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
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.
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.
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?