When buying a high ticket item like a car, it’s your chance to redeem yourself from family and friends that boast about being smart savers because they choose to eat at a cheaper restaurant or get those new red hot jeans in the market on a bargain deal only to blow all the saving they’ve been accumulating by making horrible car purchasing decisions.
The 3rd world’s richest man with a staggering net worth of over $86 billion, worth more than Uruguay’s GDP. In 2013 he made $34 million PER DAY… more than Jennifer Lawrence (hunger games star actor) made in a year!
Yet, he drove a 2006 Cadillac DTS for 8 YEARS!
After 8 years of driving his beloved car, he was finally convinced by Mary Barra of GM motors that it was time he got a new car.
“She really let me have it,” Buffett said. “She told me about 50 things that were better” than his current car. “By the time we got to lunch — and it’s only 5 or 6 minutes — she sold me.”
After careful consideration and extensive negotiation, Warren decided to replace his old wheels with a new and modest Cadillac XTS worth $46 000.
I’ve always wondered what’s different about how the smartest and wisest people think. When it comes to good financial decisions, it doesn’t get better than Warren.
So I did some digging and found out some valuable nuggets you can use when buying your own car.
Let's get to it!
Make sure you are going to keep the car for a long time
When it comes to buying a car, the decision shouldn’t go down to the brand, rims, and mileage.
Surprisingly, from a financial perspective, it’s probably best to keep a car for as long as you can before selling it. This means you should think long and hard before buying a car. you’d best compare different options from different dealers.
This might be hard due to pushy car dealers. In fact, in 2016 61% of Americans felt they were taken advantage of by car dealers.
If you’ve had that cringy feeling in your stomach when you have to go deal with a car salesman, you better get over it, fast!
The real saving starts after you have paid off the car payments. Assuming that you paid it off over 5 years, at minimum, you should sell your car after you have used it for at least 7 years.
If you were smart enough to buy a car with good residual value, you can enjoy the benefits of driving a new car for 7 years and still sell it at 50% the price you bought it.
To check how much your car will sell in the next five years or more, visit www.kbb.com
Warren only changed his after 8 years. He did not sell it though, he donated it to a charitable cause called Girls Inc.
Budget for the car you want to buy
It always bothers me when people assume that affording the monthly payment on a car means that they can afford the car.
That’s a trap… Never fall for it!
There are usually costs associated with owning a car that you definitely won’t know on the initial purchase — we will call these costs “phantom costs”.
These include…
Maintainance, fuel, resale value, Insurance, yearly License plate renewal, car wash service, parking… the list doesn’t stop there!
Once you know your phantom costs, you’d want to decide how much you are able to put towards the car monthly without having to sell one of your kidneys.
For example: If you are able to make a monthly payment of $1000, you should probably look at a car with a $400 monthly payment. The other $600 should be enough for your phantom costs. With a budget of $400 for the car only, that means you will be able to afford a car that costs $24 000 over 5 years.
This is a wake-up call compared to what most people THINK they can afford. I can guarantee you that a lot of people fall into the trap of overspending on a car purchase.
Still, I wouldn’t blame anyone to be honest. It’s very easy to fall into that trap without knowing.
Out-negotiate the car dealerships
A lot of people leave the interaction with a car dealer to chance (even though that’s where the big decisions are made). A car salesman can make your experience very uncomfortable if you allow him to, you are also likely to be pressured into paying higher prices and interest than usual.
More than 52% of car shoppers reported feeling anxious whenever they have to deal with a car dealership, with Millenials leading the pack in their dislike.
If that’s not enough evidence that car shoppers have surrendered their will to make decisions… I don’t know what is.
The trick is to negotiate mercilessly with them. Play hardball, if you can’t, take someone with you who can get the job done.
Ideally (if possible) you would want to hold off buying a car until the end of the year, this is when car dealers are literally drooling over any sale with the hopes of meeting their last quarter sales targets. At this point, they are willing to negotiate and are easier to sway in your favor.
Want to beat the evil car dealer mafia syndicate?
This is how you do it…
- Call at least 10 car dealerships and tell them the exact car you want to buy.
- Make it very clear that you are prepared to buy the car in the next two weeks and you are in no immediate rush.
- Go grab a cup of your favorite coffee and wait for the offers to start rolling in from dealers.
- Choose the lowest offer you received and send it to all the dealers and tell them you are willing to give them a chance to beat the offer.
- Now you can take a step back as it will get a bit messy… this is when the dealers start to engage in a downward spiral battle to be the one that offers the best deal.
- Choose the dealer who gave you the best offer.
- now go and collect your new baby (the first time you step into the dealership).
- No need to deal with that dodgy salesman in front of you eating that greasy looking doughnut… once done, get the hell out of there!
This works best when you go to the dealership towards the end of the last quarter when the dealers are under pressure of hitting their targets.
Wondering where you will get the ammo for your negotiation’s smoking gun?
You can order your own customized report of the car you want to buy from Fighting chance, it details the amount the dealership paid for your car (so you can know how far you can push the price).
Now go forth and bring home the bacon!
Maintain your ride (Boring but profitable)
If there’s any chance for anyone to buy your car, it all depends on how well your car was maintained. A good set of wheels results in a good bank balance.
At the point in time where Warren decided to donate his car, it was still in immaculate condition. This was easier for him to do because he really loved his Caddy.
On my couch, I set with my favorite bowl of popcorn dunked in chocolate and watched a biography titled: Becoming Warren Buffet (for the 10th time). I Watched him say something along these lines…
“As I was in high school, I only had two things in my mind… girls and cars. And i wasn’t doing very well with girls, so let’s talk about cars”
That’s when I knew that he loved his car. Did I mention that he drove the Caddy for close to a decade?
Yeah, that’s how in love he was with his sweet ride.
When you buy yours, you better make sure you love it the same way. That way, it will be easy for you to take good care of it.
Because that’s what it will take to get a good deal for your car when you decide to sell it.
Here’s how to go about it…
- As soon as you get your car, mark all major car service checkpoints on your calendar to make sure you will remember them.
- Keep all documentation and receipts to prove to a potential buyer in the future how careful you’ve been — so they get it when you charge them accordingly.
Don’t be that guy who is outmaneuvered by a conscious buyer (like me) who negotiates him down to a ridiculous amount because he didn’t maintain his ride, or worse… has no paper trail to prove it.
You are now all set to go out there and make the right decisions!
Closing remarks
You might not be a multi-billionaire or any close for that matter, but that doesn't mean you deserve to make costly purchasing mistakes. Save where it matters and realize your wish of being a better financial decision-maker.
