (although I definitely agree on the unfortunate reality of a car).

congrats on your post graduate purchases.. you have taken the first steps into the never ending money traps… first a mortgage now a car… both depreciating assets… Actually they shouldn’t be called assets… they cost you money to maintain; assets do not.

Anyways… been there done that… if I were to go back in time 20 years and give myself advice, I would tell myself ditch the car… so what you’re missing? Insurance! Do financing on a car, you’ve just doubled your premium… car a coupe or sedan? Add 10% to your premium if it’s a coupe… best decision get your Grand Prix back and drive it into the ground…

Anon says:

Consider buying an American car and importing it to Canada, you can save huge amounts of money, as cars in the USA are cheaper than the SAME cars in Canada. This is especially true of cars manufactured in North America, because you don’t pay tax to bring them across the border.

Sofia says:

My first car was a 2009 Scion xD. Certainly compact and I really like that it has great gas mileage and it was at a fixed price so no haggling and I knew exactly what I was getting for amount I handed over ~$15.5K.
Love that you did so much research, a thorough decision for sure!

Kevo says:

Don’t forget to consider safety as an option!
Also, and this is more of a me thing (193 cm of height here) – make sure you can fit in it and it’s comfortable for long drives on the road!

@Echo – Good idea, I might try that. The only problem is that those cars are currently selling like hotcakes so I’m sure they won’t go down on price much. Oh well, it’s still a good car for a young guy just starting out.

Keyfound says:

Dude, drive a buick century. Sure you’ll look like the oldest driver on the block, but it is maitanance free, and $50 will get you close to 600Km which isnt too bad, plus there’s all kind of space for kids…wink wink….

Echo says:

@My University Money – If you could negotiate the price of the new vehicle down to the price of say, last year’s model, then go for it. If you walked into the dealership willing to pay cash for the ’09 model and just started chatting about the new model, it couldn’t hurt to ask if they’d sell it to you for $17k.

Can anyone rationalize buying a new Hyundai Elantra. I know that in the above pic it is only the second best looking ‘object’ (Y & T have I got the inner feminst really going yet?), but all the same, it is a really tempting vehicle, especially with that mileage rating. I just can’t rationalize it.

young says:

@My University Money- yeah, the inner feminist is enraged! I think if you have doubts, then don’t go for it (which you obviously didn’t). Thanks for sharing your perspective and decision making on this guest post. I apologize for all the judgmental comments that cropped up!

@Echo – Thanks Echo, I had to agree that in terms of value Hyundai is where it is at for the Japanese vehicles. I also don’t see the problem with the picture, I personally believe the young lady showing it off is quite likely an expert on the mechanicial specifics of the car.

@Ravi – The temptation to buy new is definitely there, but the temptation of retiring a couple years early is stronger!

@ Y and T – Ya, I was amazed when I actually looked at the price of cars and it almost invariably proved the old 30% adage true. I think even if you were to consider reselling the vehicle in 5+ years you would still be further ahead with the Hyundai. I believe that with the improved quality of their vehicles the resale value will continue to go up, and after 7+ years, most vehicles are past the point of brand name level depreciation anyway.

It sounds like you have though this through very well! I wish I would have done the same thing when I finished school. I bought a brand new Mazda 3 GT when I graduated.. I was stuck with a $656 payment every month.

My only comment would be if the $10k is your entire savings, don’t spend it all on your car. You never know when something will come up and you will need some emergency cash.

Echo says:

@Young and Thrifty – what’s wrong with the photo? 😉

young says:

@Echo- lol.. The feminist in me sort of cringes, but at the same time, the aesthetic in me is jealous of her flat abs. 😉

Echo says:

I think the ’09 is a good pick and you’ll get good value out of the Hyundai brand. With Toyota and Honda you pay a premium for that reputation, where Hyundai has quietly slid under the radar and produces a similar quality vehicle. If you don’t care about re-sale value because you’ll drive it into the ground, then you can’t go wrong with the Hyundai.

@My University Money- I like how you did your research and picked a used car (vs getting a new car and have it depreciate 30% as you drive it off the lot!).

My mom used to own a Hyundai and she found it difficult to do maintenance as the parts weren’t readily available (it wasn’t as popular back then), but I’m sure that’s not the case now, Hyundai has become much more popular now.

Definitely agree with Echo though, the resale value of the car won’t be as good as a Honda Civic, but if you’re not planning to resell it and you’re planning to drive it to the ground, then resale value wouldn’t matter.

Ravi Gupta says:

I think you’re making a great decision. I regret my parents buying me a new car for $12 – $13k and going in for a trade in value of $8k the next year. Buying new simply isn’t worth it.

-Ravi Gupta