Written by Trent Hamm, The Simple Dollar is a popular personal finance blog that chronicle's one man's road back from overwhelming debt to financial security. Hamm declared the contents of the blog to be in the Public Domain in 2008 and available for sharing when attributed properly. We will share a couple of posts a week.
A friend of mine has been driving the same car for more than a decade. For most of that time, it’s been reliable as a rock. It’s started like a charm on some frightfully cold mornings and it’s only rarely needed any repairs.
Over the last year, though, lots of little problems have started cropping up. In the last several months, both the brakes and the transmission have been replaced, and my friend reported to me this morning that the car is making a very odd noise that gets worse with any significant acceleration.
The question here is an obvious one: when is it time to sell a car and move to a different one?
From a purely financial perspective, it’s never a good idea to sell a car. One could just keep repairing pieces of it as needed in perpetuity and, over the long run, you’re going to end up saving money.
There are a few problems with that scenario, though.
One, repairs aren’t evenly spaced out. Often, the failure of one system can be enough to push the downfall of another system. Anyone who’s had an old car has experienced the phenomenon of how repairs come in batches.
Two, reliability has value. Once systems on a car get significantly past their designed lifetime, the likelihood of failure at any given moment increases.
Sure, you might get lucky and drive a car without significant repair for a very long time, but as a car ages, the likelihood of a vital system failing grows. If the likelihood of a system failure is elevated, that means the car isn’t as reliable. You’re more likely to walk outside one morning and find that your car doesn’t start.
What exactly is that reliability worth? Let’s say your current car has a 1 in 500 chance of having a failure of some kind when you go out there to start it in the morning. Getting a replacement improves those odds substantially, moving it to, say, 1 in 5,000. Obviously, over time both of those odds are going to get worse.
What is it worth to make your car ten times less likely to fail in the morning?
That value is going to be different for different people. Do they have easy access to public transportation? Is their job flexible enough to work around a car failure like that? Are they responsible for the care of others? Do they have an additional support network that can help them out in a pinch, or are they going it alone?
Is the stress of dealing with unexpected repairs something you can easily handle in your life?
Another angle to consider is your overall financial health. Can you actually afford a car replacement that’s going to significantly improve the car’s reliability?
The problem with statements like these is that, as true as they might be, they don’t really solve the problem of whether to replace the car or not.
To me, it comes down to your gut. If it feels like it’s time to replace a car, then replace that car. As the primary driver, you have a good sense as to when your car is about to experience significant problems and you also have a good sense as to what an unexpected failure would cost you. It’s a calculation that’s very hard to come up with in terms of dollars and cents.
The best preparation you can make for this moment is to actively save for your next carstarting right now. That way, whenever you start to have that gut feeling that my friend’s having right now, you’re ready.
Sock away $50 a month if you have an active car payment. If you don’t have one, sock away an amount each month that’s roughly equal to a healthy car payment. Make that savings automatic so that you don’t have to manually think about it (or talk yourself out of it).
If you start preparing now, when that moment comes when your gut starts telling you it’s time to make a change, making that change will actually be quite easy.