Today I’m officially announcing TF’s next giveaway. Before I do, here are some brief thoughts about why, when it comes to cars, you should buy used, not new.
A few weeks ago, I contemplated writing an article about why young people should buy used cars, not new cars.
Not long after I made some notes, I read an article on Young and Thrifty that summed up the illogical antithesis of my argument.
I commented on the Y&T post to the effect of “It’s OK to buy a new car if you’ve got money to burn. I’d love a new Cadillac. But an intelligent used car buyer will always save money compared to a new car buyer.” Here’s the reasoning that I gave in my comment:
…[the writer refers] to lifetime cost as though it justifies purchasing new, but it just doesn’t withstand empirical analysis.
What is the value of any car at the end of its life? Scrap. $50 worth of metal. Whether you buy new or used, at the end of its life it’ll be worth a measly WLM King. The difference, when you buy new versus used, is how much of that depreciation you’ll bear. A new, well-equipped car that costs $30k can be bought after 5 years for under $10k… You’ve lost 5 years of its useful life — whatever that may be — after which it’ll be worth $50. But the used buyer just paid $20k less.
The key is that a car is always a depreciating asset, but an intelligent used car buyer will always pay a disproportionately smaller share of a car’s lifetime depreciation (the difference between MSRP and $50). In economics, the new car buyer is the sucker, and the used car buyer is the free rider…
The author wasn’t pleased with my analysis. He said:
Trust me Joe, I went back and forth on the new vs. used debate, and due to the fact that there are simply rising prices on used vehicles and less depreciation than traditionally accepted models, the end result needs to account for new dynamics. This is especially true when discussing the smaller foreign-made vehicles that have proven their value over the years. I’m not referring to luxury cars, or even mid-sized cars, but specifically the Elantras, Civics, Corollas etc. My new car cost me $21K after all taxes and fees were accounted for, and a 2-3 year used model would have been 16-18K easily. I know the depreciating asset theory and all the rest of it, but that conventional wisdom simply doesn’t hold true in ALL cases. If we are talking about Chevy Malibus however, then I would agree with your assessment.
The claim that an Elantra is immune to depreciation just isn’t true. On Kijiji I just found a safety-certified and e-tested used 2010 Hyundai Elantra with 35,000km for $9,499 listed by a dealer from Burlington called JP Motors. And that’s without negotiating. Or going across the border to save another 20% after import expenses. I guess it’s easier to rip on my poor old 2003 Chevy than to admit defeat. It’s OK, ‘Bu, don’t listen to the spendthrifts.
Fixating on a brand — whether it’s Hyundai or Japanese car-makers in general — is one of the most money-stupid things a car buyer can. Well, other than getting a loan for an overpriced car purchase (pro-tip: the dealer accounts for the discounted cost of interest in the negotiated deal and the real cost of interest on a consumer car loan is, at minimum, 5%. That’s why I own CarFinco shares!). You can live in a mythical la-la land where certain magical Asian cars (designed by quality-obsessed TEPCO Engineers) aren’t subject to the laws of economics. Or you can accept the truth, keep an open mind, and save a lot of money by purchasing a used (possibly — GASP – domestic) car.
If you think the laws of economics don’t apply, then I’ve got a glass-walled, 400-square foot Toronto condo to sell you. And if you think Japan is so much better than North America, I highly recommend that you go there and stay forever.
So instead of writing an entire article, I shared a blog comment. This seems lazy, and it is, but I wanted to keep my post short because of the following giveaway announcement.
The TimelessFinance “Beginner’s Guide” Giveaway
“The Beginner’s Guide to Saving & Investing for Canadians” is a great book with a lot of important information. Glenn Cooke offered to give a lucky TimelessFinance reader a copy. So that’s what we’re going to do.
TF’s Dear Readers are an awesome group so I also wanted to add some prizes to thank you all for your loyalty, patience, and patronage.
Here’s a list of all the prizes that will be given to one lucky winner:
- Paper copy of The Beginner’s Guide to Saving & Investing for Canadians which retails for $19.99.
- PUMA Social Headphones (Social Buds + Mic) – this set is brand new, still in the unopened box. They are designed to work with an iPhone, iPad, or iPod. I own none of these. The MSRP is, supposedly, $39.99, but they’re on sale for $24.99 right now. But, hey, they’re made in Asia so you know they’re the best quality ever.
- Genuine 1967 Canadian Centennial half-dollar (80% silver) – at Friday’s silver spot price, this coin is worth $10.10 (ignoring any value it has as a collector’s item). I wanted to buy this coin on EBay to complete a collection (see this week’s BP on Friday for a full explanation), but I accidentally bought two. If you think society is going to collapse, and heavy precious metals will be the only acceptable medium of exchange, then you’d be stupid to not enter this giveaway.
- Chapter’s gift card loaded with $15. Then, when Chapters realizes that it should carry this book in its stores, you can buy a copy for your friend.
That’s a total MSRP of over $80. If I were the manufacturer, I’d suggest a retail price of a million dollars for these wonderful prizes but maybe that’s just me.
The deadline to enter the giveaway, by any method below, is 11:59:00 P.M. EST (Omemee time) on Friday, September 14th, 2012. There are three ways to enter the giveaway!
1) Enter by posting a comment on any of the five TimelessFinance posts this week (September 10th to 14th). You can enter once for each post, which means you can get a total of FIVE entries from commenting, including on today’s post. Any comment is eligible, so long as it’s appropriate in my opinion and approved. I will try to review my Akismet SPAM filter but, if it removes your comment and I don’t notice, it won’t be included in the draw.
2) Follow TimelessFinance on Twitter and tweet the following message:
I just entered the @TimelessFinance “Beginner’s Guide” Giveaway for a free book, an 80% silver coin, headphones, and a Chapters gift card!
That will earn you TWO entries.
3) Join the TimelessFinance group on Facebook AND add me as a friend on Facebook. The adding-me-as-a-friend on Facebook is simply because I need to be able to message you if you win (some people actually use their privacy settings apparently). This will earn you TWO entries.
That means you can get nine entries in the draw. If history is any indicator, the majority of people won’t accrue more than 1 or 2 entries. Go the full nine yards and maximize your chances of winning! Don’t use Twitter? Setup an account, duh.
Other rules of the giveaway:
Anybody can enter, but the giveaway items will only be mailed to a Canadian address and the winner must provide this address to me within 48 hours of notification. The winner will be notified by email to the address provided in their winning comment, a direct message to their winning Twitter handle, or a private message to their winning Facebook account. All entrants acknowledge that if this notification remains unanswered for more than 48 hours, they have forfeited their entry in the giveaway and a new winner may be selected. The giveaway organizer, 1845329 Ontario Inc., reserves the right to forgo formalities and award or disqualify any entry or entrant for any reason, including the exclusion/deletion/reporting-as-spam of comments or the removal/blocking of a user on Twitter or Facebook. The name, comments, Tweets, Twitter activity, or activity on the TimelessFinance Facebook group, of any entrant, are public. The odds of winning depend on the number of entries. No purchase necessary.
Now, to conclude, a comic that’s related to my “buy used” rant, and the giveaway:
I kind of agreed with Young and Thrifty because I purchased a Mazda a couple years ago, and the used discount didn’t seem that great. Also, I preferred a car without a history, just in case there were deep problems with the used car.
However, you do have a good point about getting tunnel-vision on a particular model or brand. I did narrow down my choices quite quickly to the highest quality vehicles. That may have been a mistake, as perhaps the mid-tier models were say 90-95% as good as the top? At any rate, I’m happy with my car, and got a good deal on the new price (well the car was a demo). Anyway, I can see both sides of the argument.
If you want to buy the best quality, buy a high-end Audi. If quality is all that mattered, that’s what people would buy. But the truth is, there’s a trade-off that everybody makes psychologically. So, yes, there’s a cost to increased quality
But don’t forget two other laws of economics: (1) there’s diminishing marginal returns for the consumer’s car dollar and (2) there’s a decreased cost of production for the car manufacturer, assuming variable inputs. That’s why Hummers and luxury vehicles have such massive margins, whereas little crap buckets like the Ford Fiesta have slimmer margins (although they’ve been trying to increase these by going on about Ford ‘quality’). It costs next to nothing for a company to produce the car after it’s designed, the dies are cast, and the production line is keyed (although the last part is becoming ridiculously cheap as a result of flex manufacturing and outsourcing). The number of man hours and the cost of parts actually put into a car would outright shock you.
Buying an Asian car because of its ‘quality’ image is a lot like buying a Prius hybrid for its lower gas consumption. In the latter case, if you bought a cheap used domestic of similarly compact size, rather than a brand new Prius hybrid, you’d save so many thousands of dollars that you could buy the ‘wasted’ gas ten times over.
Next time you’re going to buy (presumably not for a long time now of course)
Joe, you’re giving away the secrets
If you keep going on like this, the demand and therefore prices for used cars may increase! Not only that, but as a shareholder of several car manufacturers that sometimes struggle to make a profit, I deeply appreciate everyone who pitches in and picks up the Hummer keys. Let’s do all we can to encourage and thank them for not falling for that whole “used car” myth!
^Like
Yeah, I hope I don’t have to purchase any time soon. My last car was a ’94 Taurus bought used in 2000. Replaced it in 2010 with a 2010 Mazda5. It was tough since I don’t like spending money, and my car broke down while I was car shopping, so there was a little more pressure than I would have liked. I negotiated well, but I suppose by choosing to negotiate in the new car segment, I already committed to paying more.
My previous car cost $6,400, the new one cost $20,400.
Oh, and my insurance costs doubled.
It seems to me that Young and Thrifty was just trying to make himself feel better about his purchase rather than actually attempting to impart any wisdom. It’s just like those hipsters that decide to go on expensive trips to Europe when they have piles of student debt then blog about how it was totally worth going further into debt so that their friends can comment back to pump up their ego and justify the trip in their minds. Dear Young and Thrifty I’m sorry that you made the mistake of spending 21K on a new car. Please don’t try to brainwash me into thinking you are smart for doing this.
Yay! Giveaway! I hope I win so I can be an awesome cool kid with Beats headphones and brag about how I’ll be safe in a zombie apocalypse due to my silver coin.
Really though, free stuff is awesome! Thanks TiFi for another cool contest! 
They’re not Beats headphones; they’re PUMA
lol
But you’re welcome!! Good luck!
Right I got distracted by the comic. lol
Wow… really? Just when a guy thinks he has thick skin… Regardless of if we agree on a few thousand bucks between new and old cars to make generalizations like that is just ridiculous. Joe, I have a lot of respect for some of the articles you’ve written, but to encourage comments like this just isn’t cool. I respectfully disagree with what you are saying and I’m not the only personal finance blogger with a large audience that has pointed out the numerous benefits of buying new. Certainly rationally people can have different views.
For you information Kathy I’m pretty much the least hipster person you’ll ever meet (they don’t make skinny jeans for 6’2, 230 pound men) and I certainly have never been on any luxury trips that have put me in any sort of debt at all. Thanks for at least clicking over and checking out my bio before making ridiculous assumptions though, that proves how old and mature you must be. No brainwashing you, you sly fox.
Commenters say what they want. She didn’t call you a hipster.
I found a car based on your criteria in five minutes; it’s cheaper used.
Negotiating for a new vehicle sounds fun because you can get detailed information and everyone is selling the same thing. I’ll try that some day when someone else is paying
My Dad always said, if you can’t get 50% off the car’s MSRP, you’re a bad negotiator and the car salesperson is laughing at you on payday. He was a pretty good negotiator.
New car for the price of a used model? Sounds like a deal
Different answers for different folk… if you rely on that vehicle for your job in sales, trades etc… then maybe new for quality and the full depreciation/tax benefits of not breaking down on the way to an important meeting…
Or if you’re like me and don’t want to die on a winter/ice road a newer 4×4 full size pick-up is a must.
Did you buy new or used?
Re: the depreciation write-off…
If you have a business and a really good income, the ability to write off 100% of the vehicle’s depreciation (assuming it’s justifiable given your business) makes buying new more reasonable. Or, I should say, less unreasonable.
Even still, paying MORE than needed just cause it’s a tax write-off is almost always dumb. You’ll get much less back than you paid. Not to say that you shouldn’t have a business and write-off expenses, that’s FANTASTIC (and a reason why the poor will always be poor), just don’t blow MORE money than you would otherwise. I knew somebody who had an awful, unprofitable consulting business (her whole income), and she bragged about going to conferences because she could write off travel. And it was like “Yeah, but you’re writing off a $2000 expense to get back like $200 from the gov cause your marginal rate is negligible and you’re broke to start with.”
Totally stoked for another free giveaway! If the rate of awesome giveaways continue can we expect a private island contest soon?
lol if the site’s ad revenue suddenly follows an appropriate trajectory then absolutely.
I think there was a brief period of time, in the US, during the GFC, that new cars were being sold at such discounts to move inventory and produce sales for the Detroit 3 that it was nearly equitable to buy new versus used (or at least, not as clear cut that used was a better deal).
That thinking seems to have pervaded Canada’s financial blog circles? But it doesn’t hold water as Joe demonstrated with his find of the $9500 35k km Elantra.
I was astonished to learn people are taking out 7 and 8 year car loans in the last few years. I think the more important thing is to buy a car you can afford without taking out a long term loan, as interest payments on a new car over 7-8 years even at 4% or so would add substantially to the price.
I will probably never buy new unless I receive a substantial windfall. I would get something 2 or 3 years old that felt/smelled/drove like a new car and drive it until I started having trouble with its appearance or reliability.
Disclaimer, I “drive” a 1999 Alero that was given to me brand new as a graduation present. It has less than 100k km on it and still looks brand new inside and out. I say “drive” because it sits in my garage park 29 days a month collecting dust except when I make my monthly pilgrimage to Burlington (where I am ridiculed by family for driving the same old car since graduation in 2000).
Re: the Alero, that is a kicka** tale of frugality, dude. Excellent work.
I heard a quote the other day, and I REALLY wish I could attribute it or relay it exactly, but it was something along the lines of “Things used to be bought with money. Money was expensive, so things were cheap. Things are now bought with debt. Debt is cheap, so things are expensive.”
The ramp-up of consumer credit in Canada — to levels only seen before the American credit/housing bubbles burst — is the reason that housing is expensive, which is the same reason cars cost so much (and people are willing to pay $22k for a little Asian car just because the car company has impressed an image of “quality” with questionable advertising to the point that Sheeple will literally stand up and laughably defend the brand’s overpricing), and even the same reason that furniture salespeople won’t negotiate. In the latter case, members of the HGTV Jugend trudge into The Brick to furnish their glass-walled Dog Kennels in the Sky and will just pay full price, cause they can pay a low $79 “administration” fee to finance for a year or two (oh, but they need to put the taxes and delivery charge on their maxed-out MasterCard first).
More dollars competing for the same ‘pot’ of goods (since we’re not actually producing anything here anyway) results in inflation. Credit causes inflation on steroids. But, the flip side, as we saw in America, is an absolute crash — in housing prices, new cars, whatever. Even now, there’s a HUGE unreported buildup of inventory in China.
In short, patience is a virtue.
We are a one-car family (so the car we have really matters), but we are firmly in the used-car camp. Maybe we got spoiled, because we bought our current car from a family member so we knew its history, and got a good deal (we paid a bit below its blue book value) but I just fail to see the additional benefits of a new car. The upkeep on our car, plus gas and insurance, doesn’t even come close to what we’d be spending every month in car payments on a new car. Unless the car is some kind of business write-off, I think used is the way to go.
Also, yay for freebies! I’m probably the only person who is most excited about the Chapters gift-card (hope the other prizes are not offended, lol!), but what can I say … book geek! Should I be so lucky as to win, I promise to use it responsibly and not buy something like Fifty Shades of Grey. Hmm, that should be a clause in the contest …
See the point in my comment response to Sam below re: tax write-off. The thing about tax-write-offs is they’re great (and therefore being a business owner is SMART) BUT they don’t justify paying MORE than you otherwise would. You’re only going to get, at best, your marginal rate back on the expense.
That’s the key economic disadvantage of buying used: imperfect (actually, asymmetrical) information. When you buy from a family member, especially somebody you know well/you’ve seen many times how it’s been driven and cared for, you’re eliminating this disadvantage. That makes it logical to pay full blue book value. If you were in a position of informational disadvantage (Game Theory is so awesome), then you should be getting a discount b/c you can’t almost ever be truly satisfied that it’s in perfect condition.
I’ve been thinking about signing up for Twitter. We’ll see if this is enough of an incentive to motivate me.
lol do it up! There are only 3 completed Twitter entries thus far (x2 = 6).
Pimping my own content? Don’t mind if I do.
http://financialuproar.com/2012/05/16/the-financial-uproar-car-buying-guide/
Basically, I agree with every word you say. I don’t understand why more people don’t buy 5+ year old cars with low km’s.
I need new headphones. You should separate those bad boys out just for me.
lol because of the comments, that article is perfectly placed.
I’ll see if the winner is interested in any alternate prize (a signed headshot? $10?) If not, Dollarama sells great earbuds lol.
I was helping an aunt buy a car over the summer, and she went with new. The main reason is that she feels more comfortable and “safe” in a newer car, and feels she is protected by the warranty in case anything happens. In the end, she bought a new car that you cannot get used yet, and I was unable to convince her otherwise.
My first car was new, but had some issues upon delivery. With enough complaining, I was able to return it back to the manufacturer, and I picked up a used one. Dodged a bullet on that one!
Thanks for the giveaways!
You’re more than welcome, thanks for reading!
And that’s actually an exceptionally good point: used cars can be “lemons”, but so can new cars. Every car company, domestic and otherwise, has failed to truly stand behind their products at the Dealer level.
I just discovered this blog. I like what I’ve read so far… will continue to read more!
Thanks Rajib!
For the record, I think that it probably does make sense in many situations to by used. Follow Joe’s link to find out my reasoning, but even better, check these out as well (all by people who definitely have established their personal finance bona fides):
http://www.iwillteachyoutoberich.com/blog/cost-vs-value-why-i-bought-a-new-car/
http://www.thefinancialblogger.com/why-buying-a-new-car-instead-of-looking-for-a-used-one/
http://genxfinance.com/buying-a-new-car-may-actually-be-cheaper-than-a-used-car/
Premiums like warranties, fewer trips to the garage, increased fuel mileage, increased safety standards, and many others have different value to different people. While buying great value cars that are 3 years used will always have its place, there is also no doubt that the used car market has rarely been as picked over as it currently is, and the incentives being offered on new cars make the comparison much less straightforward than it used to be.
I also definitely didn’t fixate on only the foreign brands btw (even though they almost always lead any consumer reports study that comes out), my second choice was the Chevy Cruze, but the dash setup on the Elantra gave me a few more precious inches of leg room for my frame.
Keep things real like always Joe, I got respect for your honesty and your logic, just try not to let things get too personal brother.
I just rescued this from my Akismet SPAM filter when looking for errant contest entries. Scout’s honour.
I have kept things real by responding to your challenge with a tangible example of why used = cheaper. Ethereal statements that the used car market is more competitive doesn’t keep it real. People might be asking for more, but that doesn’t mean you need to pay it. In the end, it’s their car to sell; they’re the hostage cause I can buy any car I want, new or used.
Anyone who figures out the options available and the total cost per year (including variables like insurance and repairs), or even better does a TVM calculation based on their financial plan, can at least understand what each option really costs them. Whatever the resulting decision is, it’s better than taking a generic rule and applying it with no consideration for the options you currently have or your personal plans. And it makes a good negotiating point since you know another option is better if the price is above $x.
That said I’ll be a little surprised if that ever shows me a brand new vehicle is the best option. Last time we looked for a vehicle the cost per year analysis led from one used one to another, more expensive but also used, vehicle. Between the few vehicles we’ve owned (not enough to make a comprehensive scientific study) we’ve never found the occasional repairs for older ones to outweigh the lower prices. We did have a mechanic living in the basement for a year but that was for reasons unrelated to the reliability of used vehicles.
Not having to pay off a loan will also help with any eventual repairs (getting paid interest, even if it’s low savings account rates, is a better incentive than a 0% loan).
Exactly. Net present value will set anybody straight. Sure, not all of the variables are perfectly known — e.g. how many clicks will I drive, and therefore how much is increased fuel efficiency worth? — but the vast majority are known or reasonably estimable. And don’t forget the time value of money is the highest savings account rate (only about 2% right now).
I think this article is really important, insofar as it demonstrates a priori, and a posteriori for the curious case of his Hyundai, that the nouveau depreciation model (see: “this time it’s DIFFERENT!”) is bunk. The other side of the argument is making a claim a posteriori — that new cars are now cheaper than used — but don’t back it up with proof. They also make the a priori claim that depreciation is irrelevant but don’t demonstrate it with logic. Yes, owning the car for a longer period of time reduces your average annual depreciation compared to selling it after 2 years– but you can get a much lower average annual depreciation by purchasing the car used.
As I keep saying, I have NOTHING against buying a new car in and of itself. There are various non-monetary factors like the fact that it’s cooler, the new car smell, that make a new car more desirable. But the cost for these ethereal benefits (depreciation) quickly outweighs the benefits (oh, I don’t need to use synthetic oil cause it’s a brand new engine!). Feel free to claim you simply wanted to buy a new car and bought it. But don’t start making stuff up to claim it’s going to help you build your wealth. If you pass it off as good advice, you’re wrong.
I really like TheFinancialBlogger, Ramit Sethi is completely full of BS (BUY MY MULTI-THOUSAND DOLLAR PROGRAM AND ITS GONNA MAKE U RICH!!!!1!!! — his ideal economy is the one where we run around selling get-rich-quick books and premium tips to each other), and that GenX guy produces yawn-fest predictable content that I can’t be bothered to read. If any of them makes the same blanket statement about car buying, they’re wrong. I can get a chorus of people to say global warming is real and a chorus of people to say global warming is fake. I can find lots of intelligent theologians who say God exists, and I can find lots of intelligent Atheists who say he doesn’t. Simply saying something, in numbers, doesn’t make you right. In fact, it sounds more like groupthink than an intelligent argument.
The time value of money really depends on your financial plan. If the cost of a car is preventing you from buying medication that keeps you alive, the opportunity cost is a lot more than 2%! More commonly, you could invest that money and estimate the returns after 10 years. Of course, having to have a financial plan to figure out which car is best for you rules out a lot of people.
Wow, you didn’t include the comment that explained my rationale and pointed out several other notable authors that agreed with me? A little taken aback at that dude. Kinda dirty pool wouldn’t you say.
9/10 notable authors agree that your last comment lacked an argument. Kind of dirty pool to go vague and ad hominem, wouldn’t you say.
What I feel is missing here, in all this talk of Present Value and dollars and cents, is some evaluation of the “intangibles” that cannot be strictly represented in dollar and cent terms.
To be clear, let me first state that I agree 100% with Joe, that buying a used car is almost all of the time likely to be less expensive than buying new.
But that shouldn’t really be the question. Like any purchase, it’s about value, tangible and intangible, not absolute dollars. So the question should really be, by how much is buying used cheaper, and is there anything “intangible” that I am getting with the new purchase that is valuable to me personally?
I will illustrate by way of a grossly exaggerated example. Suppose I have two cars that I am comparing that suit my needs, completely identical except the following. One is a color I do not like (subjective), and is full of dings and dents (cosmetic, do not impact the performance of the device whatsoever), but it is $10 less. The other car, for $10 more, is the color I like, and is free of dents and dings. So which one should I take? Clearly, looking at absolute dollars and cents, I should take the cheaper one – the dings and color do not affect my ability to use the car for it’s purpose. But how many of us wouldn’t consider the extra 10 measly dollars a “reasonable excess” for the car we’d (subjectively) like better? I suspect few.
Grossly exaggerated and probably unrealistic example, I know. So what if the difference was $100 instead? Or $1000? Where do you draw the line? If it’s all about dollars and cents then clearly a single penny higher is too much, so used it most likely is. But what is having the color or options you want worth to you personally? Knowing the vehicle’s history? Etc etc. I truly feel these are personal decisions with no right or wrong answer (as long as you UNDERSTAND the dollar cost to you and are living within your means).
In fairness, the dearth on most “used” versus “new” purchases greatly exceeds a grand. We’re talking thousands and thousands in saved depreciation.
It’s fine, as you note, to account for personal taste — if a person has the money.
But a car, at its core (unless you’re a collector or actually believe the myth that a car gets women in the same manner that Axe body spray is magnetic for women) isn’t about personal taste. It’s about point A to point B transportation. Thus, the ‘personal taste’ defense (which, after demolishing Y&T’s arguments on depreciation, maintenance, mileage, etc. is about the only defense that’s left) is a simply cognitive dissonance or, at best, a mighty fine non-monetary justification. What it is not, however, is a defense against the claim that it’s money-stupid to buy new vs used. Specifically, in this case, when the person took on $20k in debt and then needed to incessantly crap on domestic cars of superior value — as though foreign car manufacturers had successfully transplanted their propaganda directly into his brain — to justify the decision. It’s just not honest, whether analyzing with NPV (which, in full disclosure, I didn’t properly do when purchasing my used car — I even took corporate fi and have a book specifically about NPV so I’m a turncoat) or with commonsense.
Completely agree that my example was extreme. I disclaimed it as such.
However I feel the point stands. You cannot agree to the $10 case, and then in the next breath refer to a vehicle purchase as “just point A to point B transportation’. So doing would immediately render you a hypocrite – unless you literally, honest to god, would not spend the extra $10 for the nice black color you really want, instead of baby blue.
I think in life we all make at least SOME purchases that are not purely about dollars and cents. We all make SOME of them emotional. For some, maybe it’s clothes. Maybe a watch. A stamp collection, a nice sofa…. whatever. We all do it. The wise of us don’t do it all that often – and as I said, live within their means and know their limits. It just so happens that a car is a rather expensive option (versus say a stamp collection). And you are right that you are likely deluding yourself if you try to rationalize it as being cheaper. But in my books, if you are honest with yourself and say “Look, I clearly know this is more money, but I don’t want a baby blue car, I want this one instead”… then hey, more power to you.