The frugal way to buy a car
We all know that a new car starts losing its value the moment your drive it off the lot. In other words, a car is not an investment – it is a depreciating asset. Therefore the way to buy a car is to:
1) not spend more than 10% of your net worth,
2) not go into debt, pay straight-up cash instead,
3) buy a depreciated 2-3 year old used car (unless it’s a new Honda, Toyota, or Subaru, which manage to keep high value during their first couple of years), and
4) drive the car for at least 15 years or as long as you safely can.
Well, back when I was a resident I managed to break some of those car-buying tenets to obtain my dream car, but as you will see, I still came out ahead.
My dream car
I had always been frugal, cautiously avoiding debt throughout undergrad and medical school, so as an unmarried, military officer, I had managed to bump my net worth past $120,000 by the time I was a PGY3 orthopedic resident. Being single (and silly), I foolishly looked at my car as a status symbol and a reflection of my personality. Hence my current ride was a rotary engine-powered sports car that I bought with my earliest officer paychecks. That Mazda RX model was fast, sleek, and bold. However for the longest time, the car that I really coveted was beyond my pay grade – a convertible Jaguar XJS, which was running about $62,000 MSRP at the time. The XJS was also fast and sleek, but it exuded the sophistication and finesse I though was befitting of a successful surgeon.
The Bid
One night while I was on my busy trauma rotation at Shock Trauma in Baltimore, I got a message out of the blue from my brother-in-law, who was an auto dismantler and restorer near Los Angeles and was aware of my dream car preference. He had previewed cars up for bidding at a local dealer-only auction and found an almost-new Jaguar XJS with minor damage and only 2,000 miles on it. He had inspected the vehicle, and the damage was just to the body, and not functional, which he could fix for around $5000. He asked if I would like to place a bid on it. My reply, “We will not be outbid!” He figured the bids would come in the $15k-$20k range, and I calculated that I could mobilize all of my liquid funds to bid up to $20k, and lo and behold, that is exactly what our came to!
Now my brother-in-law had an auto shop full of cars that needed work of their own, so he was only able to work on my new Jaguar when he had enough time and energy during his off-duty hours. Consequently, almost a year went by for him to complete the bodywork and for me to take time off from my busy surgical residency to fly to California and eventually drive it back to the East coast.
How much did I save?
Assuming a car can lose up to 40% of its value during the first year, then the used car price for an XJS would have been (by conservative estimates) about $37,200 ($62,000 – 40%). With 2,000 miles already driven on the car, then at $0.10 per mile depreciation, the used-car value goes down another $200 ($0.10 x 2000) to $37,000. Now fortunately for me, my brother-in-law did the bodywork essentially free for me (other than that sushi dinner I bought him), so I just paid $5,000 to fix the damage. In the end, it cost me a grand total of $25,000 (plus dinner) for my dream car that would have otherwise cost $37,000 used (so a 33% discount), but with only 2,000 miles on the odometer, it still felt like a car obtained at a [($62,000 – $25,000)/$62,000] 60% discount!
Driving it home
How did I do with the frugal car-buying rules of thumb? I broke the first rule by spending over 20% of my net worth on this car purchase. (It was my car, after all). I kept the second rule by paying cash up front for the winning bid at auction, but that emptied my liquid spending account for a while. (Being on the trauma rotation at the time helped here, since 100 hours a week was spent in the hospital and the rest of the time was spent catching up on sleep, so there was really no opportunity to spend much of my paycheck for those 3 months anyway). I did buy the car “used” (as rule 3 suggests), but with just 2,000 miles on the odometer and some easily repairable damage, it still felt new to me. Lastly, I ended up driving that convertible soft top Jaguar for 16 years.
The best part was, at either a 33% or 60% discount (depending on how you want to interpret its value at the time of purchase), I saved anywhere from $12,000 to $37,000 on my “dream” car.
Editor: I found a couple of wows in this story and some parallels with my own story. I retired from medicine at age 54, he left his full time practice for some medicine side gigs at age 54. We also both went to medical school on the military dime. He now does some work for the VA, and I tried to do some work for the VA when I cut back my hours.
I thought I was good with my money as a resident, but his PGY3 net worth of $120,000 bested me. I was a PGY 2 when I test drove my dream car, which was a decade earlier than he and carried a price tag greater than my annual salary. In the end, I didn’t buy my dream car, even though I thought I could “afford” the easy monthly payments.
Before you venture into those easy monthly payments, please read The Doctors Guide to Eliminating Debt, as it will save you a fortune.
Have you ever purchased your dream car? Let us know about it.
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