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Buying and conserving a car

Picking your wheels: There are many things to take into consideration when buying a car, including whether you need to purchase a new vehicle or a used car, and whether you want it to be something of a status symbol or simply a functional and cost-effective mode of transport

Part of the Bermuda Tightwad Gazette Series.

Why buy a car?

Here is the thing about life since man walked the earth. Expanded upon over time by sociological and psychology scholars, man’s needs (and wants) fall into five broad categories: survival (air, shelter, water, food); safety and security; social needs (love and belonging to family and friends); esteem and confidence; self-actualisation (creativity, problem solving, authenticity, spontaneity).

You might think this statement is more akin to a lecture on Maslow’s hierarchy of needs that is actually called A Theory of Human Motivation than something to do with owning a car So, have I gone over the edge?

Actually, no. Subliminally, all five categories relate to human motivation, such as when we make the decision to purchase something, to interact with someone or to build one’s confidence.

Today, our internal and outside motivation that plays into money decisions is now called behavioural finance

The sixth category involving one of the most important life decisions in modern society that combines all five hierarchy of needs — is finding work, keeping work, and making work — on time.

And for that we need reliable transportation.

What are our mobility choices for sunny Bermuda? Feet, public transportation — bus or ferry, private boat (for a few), bike, or car.

The first logical choice for individuals who relish exercise and exposure to the elements each day, as well as for every cost-conscious working family group, is public transportation. It is cheaper, but short-shifted and arbitrarily reliable.

Global business operates 24/7 and waits for no man or woman. Many employees today work long hours, easily surpassing old work time standards, starting way before dawn and ending long after normal dinner hours. Public transportation time schedules do not currently meet this challenge. Yet thousands of Bermuda residents rely almost completely on this mobility service to keep their jobs. Is it not time to expand and revamp public transportation bus and ferry schedules from 40 years ago to meet the needs of modern working men and women?

Thus, working commuters, and their school-age children, needing reliability must make more expensive choices. that can mean riding a motor or pedal bike on our kamikaze-filled roads, taking a taxi — completely unaffordable for most, or buying a car.

What kind of a car choice you ultimately make boils down to three decisions:

1. A car that provides basic transportation and nothing more.

2. A car that reliably gets you where you need to go so that you can continue in your career, arriving on-time every day.

3. Or, a car that denotes your successful community status

How long do you want this car to last?

What is the real cost over time of owning a car?

Should you buy a new or a used car?

What will the resale value of your new car be in a year, two years, three years and so on?

Do you know what you are getting? How and where can you do some research?

Will you own your car or will it be bank-owned vehicle until that last payment?

How much do you want to pay?

What car can you actually afford to own taking into consideration the total cost of car payments (principal and interest), licensing, insurance, maintenance and interest on the car loan?

Every large purchase decision should use a what-if future contingency process based upon the long-term affordability of your car so that you feel comfortable about unplanned worst case scenarios, such as:

• Can I afford these car payments if I lose my job through redundancy or illness?

• My spouse and I both work, if one of us is made redundant can we still swing that payment? What about both of us out-of-work?

• If we lose our jobs can we sell the car and buy a much less expensive one?

• What happens if the car is in a major accident, and we cannot recover our cost?

Those very frugal Bermuda tightwadders can ignore this section. Like tightwadders everywhere, we know they pay cash as they hate car payments, credit card payments, or any payment that charges interest. Tightwadders also make their cars last for a very long time.

Value is in the eye of the beholder, if you keep your purchase. If you want to sell it down the road, the value becomes what the buyer is willing to pay and what the seller is willing to accept, a tough concept that challenged many property owners in Bermuda during this recession.

The value thing with car ownership is simple. Cars do not appreciate in value, especially in Bermuda.

Well, you think, you are wrong Ms know-it-all columnist. Yes, there may be a few cars that are worth more now than when originally purchased, but will yours?

A few years ago at a car rally, six Cobras were on display, each worth more than $1 million. But it was only those six out of hundreds of other car brands steadily depreciating in value every year.

The car wear and tear from our environment is astonishing. Rust, salt, flying sand erosion, sun-heavy paint discolouration, fading upholstery, too big for the roads with left side continually scraped — mirror beat up, etc. Most cars, regardless of price, are not status symbols after a few years.

Ah, but the new car, will it be luxurious with the smell of new leather and the feel behind the wheel, or perfectly boringly utilitarian to move you from one place to another? Your wants, needs and feelings (cited above in the hierarchy of needs pyramid) will come into play during your car purchase decision, even though you think they won’t. Nothing wrong with that, but having all the facts you can obtain helps solidify the car choice, or any major purchase, that is right for you and your family.

Next: comparing the real cost to own a new car, second hand car, and reader tips on cost cutting and car care for extended use for Bermuda. We have received great reader feedback, but please send me your car tips too. Contact me at martha@pondstraddler.com.

Additional Bermuda Reader Tighwad tips for electricity savings will be uploaded on Sunday at http://www.moneywisebermuda.com/bermudatightwadutilityusage.htm

Martha Harris Myron CPA PFS CFP JSM, Masters of Law: International Tax and Financial Services. Appointed to the Professional Tax Advisory Council, American Citizens Abroad, Geneva, Switzerland. The Pondstraddler* Life™ Consultancy provides cross border financial planning for internationally mobile individuals and their businesses residing, working, crossing borders, and straddling ponds in the North Atlantic Quadrangle. Specific focus on residents of Bermuda, the premier international finance centre.

Contact: martha@pondstraddler.com