As I shop for the minivan, I keep coming back to one central question: what exactly am I buying here? On the surface, it seems obvious – I’m buying a minivan. But that’s not what I’m really buying.

First of all, I’m buying something that will get me, my wife, and all three of my children from point “A” to point “B”. The entire point of buying such a vehicle is for transportation.

That being said, I am not buying a status symbol. As long as it’s clean and safe, I really don’t care what it looks like. It doesn’t have to be shiny, new, or top of the line. I don’t really care what the opinions of the people around me are about the minivan I bought. Does it meet my needs? That’s what matters.

Is a status symbol a need for you? Probably not. Is it a want? Probably. The question you have to ask yourself is how much extra money you’re willing to pay for a status symbol whose luster will fade in a year or two.

I have three primary concerns when buying this car.

First and foremost, it must be reliable. Next April, I will have three children under the age of five. I don’t want a vehicle that has repair issues bubbling just under the surface. For me, reliability is more important with this vehicle than it was with my wife’s commuting car that we bought earlier this year, in which our priority was fuel efficiency. I’m using Consumer Reports as my primary guide for this, which is pointing me towards the Toyota Sienna or the Honda Odyssey.

Second, it must be safe. I require a vehicle with good safety ratings and a history report that shows that it’s never been in accidents. Again, my concern in this area is raised by my specific requirements – this vehicle will be used to transport myself and my children.

Third, it must have storage space. We often go visit family for a week two or three times a year. In order to accomodate two younger children, a baby, and two adults for a week, there’s going to have to be some significant storage space in the vehicle. On top of that, It’s this need for additional space which is pushing us toward a minivan instead of a large car.

Beyond that, fuel efficiency is a secondary factor, as is ergonomic seating (chairs that provide lumbar support and don’t result in numbness and back pain after a long drive).

I do not care about having a drop-down Blu-Ray player. I do not care about leather seats. I do not care about having a perfectly silent ride, nor a perfectly smooth one. If those features came for free, I would take them, but I’m not about to pay much for them at all.

I am the one buying the car. Because I’m buying early, I can wait until the right vehicle comes along. I don’t merely have to choose whatever is available on the lot. This enables me to look at other options, such as what’s being sold on Craigslist and other sources directly by individuals. Given what I want, I have the cash on hand to buy pretty much anything within those requirements.

What are you buying when you buy a car? Do you know what you want? Do you know what you don’t want and aren’t going to pay for? Have you planned ahead enough that you have the time and ability to explore lots of options to find what you want?

After all, the last thing you want to do when buying a car is to find yourself on a car lot needing to make a purchase and having no idea what you really want or need. Such a situation is delicious prey for car salesmen.

In order to start cranking the numbers on this, I had to use a few assumptions. Let’s walk through them.

First, I figured that you have 1/4% chance of receiving a speeding ticket for each mile you’re over the speed limit for an hour. So, if you drive 68 in a 65 zone for an hour, you have only a 3/4% chance of receiving a ticket. On the other hand, if you drive 82 in a 65 zone for three hours, you have a 12 3/4% chance of receiving a speeding ticket.

Second, I figured the cost of a speeding ticket is $200 and has a ten minute time cost. The ticket itself will cost you less than that, but the raise in your insurance rates will eat the rest.

Third, I figured you lose 1% fuel efficiency for every mile per hour over 65. I’m using government estimates for this figure.

Fourth, I’m using a figure of $2.50 a gallon for gas, and I’ll use a car that get 25 miles per gallon for the calculation.

Got that? Let’s get cracking.

Is it more efficient to drive 80 miles per hour or 65 miles per hour on the interstate? Let’s say you’re making a 200 trip on the interstate.

If you go 65, you have zero chance of receiving the speeding ticket. You’ll consume 8 gallons of gas and arrive in three hours and five minutes, costing you $20.

If you go 80, you have an 11.25% chance of receiving a speeding ticket. If all goes perfectly, you’ll consume 9.4 gallons of gas and arrive in two hours and thirty minutes. However, if you receive a ticket, you’ll arrive in two hours and forty minutes – that’ll happen 11.25% of the time. So, combining the odds of the two, an average trip driving 80 will allow you to arrive in two hours and thirty one minutes (saving thirty four minutes) and cost you $46.03.

So, driving faster saves you thirty four minutes but costs you $26.03 – an hourly rate of $45.11 for driving slower.

What about going 70? You have a 3.75% chance of receiving a speeding ticket. If all goes perfectly, you’ll consume 8.4 gallons of gas and arrive in two hours and fifty one minutes. However, 3.75% of the time, you’ll receive a ticket and arrive in three hours and one minute and drop $200 on that ticket. So, combining the odds of the two, an average trip driving 70 will allow you to arrive in two hours and fifty two minutes (saving thirteen minutes) and costing you $28.55 (costing an average of $8.55 more). Your hourly earnings from driving 65 instead of 70 is $38.91.

What about going 66? Only a completely malicious cop bent on getting their quota would give you a ticket then – you have a 0.75% chance of getting a ticket over three hours. If all goes perfectly, you’ll consume 8.1 gallons of gas and arrive in three hours and two minutes. However, you have a 0.75% chance of getting a ticket, and if you do, you’ll arrive three hours and twelve minutes and get a $200 ticket. Combining the odds, on an average trip going 66, you’ll arrive at three hours and a bit over two minutes (saving a bit under three minutes) and spending $21.70. Your hourly earnings from driving 65 instead of 66 is $36.50.

Here’s the data up through 120 miles per hour. The data in the “TRIP COST” column is the total cost (gas plus odds of a speeding ticket) of an average 200 mile trip on the interstate at that speed in a 25 miles per gallon car. The “SPEED COST” indicates the total cost you incur by going that speed instead of going 65. The “MINS SAVED” column tells you how many minutes you save by going that speed instead of 65. The “HOURLY” column indicates the hourly wage you earn by simply going 65 instead of speeding. So, for example, if you go 120 miles per hour, your trip costs, on average, $126.94, which is $106.94 more than you’d spend if you drove the speed limit. Driving this fast saves you 84.6 minutes on average, though, so if you drove the speed limit instead of going this fast, you’d earn an hourly rate of $75.83 for your time.

Conclusions
First of all, each mile per hour you speed is more costly than the one before it. Going from 70 to 71 is more costly than going from 69 to 70. That’s fairly straightforward, though.

Second, if you look at it in terms of an hourly wage, speeding can be pretty costly. Remember, we’re talking about after-tax dollars here, not the raw amount you bring home. Thus, a $36.50 hourly rate for the two minutes and forty eight seconds you spend driving 65 instead of 66 is more like $50 or $55 an hour in pre-tax money. The chances of a speeding ticket are more costly than you might think.

Third, this doesn’t include a “wear and tear” factor. Continually speeding puts additional wear and tear on your car – an amount that’s hard to quantify. With an enormous pool of real-world data, one could come up with a factor for this, but it would simply serve to make the cost of going faster even higher.

Fourth, this is all about probability. You’ll hear from people who claim to always drive eighty and never get a ticket. Others may get a ticket going 37 in a 35 (the ticket said 42, but I was going substantially slower – an officer was pretty obviously trying to get a quota filled). One lucky person is a great anomaly, but it doesn’t change the simple fact that the faster you go, the more likely you are to get a ticket.

Finally, some people with a high value on their time can justify speeding. If you are hurrying to a place so you can start billing $100 an hour, there might be a great justification in speeding. However, the more you push it, the less you actually gain, because the hourly cost for each mile per hour goes up.

However, on most road trips, you’re better off setting the cruise control at the speed limit and just cruising along. Getting to Aunt Melba’s ten minutes earlier isn’t worth the potential cost for most people.

The comments on this one should be fun. All I suggest is that you shouldn’t get bogged down in picking apart the assumptions, because even radically changing them still results in the same conclusions. I tinkered with and researched the assumptions extensively for this post and found that even if you modify the assumptions radically, the conclusions still hold.

Our trip, as currently planned, is 2,548 miles in length – and that doesn’t include the inevitable driving around in local areas or any side trips we decide to take along the way. Yes, it’s long. Yes, it’s fairly intimidating.

Originally, our plan for the trip had involved taking two vehicles – our Prius and my parents’ car. From our perspective, this was a good idea, since the Prius gets great gas mileage, but my parents’ car doesn’t do as well.

As we discussed the trip more, we came to the realization that it made much more sense to drive in one vehicle, for several reasons.

First, one vehicle at 20 miles per gallon consumes the same amount of gas as two vehicles at 40 miles per gallon. In short, even if one of the vehicles is our Prius, we’re still better off purely in terms of gas driving a minivan.

Second, maintenance costs over 2,500 miles are significant. The average car has 5.3 cents per mile in maintenance costs beyond fuel – oil, transmission fluid, coolant, tires, and so on. That’s a total of $132.50 per vehicle over the trip.

Third, 2,500 miles on your vehicle is 2,500 miles of depreciation. Again, the average car depreciates roughly $0.20 per mile – this is very hard to precisely estimate, but it’s a real value. Again, by reducing to one vehicle, we save $500 in depreciation. Note, here, that depreciation includes major repairs and other such factors.

Fourth, two cars means double tolls. On our trip, assuming no detours, each car would be paying somewhere around $15 in tolls. Reducing to one car saves another $15.

In total, we realized that we would save roughly $650 by using just one vehicle on this trip – and that assumes no fuel savings and also assumes no detours, no construction, and no environmental impacts.

At that point, we really beat the pavement to accelerate the purchase of our second vehicle. The problem, though, was that we couldn’t find a vehicle we really wanted.

So, finally, my wife raised the question: would it be cheaper to just rent a van for this trip?

The trip is scheduled to be nine days in length. I did some calling around to local rental services and found several vans that could be rented for $400-500 for the length of the trip – unlimited miles.

So, let’s look at the math. We would save depreciation on two vehicles ($1,000), maintenance on two vehicles ($265), toll on one vehicle ($15), and a small amount of fuel savings, too, for $400. That’s a total savings of $880.

In order to make sure there wouldn’t be any nasty surprises, I contacted our auto insurance provider, who told us that coverage while driving the rental would be essentially identical (in terms of our cost) to coverage if we were driving our own car. Thus, no need for the additional cost of rental car coverage.

Thus, for our purposes, the decision has been made – we’re going to rent for this long road trip and split the cost. This choice will save us $440 and also save our parents $440.

Sometimes, thinking outside the box a bit can save you a surprising amount of money.

And the flame war was mighty potent. The post currently sits at roughly 174 comments, about equally divided between positive and negative, and I’ve received at least that many emails on the subject.

Since we acquired the Prius, though, our other “old” vehicle has largely died. It’s capable of making it around town, but drives of any distance cause it to rumble so ominously that I’m scared to drive it more than a mile or two. We’ve had it checked over twice and the conclusion has been the same – it needs thousands of dollars in parts and repairs to get the truck back to any degree of stability and reliability – and that won’t fix everything.

So, for the last two months, we’ve experimented with essentially being a one-car family. And, to put it simply, it doesn’t work.

Although I work at home most days, there are many days when I have meetings or research trips outside the home (particularly with regards to my second book).

Another key problem is that we’re likely going to have a third child in the next few years, meaning that none of our current vehicles can safely seat our family.

A third problem is winter weather. While the Prius gets incredible gas mileage, it’s not adept at winter driving in Iowa. My truck is fairly adept, but it’s not reliable at all without some significant investment.

So, we’ve started the process for buying a replacement for the truck. Luckily, as we were researching the car, we were also doing research on what we might purchase for a truck replacement.

To put it in a nutshell, we’re looking for a late model used van, (strongly) preferably with all-wheel drive. Let’s walk through some of the concerns.

Our Criteria
As I mentioned recently, our primary concerns are reliability and safety. We also require seating for five, and prefer seating for another head or two. For this vehicle, since it won’t be used for a regular commute, gas mileage is still a concern but it’s a lesser concern.

So, what does that mean in terms of actually finding a good vehicle for our dollar?

As with the Prius, we expect our best deal with this criteria to be a late model used. Our research starts there – we’re looking at 2005, 2006, and 2007 model vans, but are open to looking at both newer models and older models with limited mileage.

Since reliability is a concern, one of our bigger factors is lower mileage. Although it’s not a guarantee of reliability (nothing is), lower mileage simply means that there’s fewer miles’ worth of wear and tear on the parts on the vehicle.

Since safety is a concern and we live in a winter climate, all wheel drive is practically a requirement. Add in the factor that both of our parents live in a similar climate and off the paved road (with one set of parents living at the top of a steep hill with a gravel road that becomes like a sheet of ice in the winter) and all wheel drive is very important. Recent years have seen us borrowing a four wheel drive locally in order to make it to visit many of our relatives – my very heavy but not four wheel drive truck can’t do the trick. To put it simply, our situation strongly encourages an all wheel drive vehicle.

We’re not married to any brand beyond the reliability numbers. I’ve spent time at the library looking at individual reviews and reliability data on vans in the 2004 to 2009 model years. The picture becomes pretty clear – the Toyota Sienna is clearly at the top of the heap for all wheel drive and reliability, with several other vehicles in the next tier.

The problem? The all wheel drive Toyota Sienna doesn’t depreciate much in price, so it’s significantly more expensive at the late model used stage than other options.

Our Plan
So, what’s our plan?

First, we’re trying to maximize the value of our old truck. This involves cleaning it up and detailing it, as well as getting a small amount of work done on it to make it road-worthy over the short term. We’ll likely trade the vehicle.

Second, I’ve already begun checking out the prices on such vehicles from all dealerships anywhere near us. Most dealerships have online listings so that you at least have a good sense of their inventory. I’m not ignoring new vehicles, but as of yet the prices aren’t close enough to late model used to really have them in the comparison.

Third, I have a few friends who visit bankruptcy sales keeping an eye out for me. This is a long shot (estate sales rarely have vans), but it’s worth a chance.

Fourth, we’re not going to “over-wait” like we did with the Prius. With the Prius, we sat around waiting for the “perfect” deal to arrive – but it never did. Along the way, we wasted quite a bit of money on repairs and jumping through travel hoops, negating any benefit of waiting around for the best deal. Instead, if we find a good deal, particularly towards the end of the month when salesmen are trying to hit quotas, we’re just going to jump on it. There are costs involved in waiting for a deal that’s just a bit better.

Thoughts? Comments?

What do you do when you find your car is worth less than you owe on it?

This is a pretty common question, particularly given the current state of the economy. Some people are out of work. Others are looking to seriously cut back. Thus, there are a lot of people out there that would like to get rid of their current car loan – but they’ve found that their car is worth less than they owe on it. Often, there’s not enough cash laying around to make up the difference, either.

So what do you do? I see a handful of options.

Ask yourself if you really need to change cars. Many people who are underwater in their car loans are looking at upgrading their car. If you’re in this situation, spend some time asking yourself if you really need to make a change. Would this upgrade serve any purpose other than aesthetics? If there is a purpose beyond that, is it worth the huge amount of debt you would incur?

Delayed gratification is the key here. If you can put off the purchase for even a year or two, you’ll end up in substantially better financial shape than if you pushed things right now and wound up even further in the hole than you are now.

Trade down. If you still need the car for transportation, consider trading down – you’ll take a big loss on the value up front, but over the long run, it will definitely balance out.

Let’s say, for example, that you’re driving an almost-new 2009 Toyota Avalon that’s worth $6,000 less than you owe. You realize you can’t really swing the $500 a month car payments. So, you take it in and trade it for a $7,000 late model used low-end sedan. Some dealerships will accept this trade – others won’t – but what you’ll wind up with is an upside-down loan on this used car. However, the car payments will be significantly lower, as will the insurance rates.

Park it and remove insurance. If you don’t need to drive the car right now, consider parking it somewhere safe and eliminating insurance on it. This will reduce your monthly bills (no insurance), plus you’ll not actually have to give up the car – it’ll still be there for you if you return to work. It’s not accumulating miles or wear and tear, so you save on maintenance costs as well.

This strategy works well if you’re in a situation with a healthy emergency fund and are anticipating several months without work. I know of several people in this position – they’re currently staying at home, either looking for work or trying to get their own business started while living off of savings.

Get a different loan, then sell. If you have very strong credit, you might have the option to get a personal loan or perhaps add to a home equity line of credit in order to pay the car loan down enough so that you’re not upside down in the loan. When you’ve done that, actively seek to sell the car.

This is a great solution if you have strong credit (or at least access to a healthy credit line with low interest elsewhere). Essentially, you’re just eliminating the car (and its value) from the loan, leaving you with just a small debt that can be repaid over time. Plus, you get the additional savings of no insurance and no vehicle tags.

Are there any other good ideas that Michael might be able to try?

Coasting makes a huge difference on your gas mileage. One thing this data has taught me is the huge value of coasting, particularly through a series of stoplights. Stopping and starting eats a lot of gas – our gas mileage during acceleration goes down to as low as 10 miles per gallon. Coasting, on the other hand, uses virtually no gas at all.

Before adjusting my driving, I had a strong tendency to leave a stoplight, accelerate to the speed limit in town, then often find myself hitting the brake and stopping again as I approached the next stoplight. That meant I was doing a ton of acceleration, then losing most of that speed by braking again just a block later.

Instead of doing that, I’ve found it’s just as quick (and way more energy efficient) to coast as much as possible through long strings of stoplights. I accelerate up to roughly the speed limit, then I coast for a while, particularly if the light ahead of me is red. Almost without fail, I catch up to the car ahead of me just as they’re accelerating away from the stop – and I already have some momentum going forward, which means I don’t have to accelerate nearly as hard to get back up to the speed limit. It doesn’t take any longer and it saves money.

I tested this out driving through the town where I live and the difference was tremendous – doing this added about 25 miles per gallon to my mileage through town.

Driving 75 on the interstate is substantially less fuel efficient than driving 55 on a two-lane highway. One regular trip for us is driving south to the West Des Moines area, about a 35 mile trip or so. We have two routes to get there that are roughly equal in length, but the interstate is a bit faster. On the interstate, of course, we drive around 75 miles per hour to keep up with the traffic. On the other hand, we can take the highway and go around 55 miles per hour. The highway usually takes us about six minutes longer to get to our destination, so before getting our Prius, we’d simply always use the highway.

But here’s the kicker. If we take the interstate, we would get around 38 miles per gallon. If we take the highway, we get about 52 miles per gallon. So, if we take the interstate, we use 0.92 gallons, but on the highway, we use 0.67 gallons. That’s a savings of about $0.48 on the trip, even in our relatively fuel efficient car.

This changes the equation just a little bit. The two lane highway is far more scenic than the interstate as well – there are many more interesting things to see and talk about along the highway route (meaning it’s easier to engage the kids). When you also toss in the fact that it’s cheaper – and it would be a much bigger difference in a less fuel-efficient car or if the price of a gallon of gas were higher than $1.94 – the balance starts to shift towards the slower route. Does the balance actually shift? Not entirely – for us, it still depends on a number of factors (the time of day, the presence of kids, and so on) – but the balance of values has changed.

Wind resistance makes a tremendous difference in your drive. Simply put, driving on a windy day (unless the wind is consistent and at your back) is incredibly inefficient.

On a recent windy day, my family and I embarked on a lengthy road trip where the wind was mostly in our face. This forced us to accelerate quite a bit more to maintain speed – and it pushed the gas mileage down about 35% (29 versus 44). As a test, I drove with the wind on another windy day and found that it improved our mileage by only about 10% (48.5 versus 44).

Thus, unless the wind is very, very consistent and at your back, a windy day will hurt your gas mileage. If you have an optional trip to make and there’s a heavy wind outside, you’re better off delaying the trip. That’s what I’ve already done twice since seeing the impact that a heavy wind can have on gas mileage.

Turn off your cruise control in hilly areas. In virtually every car I’ve used, cruise control has been a great tool on flat roads. It helps me control my slight lead-foot tendencies and seems to do a good job with gas mileage. The data from our Prius backs this up – on flat roads, that is.

If you enter a hilly area, though, cruise control is very inefficient. Instead of maximizing your speed going down hills and using that momentum, cruise control instead tries to keep the car within a few miles per hour of your set speed.

Since it can’t read the road ahead, it doesn’t know what’s coming up. You do. Take advantage of that and turn off the cruise control in hilly areas. I turn it off any time I go downhill or uphill, since it seems to be more efficient to build up speed going down the hill (getting well above your cruise speed) then coasting at the bottom until you get back to your cruise speed, and doing the opposite on hills (allowing yourself to get well below your cruise speed instead of accelerating into a hill).

In the end, our best value from the Prius might be the ability to actually see how our little driving choices affect our gas mileage – and how we can make better choices to vastly improve that mileage. As time goes on, these better choices become ingrained in our driving habits, making the more efficient choices our natural choices – ones that we’ll carry on to other cars. Fuel efficient driving doesn’t cost you time – it just saves you money.

Personally, I’d like to see all cars have a fuel mileage indicator. It’s been an invaluable tool for directly teaching someone how to drive more efficiently – and it’s easy to see the benefit when you go to the gas pump.

When we started our process for buying a new car, we focused on a small handful of factors:

We wanted a late model used car with a reasonable number of miles on it. We didn’t want to buy a car with a lot of miles on it because we believed we would be back where we started in just a few years. We were looking mostly for late model used cars with less than 60,000 miles on them.

A compact car doesn’t work. I’m six and a half feet tall. Our 1999 Mercury Sable is about the smallest car I can sit in comfortably. Smaller models simply do not work for me – I cannot sit in them because my knees are literally pressed into the dashboard.

Fuel efficiency and reliability were our primary factors. We’ve never been interested in bells and whistles. We don’t need a six-disc CD player or in-dash GPS. We have no interest in leather seats and so on. The basic package is enough for us.

We actually calculated the fuel efficiency of each car by calculating how much we would have to spend on gas over the lifetime of the car – up to 150,000 miles, which is our estimate for how far we would drive it. We figured 15,000 miles per year, with the cost of gas being $3 per gallon on average.

Fuel efficiency is particularly important for us because this car will be used for my wife’s commute. Roominess for long trips isn’t nearly as important here – we’ll mostly use it for commuting, local errands, and some weekend trips.

Thus, we started our search looking at 2004, 2005, and 2006 sedans. I visited the library several times along the way and we looked at quite a few cars. We eventually settled on a handful of models that we were interested in – the Honda Accord and the Toyota Camry led the pack, with a few other models we were considering. (The Prius wasn’t even on the radar at this point.)

What we began to notice is that, in the models we were looking at, the new cars weren’t a lot higher than the used versions we were looking at. We would see a used 2005 Camry with 50,000 miles on it at 60-65% the price of a new Camry, for example, and our per-mile calculations would show us that we would get the same value-per-mile out of the new car if we drove it to 150,000 miles, plus with the new car, we would get two or three years of initial low-trouble driving out of the car (the first 50,000 miles).

The prices were mostly the result of the economy in late 2008. Reliable used cars were holding their value well, but new cars, even on models that sold well, were seeing great prices.

Thus, we began to include new cars in our search. This was cemented at a large Toyota dealership in mid-February, when one salesman quoted us a price on a used ‘09 Camry (with a few features we didn’t want) that was only $1,000 less than a new ‘09 Camry.

Another factor: the stimulus package. Here’s the scoop, per cnn:

Under the Auto Ownership Tax Assistance Amendment, car buyers will be able to deduct sales and excise taxes on the purchase price of a car up to $49,500. As originally proposed by Sen. Barbara Mikulski, D-Md., interest payments would have been deductible as well.

The full text of the amendment (featuring fifty tons of legalese) is here, but the summary above makes the benefit pretty clear – the taxes paid on a new car plus car loan interest (note: the car loan interest provision was removed in a revision of the bill) are tax deductible. This saves us a few hundred dollars (at least) for buying new instead of buying used.

Yet another factor that nudged us towards new is the warranty offered on a new car. To put it simply, with auto insurance and a warranty, our only expenses on the car over the first several years are maintenance and deductibles (if anything happens). Although many used models have some degree of warranty available, most are very short term or are severely limited in some regard.

As our 1999 Mercury Sable began to exhibit more and more problems (failing struts, a transmission that would take five or so seconds to shift from first to second gear, our search began to grow more urgent. We received the 2009 car issue of Consumer Reports in the mail and my wife and I pored over it carefully.

We focused on the entry-level family sedan section and eliminated them based on a handful of factors: it had to have at least average safety, it had to have fuel efficiency above 22 miles per gallon, and it had to have a good reliability history. These factors quickly eliminated quite a few models, leaving us with just four new models that we agreed to consider along with the used models we were considering: the Toyota Prius, the Toyota Camry, the Nissan Sentra, and the Honda Accord.

Here is where the Prius began to really stand out for us. We did fuel efficiency calculations for these models assuming that we would drive them to the 150,000 mile mark with the same cost-per-gallon assumption we used above. According to that calculation ($3 per gallon), the Prius would cost us $9,782 in gas over the lifetime of the car (at 46 MPG), while the Camry (for example) would cost us $18,750 in gas over the lifetime of the car (at 24 MPG). A $9,000 savings on fuel (at the assumed $3 per gallon rate, of course) versus an average fuel-efficiency car was a huge factor for us in our calculations. To put it in another perspective, we anticipate putting roughly 15,000 miles per year on the car. Versus the Camry (which I’m using as an “average” sedan here for comparison), the Prius would save us $900 a year in fuel.

We spent a month comparing prices on used cars available at local dealerships as well as the new cars we had identified and, to put it quite simply, we could not find anything that really competed with the “bang for the buck” value of the Prius. Most of the used models we examined were priced close enough to the new models – even after negotiating – that we eventually came to the realization that the Prius was the right purchase for us.

Our down payment decision We had enough in cash to pay for the car in one shot, but two factors kept us from doing that. First, it would partially deplete our emergency fund, putting our family in a somewhat more risky spot. Second, we will have to replace our other vehicle (currently a Ford F-150 with somewhere around 140,000 miles on it) in the next year or two, so depleting our entire car savings might not be wise. Add into that the fact that our credit is stellar (we got a 4% rate on our car loan), we’re nearly breaking even by keeping the cash ourselves and holding it in a savings account plus we have the security of having a big emergency fund. We chose to put $5,000 down on the car to avoid any liability and insurance costs if we were to be underwater on the car at any point. The rest remains in our savings, minimizing our risk against other life emergencies.

(Edit: after reading many comments about whether or not we could afford the car, I wanted to note that we had enough in car savings to pay for the entire car in cash. We chose not to because we have a second vehicle that will need replacing in the next year or two and that may require major repairs in the near future (we consider that to be an emergency, hence the mention of “emergency” savings above – if our truck had failed right after buying the car, our emergency fund would have gotten hammered). At the same time, we were earning 3% in savings & CDs with the cash compared to the 4% loan – that didn’t offer enough incentive to lose the huge cushion in our savings.)

Thus, after all of this, we bought a 2009 Toyota Prius. After driving it for a weekend trip (and putting about 400 miles on it), the car is achieving almost exactly 42 miles per gallon (even with my wife lead-footing a bit on the interstate).

Here are four things we learned during the process.

Know what you actually want. Because this is a car we’ll use for commuting, our biggest factors were reliability and fuel efficiency. We did not want any extras, either – the base package is what we wanted. Thus, as we shopped, we were often comparing the base package for the new models versus a motley crew of packages for the used models, meaning the prices were often closer than they would be if we were demanding some certain “extras” as a minimum requirement. This changed our buying process significantly.

Before you even start shopping, spend some time figuring out exactly what you want. Spend some time considering the features you consider important – and focus on those factors. If a feature isn’t important to you, don’t pay for it.

Don’t restrict your horizons without a reason. Our original predisposition against new cars was mostly due to the prevailing notion that new cars simply aren’t a good buy. Yet, in those market conditions, we ran the numbers carefully and found that our overall cost of ownership with a new Prius over the period we intended to own it was lower than virtually all of the used models we could find.

Total cost of ownership per mile is a surprising (and useful) number. Most of our calculations centered around the total cost of owning the car up to 150,000 miles, then we figured out the cost-per-mile for the car. So, for example, if we have a used car we evaluate that has 70,000 miles on it, we figure out how much the cost of fuel and maintenance and insurance will be up to 150,000 miles, add that to the cost, then divide that by 80,000 miles (the amount we’ll actually use it). For the Prius, we figured up the cost of gas and maintenance and insurance through 150,000 miles, added that to the price, then divided by 150,000. In short, we looked for the best bang for the buck, not the lowest monthly payment, and the best deal turned out to be the new Prius.

Don’t go shopping in one day. Take your time. Visit lots of dealerships. Even if you know what you want, negotiate a bit with that dealer, but don’t sign on the dotted line immediately. Let them know that you’re visiting lots of dealers. I don’t claim to be a good negotiator, but I do know that visiting lots of dealerships, talking openly about the things we’re considering from other dealerships, and leaving dealerships after expressing some interest in a car on the lot only helped us over the long haul.

If you’re making a careful purchase, research and dealer visits will likely be part of the equation anyway, so play it to your advantage. This can easily save you thousands on the initial price.

Good luck!

Much like everyone else, we strive to minimize both the time spent in the car and the financial cost of our car trips, and this week is definitely going to give us a chance to try out our tactics.

Here are twelve things we’re doing this week to shave some of the cost from our Christmas travel plans.

Air up all of the tires before you leave. A day or two before you depart, take your car to the local service station and check the pressure in all of your tires. Don’t know what the pressure should be? Check the sticker inside your door jamb. Make sure all of your tires are filled up to the maximum recommended pressure. Proper tire inflation can save you 3 to 4% on your gas bill during your trip, and over several hundred miles, that can really add up.

Get a tune up. If you can’t remember the last time your car received a tune up, get one before you go. A proper tune up is your best insurance that your car will operate in an optimal fashion while traveling, and a tune up from a quality professional can identify any major problems that may interfere with your travel.

Prepare an emergency kit. Traveling in winter can be hazardous, and the best way to minimize the risk is to be prepared. Pack some blankets, an extra charged cell phone (for 9-1-1 calls in a pinch), extra clothes, some food, and some road flares in your car and make sure you have a spare tire and equipment for changing it if you need to.

Make sure your auto insurance is up to date. A long car trip is not the time to be caught with out-of-date insurance. Make sure your insurance is up to date, and if it’s not, make every effort to get the premium paid so that your insurance is in effect over the course of your trip.

Pack food and beverages before each long leg. Tasty and nutritious snacks are always a hit in our car – we like granola, raisins, and dried cranberries for long trips. They’re perfect for taking the edge off of hunger, enabling us to happily survive without hunger pangs until we arrive at our destination. We also pack water bottles to keep us on the road instead of stopping for expensive beverages.

Plan for simple entertainment for the kids. Bored children can make a long trip miserable and can often cause you to make unplanned stops along the way just for a break from the noise, which wastes time and often wastes money, too. We usually pack a “trip bag” for our kids – a few familiar toys, some books that my son knows by heart (which he then reads to his sister) – and have some ideas in mind to keep the kids interested, such as pointing out interesting roadside items.

Check the maps, even if the trip seems very familiar. Use a mapping tool like Google Maps to plan your trip, even if you’re very familiar with the route. Since moving to my current area just a decade ago, the optimal route to visit my parents has actually changed four times, and now, compared to the original route, the trip takes more than an hour less than it used to. That’s pure savings.

Time your trip to avoid obvious traffic issues. If you know you’re going to be driving into a major metropolitan area, try to avoid entering the metro area during morning or evening rush. This can usually be done with some careful planning in advance. Leaving a bit later (and eating at home instead of on the road) can actually end up getting you to your destination just as quickly with a lot less time on the road and a lot less money spent.

Eat a homemade meal thirty minutes before you leave. Being purely sedentary right after a meal isn’t particularly healthy, but you should plan your trip so that you’re not hungry along the route (which will almost always result in unintended expenses). We try to leave roughly half an hour after meal time. Quite often, this coerces the children into taking a nap (which, again, makes the trip less expensive as there’s less need to stop) and also keeps the adults from being hungry along the way.

Use your cruise control over long stretches. This not only keeps your speed at a steady rate (keeping you from wasting money from accelerating and slowing down over and over again), but it can also keep you at a speed that will ensure you’re not pulled over and issued an expensive speeding ticket. In Iowa, most trips involve long, straight sections of highway, so we utilize our cruise control on almost every trip.

When you do stop during the trip, make everyone use the restroom. Trust me, with two young children, bathroom stops are a constant part of any long trip. Every time you stop, though, you lose time and you also lose a bit of money wandering around in a small town searching for a gas station that doesn’t make you afraid to use the toilet. When you do find a gas station, though, have everyone use the restroom. It might take you a bit longer while stopped, but it will keep you from making multiple stops later on, which will save you time and money.

If you need food along the way, don’t use fast food. Not only is it unhealthy, it’s often sneakily expensive. Instead, stop at a grocery store. You can get all the supplies you need for an easy meal right there – cold cuts, a loaf of bread, and some finger vegetables can be had for just a few bucks and will feed everyone in the car.

From a strict personal finance perspective (and ignoring the larger global economic concerns), this is fantastic news for most people. If you have to fill a typical car tank each week (12 gallons), the price change is saving you somewhere on the order of $30 a week – that’s $120 a month, an amount that can really help with debt repayment, saving for a down payment, or preparing for retirement.

This shift in gas prices comes at an interesting time for me and my family. My wife and I have been carefully studying potential automobile purchases, and our calculations had led us to focus on automobiles that are efficient with their fuel. Using our numbers, assuming a $4-$5 gallon of gas going forward, fuel efficiency was so valuable that it often trumped a higher price at the dealership.

However, when we look at the era of $1.50 a gallon for gas, the math no longer holds true, and we’re typically looking at a better deal for a less fuel efficient car.

Here are some of our conclusions after talking over the situation and doing some additional research.

The price of gas will go up from here. If oil prices stay as low as they are, oil producing countries will have to cut production to drive the price up. Most nations and regions that rely on oil income have already budgeted and planned for oil prices that are significantly higher than they are right now, and if the market doesn’t automatically bring those prices back up, they’ll do what they can to bring them up.

… but it’s impossible to know how much it will go up, or how fast. No one can accurately predict the future, particularly when it comes to the future price of such a vital commodity with so many different fingers in the pool manipulating things. Perhaps there will be another speculative bubble. Perhaps the oil producing nations will begin to really tinker with production, driving prices up quickly. Perhaps the price will just slowly inch upwards over time. No one knows for sure, and there’s no way to make accurate bets on such moves.

That leaves gas mileage as an important but hard-to-estimate factor in determining the best car price. It’s obvious that greater fuel efficiency will save money over time – the only question is exactly how much it will save. What we can rely on is this: fuel efficiency is a much bigger factor if you intend to own the car for a longer period of time. My wife and I, for example, prefer to buy automobiles that are late model used when we purchase them, but drive them until they are experiencing severe repair issues. Thus, for us, fuel efficiency is a bigger factor than it would be for a person seeking to pick up a car for just a few years.

Buying a more efficient car results in lower fuel costs regardless of prices, meaning your monthly upkeep cost is lower. If you do choose to invest in a more fuel efficient car, it will save you money each and every month. Given the fact that we cannot know what the future holds, if you can make a choice now to reduce your required costs in the future, you’re generally well-advised to do so.

So, the best strategy is still acquiring a fuel-efficient car for the lowest price possible. While it’s not worthwhile to pay a large premium for fuel efficiency, you’re still well-served seeking out highly fuel-efficient options regardless of the market conditions of the moment.

The same strategies apply whether gas is high or low.

Start saving now. You’re always in a better position if you have the money in the bank to buy the car instead of having to take out a loan to buy it. Start saving right away – set up an automatic savings plan to take $100 a month from your checking and put it into a savings account designated for automobile savings.

Do your own research. Know what you want in advance, and remember that fuel efficiency is definitely a positive even when gas prices are low.

Shop around. That means don’t just jump in with the first dealership you visit. Instead, seek the best prices around. Stop in at several dealerships and use online tools as well.

Negotiate. That sticker price is just a starting point. Don’t be afraid to make a lower offer on the car once you’ve found the one you want.

What will we do? Since we’re still in the “research” phase of the purchase – and also because we’re somewhat waiting for one of our vehicles to finally give out on us – we’re still sitting back and waiting. However, fuel efficiency remains one of our big considerations in the purchase, regardless of where gas prices are or where they might go.

The methods of saving money don’t stop when you drive off the lot. In fact, as soon as you leave the lot, there are several things you can do right away to save significantly on the money you’ll invest in maintaining this vehicle.

Here are eight things to do right away.

Read the manual in its entirety. This should be the next book that you read. Cuddle up with it, read through it, and know your new automobile. You’ll almost always learn a large handful of important things during the read-through, most of which will save you surprising amounts of cash – and can also save you a lot of time later on, as well, when you really need it.

Follow the manual’s recommendations for gas purchases. Many people think “new car, better put premium gas in it.” Don’t. Instead, before you ever visit a gas pump, flip through your manual and find out what gasoline is recommended. Almost all cars recommend the low-grade gasoline – the high-grade doesn’t do anything at all, and buying it is purely a waste of money.

Establish a maintenance schedule. Another key piece of information that’s provided by the manual is a maintenance schedule. It tells you explicitly when you should get your car maintained in various ways – oil changes, brake pad replacements, air filter replacements, and so on. Follow this schedule. Doing the maintenance when suggested will save you significantly on repairs over the lifetime of the automobile. Getting proper oil changes now can make the difference between engine problems and a smooth ride years down the line. Even better – learn how to do the maintenance yourself.

Photograph the car thoroughly. This is a useful move that many people fail to do. Detailed photography of your car can be useful as evidence if you’re ever in an accident or have damage done to your car as you can provide clear visual “before and after” images to make the damage of the accident clear. This can save significant time and effort with the insurance company and with repair work.

Keep necessary/useful supplies in your car. While an AAA membership can be useful, it’s much more useful to have supplies on hand to handle most small roadside emergencies yourself. A deflating or blown tire and a dead car battery are things that anyone should be able to handle themselves without calling for expensive help – and in the winter, a few extra supplies can really make all the difference.

Here are the things I keep in my own car – they save money and time over and over again.

Car kit checklist
+ A tire pressure gauge
+ A felt chalkboard eraser (it takes off window fog with ease)
+ A tire iron that fits your tire
+ A windshield scraper (when winter approaches)
+ Sidewalk salt (in winter – the weight of the bag plus the ice-melt ability are useful)
+ Blankets and warm clothes (again, in winter)
+ Car jack
+ Utility knife
+ Emergency flares
+ Can of tire sealer/inflator
+ Jumper cables

Air up your tires. Since you’ve already got that tire gauge in your car, put it to good use. Flip through your car manual to find out what the maximum recommended tire pressure is for your car, then drive up to that free air pump at your local gas station. Use the gauge and the free air to fill up your tire to the recommended level. Keeping your tires inflated can easily shave 5% off of your gas bill – I do this re-airing process every month.

Shop around for car insurance. The best time to shop around for insurance is when you get a new car, as that’s when the rates will diverge the most from company to company. Call around, get some auto insurance quotes, and sign up with the best company. It’s useful to do this every few years, as new insurers appear and the level of competition between insurers changes, adjusting the rates you may pay.

Establish a carpool. Again, the best time to form a carpool is when your car is new, because the fewer miles you put on it now, the longer it’ll be between maintenance and repairs and the longer your vehicle will last overall. Plus, with a newer car, you don’t have to feel as though you’ll be driving the “bad” car in the carpool. Ask around the office and find some people who are willing to ride together – it’ll do nothing but save you cash.

This isn’t a burning need. I don’t commute, so on the occasions when I do need a vehicle, I still use the truck for short trips to the library or the grocery store. Other than that, we use our car for everything.

In short, this situation is making it possible for us to research the exact car we want and wait patiently to find it at the right price – the most cost-effective way to car shop.

Our biggest factors for purchasing a vehicle are interior space so our whole family can sit comfortably (including a potential third child), high reliability numbers from the manufacturer, a strong safety rating, and fuel efficiency. We don’t care that much about the glossy touches – I don’t really need a GPS in the dash, thank you.

One of our big challenges has been determining how much each of these factors is worth for us. With the reliability, safety rating, and comfortable seating, it’s hard to put a specific number on these issues – they’re more of a basic requirement before we’d consider purchasing a vehicle.

Fuel efficiency, however, is another matter entirely. You can actually do some raw number crunching and see how much fuel efficiency is worth for you. So let’s dig in.

Let’s assume that we’re looking at two more or less identical vehicles in terms of safety, reliability, and comfortable seating – we’ll use the 2008 Toyota Highlander and Toyota Highlander Hybrid for this example. The reason for this is so that we can get some real-world numbers to work with instead of hypotheticals.

According to MPG-O-Matic, the normal 2008 Highlander gets 17 city and 23 highway, while the hybrid gets 27 city and 25 highway.

So let’s walk through some of the basic premises here.

First, how much do we drive in the city versus on the open road? We drive about a 50/50 split. Most of our day to day driving would be considered mostly city driving, but we occasionally go on three or four hour trips to visit family and those are mostly highway. You may be in a different situation, of course, with a higher portion of city driving. For us, though, that gives us an average of 20 miles per gallon for the normal version and 26 miles per gallon for the hybrid version.

Second, how many miles do we expect to put on the car? This is a question you should ask yourself before any car purchase. We intend to buy a late model used car with as few miles as possible on it and drive it until it starts breaking down. So, we would estimate 130,000 miles – an average of about 13,000 miles a year for ten years. Again, you may have a different assumption here – I’m just walking through my own assumptions for my family.

Third, where will gas prices go in the future? I expect an average of $5 per gallon of gas over the next ten years. Right now, it’s lower than that, but I expect gas prices to go up over the next decade quite a bit. Over a shorter term, I would estimate a lower price – maybe $4.50.

So how much will I be spending on gas in each model? For the normal Highlander, I’ll drive it 130,000 miles at 20 miles per gallon, paying $5 per gallon of gas. I just divide the miles I’ll drive it – 130,000 miles – by the miles per gallon (20) to get the number of gallons I’ll use over the life of the car – 6,500. At $5 a gallon, I’ll be spending $32,500 on gas for this model over its lifetime.

For the hybrid Highlander, I’ll do the same – 130,000 miles, but at 26 miles per gallon, and $5 per gallon per gas gives me a total cost of $25,000 for gas over the lifetime of the car.

Thus, the improvement of fuel efficiency in the hybrid is worth about $7,500 over the lifetime. I wouldn’t quite value it that high, since dollars today are worth more than they will be later on, but it’s a good thumbnail to work with.

But is that $7,500 enough? Edmunds estimates the value of a 2008 Highlander Hybrid at $31,687 to $37,363. Meanwhile, a normal 2008 Highlander goes in a range of $22,726 to $28,290.

The difference? Almost exactly $9,000. In this case, the extra fuel efficiency isn’t worth the higher price (unless you believe gas will completely skyrocket way past $5 per gallon soon).

You can use almost the exact same calculation to compare any two similar cars. Let’s say I wanted to compare that 2008 Toyota Highlander to a 2008 Honda Pilot, which Edmunds prices at $23,476 to $30,736. The difference in prices would be about $1,000 with the Pilot being more expensive, but MPG-O-Matic reports a 22/16 split – meaning it’s a mile per gallon worse than the Highlander. For our purposes, the Highlander would be a better buy than both the 2008 Honda Pilot and the 2008 Highlander Hybrid.

Remember, though, gas mileage is only one factor in your calculations. You should determine what factors are important to you before beginning your search and make sure you’re selecting a vehicle that meets those qualifications. At a minimum for everyone, I’d look for a minimum level of reliability and then focus on the best fuel efficiency you can get for the buck.

Here’s your game plan.

First, figure out what criteria are important to you. I encourage you to consider good reliability as a minimum requirement and also use fuel efficiency as another. Beyond that, make sure it fits your needs – and your family’s needs. If I were single, for instance, I’d probably just get a tiny, very reliable small car with strong fuel efficiency, as those are the only factors I would really care strongly about.

Second, filter through all cars based on those criteria. Identify as many models you can that meet your minimum needs. I would stick to brands that have a history of reliability (information you can easily find from auto magazines and Consumer Reports), but after that, it’s really a filter based on what you need. For us, we’re looking strongly at a van or SUV, simply because of the potential of three children.

Third, get prices and fuel efficiency numbers on those models. Sites like MPG-O-Matic and Edmunds are great sources for numeric data. You may also want to cruise a few local dealerships and get some idea of their asking prices (recognizing that they’re negotiable to an extent) and also get an idea of the value of your trade-in and of your down payment.

Once you have that, start crunching numbers and find the vehicle that’s the best value for you. We’re still in this process, but as you’ve seen above, the Highlander is definitely in the running (though we’re looking more at 2006 and 2007 models – late model used). Good luck!

The credit union he worked with gave him several options – a 36 month loan at 6.75%, a 48 month loan at 6.875%, a 60 month loan at 7%, and a 72 month loan at 7.125%.

He took the 72 month loan.

Afterwards, he bragged to me about his deal. “I’m only paying $549 a month for that ride,” he told me, believing that I’d be impressed at how cheap he got a very nice brand new Cadillac.

I went home later, though, and ran the numbers. If he had taken that three year loan, he would have paid $988.11 a month. Ouch.

But here’s the kicker. Here’s what he would have paid total on each of those loans.

The 36 month loan would have cost him a total of $35,568.
The 48 month loan would have cost him a total of $36,833.
The 60 month loan would have cost him a total of $38,160.
The 72 month loan, the one he took, will cost him a total of $39,562.

His “sweet deal” is going to cost him an extra $4,004.

Ouch.

Here’s the problem. He led with the wrong question. He focused heavily on the monthly payments without even considering the bigger picture, and for that focus, he’s being rewarded with an extra $4,000 in payments.

Here’s a better plan.

First, don’t buy something that you can only afford with a suboptimal payment plan. Because my friend wanted more car than his wallet should be able to really handle, he’s paying a $4,000 surcharge for the option. If he had waited and saved up a bigger down payment or simply settled for a bit less of a car than a Cadillac CTS, he wouldn’t be watching $4,000 walk directly out of his pocket for nothing in return.

Second, always calculate the total cost of your purchase. That’s the number you should be working with, not the monthly payment. The lowest total cost is the deal that will keep the most money in your pocket.

Third, if you can’t get what you want for that lowest total price, keep shopping. You don’t have to buy today. If you need wheels for the short term, buy a low-end used car that can just serve to get you from point A to point B and wait on the long-term purchase until you have an appropriate down payment so that you can swing the best total payment plan.

Or, best of all, save, save, save and buy with cash. With the 36 month loan, his payments would have been $988. But if he started saving $850 a month right now (yes, $138 less than his payment) and saved that each month for 36 months in a 3% savings account, he’d have enough to pay cash for the car he wanted. That plan would cost him only $30,600 – a savings of $4,968 over even the best payment plan.

What’s the take home message? Looking at just the monthly payment when you go to take out a car loan – or any kind of installment loan, including mortgages – will almost always hurt you in the end. Instead, look at how much you’ll pay in total – that’s the number you want to be low. If you can’t afford those monthly payments, then you’re buying something more expensive than you can really afford, anyway.

When you’re spending that kind of money, it pays a lot to have an auto mechanic that you trust. Obviously, every mechanic is out there trying to earn a living through their work – you’re going to pay for labor and for parts, too. What really sets the trustworthy mechanics apart are the ones that quote you reasonable and fair prices, work on your vehicle in an ethical and fair manner (meaning they fix what they say they’re going to fix), and are careful about preventative measures to ensure you don’t run into additional problems down the road.

But how do you find a mechanic like that, particularly if you’re new in an area? It’s not a particularly easy task, and it’s one that I spent years sweating over before finding one that I trusted. Here are the tactics that I used to discover a great mechanic in my area.

Hit your social network for suggestions – and for places to avoid.
This is one of the areas where one’s personal network can really come through. Reach out to as many people as you can in your area and ask for mechanic recommendations – both positive and negative.

What I usually look for is multiple positive recommendations for a place without any negatives. When I hear that, I can usually be at least somewhat confident that the place has built a positive reputation over time – which means that their work quality has at least some merit.

Figure out what criteria are important to you – and use those as a checklist before you even go in the door.
Remember, not everyone will have the same needs from an auto repair shop. For example, if you have an extremely flexible schedule (as I do), the actual shop hours aren’t that big of a deal. Similarly, if you are already pretty familiar with the inner workings of a car and mostly just don’t have the equipment or the time to replace a flywheel (for example), you don’t need a mechanic that can effectively explain the repairs needed.

Here are some things that you should consider looking for in an auto repair place. If some of these seem unimportant to you, don’t use them as criteria.

+ Hours of operation Is the shop open when I need it to be to pick up my car? Does it open early enough in the morning, close late enough at night, or have weekend hours?

+ AAA accreditation This is useful to know in general, but is of particular importance if you happen to be an AAA member.

+ ASE certification ASE certification is mostly just a guarantee that the mechanics in the shop have been exposed to the ASE training material. It is never a guarantee that a mechanic is a good mechanic, although most mechanics worth their salt tend to have them simply because it’s easy for a good one to get as they already know their stuff, like passing a test that you’ve been studying for for a while already.

+ Good online reports (Angie’s List, etc.) Are the reports about the shop online largely positive? Ignore a negative outlier or two – there are a lot of people who post negative reports online in order to discredit competition or because they have their own personal axe to grind.

+ Clean Better Business Bureau bill of health The BBB is itself a mixed bag, but if there are a lot of outstanding claims against a business, it’s usually a sign that there’s something amiss. Give your local branch a ring before jumping in with a mechanic.

When you have a minor repair, get a lot of estimates.
Once you’ve filtered out most of the also-rans, you can get down to the real business of finding a solid mechanic for you. The best time to do this is with an upcoming repair job – one where you can still safely drive your vehicle for the time being but the issue is severe enough that you need to get work done soon. You have some time to get several estimates, but the job is actually an important one.

Don’t just settle with the estimate from the first place that you go. Always get at least three estimates in as much detail as possible, preferably from the three best places from your previous search for a good mechanic. Ask questions about the estimates and also about the actual service you would receive.

Some key things to compare include part prices, work guarantees, and the willingness of the staff to explain to you what your estimate means and answer the questions you have.

Using these techniques helped me find a good mechanic in my local area, and I’ve stuck with him for a while. He’s identified two of the big problems I’ve had lately in advance (and is actually encouraging me to replace the vehicle, as he says that there will be a steady stream of repair bills over the next year or so, even though keeping my current vehicle would make him more money), has very solid rates, and gave me his own car as a loaner one day when I had other issues to deal with.

How do you know when the time is right to downgrade your car insurance? First, let’s look at the insurance variables we’re looking at, then let’s move through the thought process of figuring it out.

Types of Auto Insurance and Basic Terminology
… just so we’re all on the same page here.

Most states require that you carry at least liability insurance on your automobile as a minimum, so we’ll assume that in all cases you’ll continue to carry liability coverage. Liability coverage takes care of any costs or damage you may do to other people and property during the course of driving, including both bodily injury to others and property damage. These insurances are usually pretty cheap – the only thing you might want to be concerned about is that your coverage limit is quite high.

What we’re mostly concerned about is comprehensive and collision insurance. Collision insurance covers damage to your car when your car hits or is hit by another object, while comprehensive insurance covers losses resulting from incidents other than collision – floods, damage caused by external forces, and so on.

For more specific details on these definitions, check out this very useful definition page from CarInsurance.com.

For each type of insurance, you’ll have a deductible, which is the portion of any bill that you will be responsible for. So, if you have a $1,000 deductible and you’re facing $2,500 in damages, you’ll pay $1,000 and the insurance company will pay $1,500. You also have a premium, which is the amount you have to pay the insurance company to maintain the insurance.

What Do You Need?
Unfortunately, there isn’t a clear and straightforward answer to this question, and it’s because of that lack of clarity that people tend to over-insure – and personal finance writers can get away with simple statements like “eliminate your insurance and raise your deductible to save cash!”

First, should you raise your deductible? From my perspective, your deductible amount should always be directly related to your emergency fund. A single car incident shouldn’t be able to entirely deplete your emergency fund – if it does, you put yourself quickly at risk of something else happening. In fact, I often encourage people to have an emergency fund at least as twice as large as your deductible.

Given that, you can quickly figure out how much deductible you need based on your emergency fund. If you have an enormous emergency fund, for example, you may not even need comprehensive or collision insurance at all, as you have enough cash to just pay for the repairs or the replacement yourself out of pocket.

The way I see it, if you have enough emergency fund that you could pay for an entire replacement car in cash and only reduce your fund by half or less, you don’t need collision or comprehensive insurance. Liability insurance should be all you need. But, of course, most people aren’t in that situation, as it demands a much larger cash emergency fund than most people have access to.

Similarly, at what point should you entirely cut collision and comprehensive insurance on an older car? It’s not an easy question to answer.

I’m currently in this situation with my pickup truck, which is more than a decade old and is approaching the 200,000 mile mark – it has a pretty low Blue Book value at this point. It’s reached a point where my family feels uncomfortable driving it any significant distance at all, so I mostly just use it for local travel within fifty miles of my home (going to the library, getting groceries, and so on). We intend to replace it by early next summer.

Given that, it may in fact make sense for us to drop down to just liability coverage on the vehicle. This would save us several hundred dollars over the winter, and if something severe went wrong with it again, we’d simply go ahead and sell it.

Ask yourself this honest question: if a significant repair needed to be done to your current vehicle, would that be the final push you need to replace it? If that’s the case, do you need collision or comprehensive coverage on that vehicle at all?

Between these two perspectives, you may find that comprehensive and collision insurance aren’t worth it to you. But you may find yourself also feeling unprotected without that insurance. Insurance does have a psychological benefit beyond any directly financial benefits – you can be confident in knowing that even if something bad happens, you’re covered.

If your signs are pointing away from needing collision and comprehensive insurance, but your gut is telling you it’s a bad idea, I recommend just raising your deductible nice and high. That way, you’ve got the security of the insurance while saving money as well. This may be the best option of all for people with used cars and a nice hefty emergency fund, but find that comprehensive and collision insurance makes them feel better about their car.

I look forward to hearing the comments of readers on this topic.

On our way home on Saturday, after a wonderful week at the lake, we loaded the kids in the back and headed back home to Iowa, a roughly seven hour car trip. We stopped in the first sizable town we came to (Cumberland, Wisconsin) and filled up with gas. I got back in the truck, turned the key, and….

Nothing.

I checked the batteries by turning on the headlights and radio and honking the horn. The battery was fine. That meant it was likely the starter, and thus it had quickly gone beyond my car problem diagnosis skills.

I wound up asking several people at the gas station for recommendations (including one helpful guy who tried to help me get my starter going by tapping on it), but I finally had to have the car towed to get the starter replaced.

Given that I was in a small town I was unfamiliar with, on a Saturday morning, with a truck full of luggage, I figured the bill would be well over $500 for a new starter, the cost of the tow, and the labor cost on my model of truck (I know from past experience that changing the starter in my truck model is a significant job). It turned out to be right around $400 in all.

Still, it was not a happy end to our family vacation. Our kids weathered it well – we merely walked to a park while the truck was repaired, which made my son really happy (he later said the two hours at the park was the best part of the trip).

It gets worse, though. When the truck was returned, the repairman showed me several things wrong with it that weren’t immediate disasters, but would have to be replaced soon: a worn-out flywheel, a transmission with leaky seals, and three or four other little things. He suggested that when I got back home, I look into replacing the truck, because, as he said, “you’re reaching that point where the repair bills are going to start really adding up.”

After arriving home and taking a few days to reflect on these events, the costs for our family in obtaining a new vehicle, and our family’s present and future needs, I’ve come to several discussion-worthy conclusions.

AAA may be worth it. In the past, I’ve hedged my bets and not joined AAA because I wasn’t convinced that the annual membership fee was worth it (it varies from $30-70 annually depending on location and other factors, apparently). In one shot on this trip, I would have paid for two years’ worth of membership. Given that I now have two young kids in the car (meaning it’s a lot harder to just shrug my shoulders and just grab a hotel room for the night), I’m now leaning strongly towards a membership. Here’s Jim’s (from Blueprint for Financial Prosperity) thoughts on AAA, which confirm my perspective. What do you all think of AAA?

How long can I put off replacing my truck? That’s really the key question, isn’t it? Since I work from home, I don’t use it that much – mostly for trips to the library in adjacent towns and grocery trips. My gut instinct is to keep it until early next summer, then replace it, simply because this gives me ample opportunity to save for the next vehicle purchase.

Do we really need two vehicles? While I have my truck, my wife currently drives a small, fuel-efficient car to work, one that’s also getting up there in miles (though it hasn’t started having the “nickel-and-dime” problems my truck is developing). Since she’s the only commuter, is it reasonable for us to switch to one vehicle for the time being? We’ve largely decided against it because of redundancy – having two vehicles makes things a lot more flexible, especially with children to tote around.

What are the actual needs for my family? Clearly, one automobile ought to be a fuel-efficient and reliable car for my wife’s commute. That’s one that’s out of the way. But what about that second vehicle? We currently have two young children and anticipate having at least one more in the next few years. That means that a reasonable car purchase for my family would require seating for five (including at least two car seats) – otherwise, we’ll be driving two vehicles while traveling. That, in turn, means either a minivan or a SUV is in my future.

Late model used or new? I addressed this question last week, but now it really hits home. The comments on that post pretty much nail it – consider both, including the benefits (warranties, cash allowances, etc.) of a new purchase. In a down car market, the new one may end up being the best deal, especially since we’re leaning towards Honda or Toyota because of their reliability numbers – they’re hard to find late model used for much less than they are new.

How will I pay for it? Time to start saving. Instead of tossing money into current debt repayments, I’m going to build up a nice hefty savings account for this car purchase, so that I can easily go for the best deal when the time comes around without taking out a loan.

In short, I have a lot to think about. Thankfully, the issue isn’t entirely in my face quite yet – I still have some time to consider what move to make. But as I sat there watching my truck get towed away in the middle of rural Wisconsin, I realized it was time to start taking these questions seriously.

Going to the car dealership always feels like a game of roulette. You go in there, hoping to put your money down on a car that’s a winner, and walk out of the lot with something you actually want, not something you’ve been talked into by the dealer.

A big part of the whole process is deciding up front what you want, and the first decision is a big one: new or used? Each has its advantages and disadvantages and it’s worth a closer look.

What Are The Options?
The choices here are pretty straightforward: buying new, leasing new, or buying used. Buying new and buying used both mean that you plan to actually own the car and involves a title transfer and so on. Leasing a new car effectively means renting the car for a long period – the dealer owns the car – but the payments for leasing are far, far lower than the purchase price.

What Are The Big Differences?
Buying new is the most expensive option, but it’s also the longest term option. A new car is often under warranty for several years and you can sometimes end up driving one for as long as a decade. Unfortunately, much of the time, the price is prohibitive – new cars tend to be the most expensive option.

Leasing new enables you to get into a new car for a much cheaper price, but when the lease ends, you’re left with nothing. If you have a significant need to drive a new car on a budget (see below), this may be a reasonable option, but in the end, you’re playing the dealer’s game. After your lease runs out, you have no wheels.

Buying used lets you get into a car for cheap, but it’s not a new one. However, a late model used car usually gives you several years of driving before it needs to be replaced. This is often considered to be the best value for your dollar by many personal finance and car experts. For example, the CarTalk guys are “big proponents of late-model used cars,” and Liz Pulliam Weston says “The average new car loses 12.2% of its value in the first year, according to Edmunds.com; on a $20,000 car, that’s $2,440, or more than $200 a month. Some cars depreciate even faster, depending on demand, incentives offered and other factors. Why not let someone else take that hit? Not only will you be able to save money (or buy more car), but you’ll pay less for insurance.”

So What Should I Do?
The big question you need to ask yourself is does the car provide any extra value to me beyond transporting me from point A to point B? The answer to that question depends heavily on what you choose to do for a career and how much time you spend in the car. If you use your car to drive around clients, for example, you’ll have some extra value from having a shiny new car.

If you’re in that position, your decision is probably pretty easy. There’s added value for you to constantly have a newer car, so buying a car on a lease is likely the most effective way to go. If you want to minimize the miles on the leased car, consider keeping an old reliable used car around for personal use.

However, if you’re like most of us and don’t get any extra value from a car other than transportation, definitely include late model cars in the equation. Quite often (but not always), late model used cars offer the best value, but always compare the late model price to the new price. Some models don’t depreciate significantly (like Hondas and the Toyota Prius) and others may have large factory or dealer incentives to buy new (like a large cash allowance). If you can find an opportunity where a new car is only a thousand dollars or so more than a late model used, go for the new – such bargains are rare, but they do happen.

The key to buying a car is to take your time, do the research, and make the right buy for you. Know what you want (and know what prices you should expect) before you go, make sure you know about any special deals, and go to the lot as an informed buyer who’s not panicked to buy a car right away.

If we lived in a suburban or city neighborhood, this would be an easier choice for us. The car would be gone immediately – and good riddance, because it eats money.

The average American automobile has persistent costs, even if you scarcely drive it. Car insurance, maintaining the license on that vehicle, and basic maintenance to ensure that it’s roadworthy can add up to hundreds of dollars a year without even driving it a mile, and the second you do take it out on the road, with $4 a gallon gas, oil changes every 5,000 miles or so, other maintenance, and risk of damage, it’s a serious cash gobbler.

Living in a neighborhood where I could walk or bike to every service I need – within three or four miles – would make this decision a no- brainer. We live in a pretty small town, though, one small enough to not even have a proper grocery store – and that makes the decision very difficult.

What Do I Actually Need?

If you’re trying to make a decision about reducing your automobile count, consider what you actually need during the day. I know this is an issue that many home office folks and stay at home parents struggle with, as do single people in urban situations who are considering going from one car to no cars. A vehicle is expensive and getting rid of it would be a huge savings, but the loss of freedom can prove painful.

Make a list of all of the things you actually need an automobile for during the day. In order to really evaluate whether going to a one car situation is really an option for us, I tried to make a list of the resources I actually need during the day.

A library Library use is essential for me. I typically use about one day every two weeks for a library run, where I spend several hours at the library and usually come home with ten books or so. However, I usually go to a library in another town, as our town’s library is very small and has extremely limited choices on personal finance issues.

A grocery store I often go grocery shopping on Mondays by myself without the family around. That would become impossible without a car.

A post office The post office is in bicycle range. I have never gone there on foot, but the trip is realistic on a bike and with a basket on the front of my bike, I could make the trip when I need to (to ship packages).

A hardware store There’s also a hardware store within bicycle range. I often do small home repairs and other such tasks during the day when the family isn’t around.

Some Solutions

WalkScore One spectacular tool in helping to figure out a solution to these issues is to see the resources actually around you and how far away they are, and that’s when the stellar site WalkScore.com steps in.

WalkScore allows you to put in your home address, then lists the services near your location in a bunch of different categories (grocery stores, restaurants, bars, coffee shops, movie theaters, schools, parks, libraries, bookstores, gyms, drug stores, hardware stores, and clothing stores). It also assigns a “score” which provides a rough numerical estimate of how good your house location is in terms of the resources available within reasonable walking distance.

My score is 29/100, which is about what I’d expect given that I live in a small town. There are some basic services within walking distance, but many of the services I need are in larger towns 10-15 miles away.

People in suburban and urban areas have much better scores. For example, I entered John’s address and he got a 60/100, with only movie theaters being more than a mile and a half from his location. Rachel, who lives in an even bigger urban area, got a score of 55/100, with, again, a movie theater being her most distant destination.

WalkScore is a very useful site for determining what services are nearby. The score itself isn’t all that useful other than as a thumbnail comparison, but the identification of nearby services for any address is very useful, indeed. It helped me to identify solutions for my problem areas.

Library solution without a car We could make this into a weekend family stop about once a month, where I go do the research I need to do while my wife and children participate in story time and other library activities, or drop me off there and go to the park or grocery shopping.

Grocery store solution without a car We could simply move the weekly grocery trip to Sunday afternoon and take the kids along each week. Grocery shopping with my wife, my two year old son, and my nine month old daughter is substantially slower and usually a bit more expensive than going by myself, but it’s not a life-shattering difference.

Post office and hardware store solutions without a car In both cases, a bicycle can handle the situation for about seven or eight months out of the year. During the winter months, however, much of the time the weather won’t permit me to go on a lengthy bike ride, so I’ll have to wait until evenings to hit the hardware store and Saturday to hit the post office. Both are mildly inconvenient but doable.

Our Final Decision (Which May Be Different Than Yours)

We’ve decided, for now, to remain a two-car household. Why? Emergencies. If I’m at home during the day working and my wife is in another city working, what happens if there’s an emergency with me or with one of our children? There’s no mechanism for me to attend to their needs. I could take care of it on bicycle, but not in the middle of an Iowa winter. Also, given our location, it’s very difficult for my wife to have a backup car to take to work if our only car were to have problems in the morning.

Thus, our eventual car plan is to get a “main” car that’s very reliable, pretty new, and intended to run for a long time, and then an “emergency” car that I can use in a pinch if I need to, but won’t be used much at all.

What did I really learn from all of this? For us, two cars are pretty important and a move to a single car isn’t realistic, but there are many situations where reducing your family’s car count by one can be a big savings. Don’t overlook it, even if it seems inconvenient at first. Spend some time figuring out what you actually need the car for and whether that use can’t be supplemented cheaply by other tactics, such as walking or riding a bicycle or renting a car on rare occasions. For us, for example, if we lived in a warmer area and perhaps closer to my wife’s place of work, we’d likely go down to one car, and that would save us substantial money each month.

A very poor investment, indeed, but it’s one almost everyone makes several times throughout their adult years. I’m on the verge of buying my third automobile and this time around, I’m going to do what I can to ensure that it’s a good investment for the long haul.

Here are eleven steps we can all take to ensure that our next automobile purchase is the best investment available.

Buy a late model used.
I’ve seen countless different models that show different potential car buying possibilities and clever arguments on behalf of each of them. Lease a car. Buy new, but negotiate and hit a good sale. Buy the most reliable car with a bunch of miles already on it.

In the end, though, most unbiased analyses seem to point towards late model used cars as the way to get the most car bang for the buck. From an excellent unbiased comparison of used versus new from Cars.com: “If you’re on a tight budget, then buying a used car gets you the most vehicle for the least amount of money.” Since that’s what I’m looking for – the most vehicle for the least amount of money – then it’s late model used for me.

That article does give a lot of reasons for buying new: reduced maintenance, warranty coverage, roadside assistance, and peace of mind. However, these factors are mostly important only if you don’t do adequate research beforehand, and that leads us into some of the other points…

Do your research before you ever approach a car dealership.
The best way to get a poor deal on a car is to not adequately research things before you go to the dealership. If you’re walking out to the dealership without having evaluated some hard data and figured out based on that hard data what you’re looking for, you’re going to wind up with a poor selection.

Before you even head to the dealership to make your purchase, do some research. Hit the library and dig through their car buying guides for the last few years, seeking as much information as you can about different models in the type of car you’re considering. Spend a few hours on it – it’s time that will pay off over the long haul if you know exactly what to get when you head out to the dealership.

Most importantly, you don’t have to know much about cars to do this research. Most of the research tools you’ll use are extremely self-explanatory. For example, Consumer Reports breaks everything down in easy-to-compare numerical scores so that you can quickly tell which is the better option in the areas you’re looking at – and by how much.

What should you be looking for to maximize your investment?

Buy a model that’s known for reliability.
The first big factor to look for is reliability. The first place I look is the reliability reports in Consumer Reports for the last three years. I focus in on brands that have a high reliability factor – Hondas and Toyotas tend to do well in these, while Volkswagens do poorly.

Not only do I look at reports for individual models and years, I also focus on more general reports about reliability from that company. For example, if I were looking at a Ford Taurus from a particular year, I’d also look at all sedans produced by Ford, since they often have most of their parts in common. This will give a broader view as to the reliability of the model you’re studying.

Why is reliability so important? A reliable car will minimize your repair costs over the long haul and also give your car a longer drivable lifespan – you’ll keep it on the road for longer overall and, even better, keep it out of the repair shop. Both will put cash back in your pocket.

Buy a model that’s known for fuel efficiency.
While looking at reliability, I also keep a big eye out for fuel efficiency, the other big area I look at when evaluating a car. For this number, I use fueleconomy.gov to get standardized numbers across all model years. I don’t pay much attention to small differences (up to 2 miles per gallon), but differences larger than that start to add up to significant differences in the amount of fuel your car will drink per year, and if the difference is significant (five miles per gallon or more), you quickly start talking about hundreds of dollars per year (assuming normal driving levels).

Why is gas mileage so important? It’s every easy to demonstrate the power of gas mileage. If one model gets 18 miles per gallon and another car gets 28 miles per gallon, over a normal year of driving (10,000 miles), that’s 198.4 gallons of gas. At $4 per gallon, that’s $792 saved – and that’s a big difference.

Be sensible about the extras your car actually needs.
Most of the nifty gadgets in a car are really not all that necessary? An in-car DVD player? Just get an inexpensive portable one. OnStar? Just use your cell phone and call for necessary services. All wheel drive? If you don’t live on a farm or in an area with severe winters, it’s not necessary.

Focus in on the core features you need and don’t worry about the other fluff. You need a reliable car to get you where you’re going and good fuel efficiency to save you money. The rest? Not really important. Remember, this is about getting the best investment out of your car that you can, and these extra features are simply inessential. Focus on the essentials.

Do due diligence before you buy.
Take the car for a test drive, then take it to a trusted mechanic who will look for problems for you. Also, mark the car’s VIN and do a CarFAX history report so you can know if there are any major hidden problems you might want to know about. Taking these two steps can go a long way to keeping you away from a lemon and helping you to ensure that the car you’re buying is a solid purchase.

This won’t protect you from everything, of course, but it will identify major issues that may be hidden from you at first glance.

Keep it clean.
Once you actually own the car, keep it clean consistently. A dirty car, both inside and out, is a sure way to increase the wear and tear your car will face. Clean out your car regularly, particularly in the spring after the winter weather has passed – the salts and cinders that are used to keep the roads passable are very hard on your car. A spring cleaning can go a very long way toward mitigating that problem.

Follow the maintenance schedule as described in the manual.
Don’t pay any attention to the schedules offered to you by repair shops or your car dealership. Look at your car’s manual and follow that maintenance schedule as closely as you possibly can. Repair shops and car dealerships pad their maintenance schedules with more frequent stops than necessary – these will go above and beyond what’s needed to keep your car running. Instead, trust the manufacturer and save yourself a pretty penny.

One of the biggest things you’ll notice is that your manual points you towards less frequent oil changes. Most repair shops push for oil changes every 3,000 miles, but with modern engines and modern automotive engineering, they’re simply not needed. Many manuals suggest an oil change every 5,000 miles – others recommend changes every 7,500 miles. Check your manual, follow the instructions of the actual manufacturer, and save yourself some cash.

Keep an accurate record of the maintenance you perform.
While performing this maintenance, keep a detailed record of the maintenance. Record every maintenance in a log book – the type of maintenance, where it happened, the mileage on your car when it happened, and the date. When you go to trade in or sell your car, this can provide great documentation about the maintenance your car has received.

I keep my log book in the glove compartment and just take a few seconds after each maintenance task to add a note. This way, when I go to sell the car, I can provide that log to demonstrate that I’ve done proper maintenance. Depending on how you choose to sell the car, this can add some resale value.

Learn how to perform the basic maintenance yourself.
Most maintenance tasks can easily be done in your garage. Just follow the instructions in your manual and try changing your own oil. You can usually save $20 or $30 doing an oil change yourself – it doesn’t take many oil changes for that to add up to some real cash. You can do all sorts of maintenance work yourself: airing up your car tires, changing transmission fluid, changing your air filter, changing your oil filter, and so on.

Learn how to do these yourself and you’ll have the confidence to do such work on any car you own. You’ll save money for the rest of your life with this knowledge.

Drive the speed limit.
Driving the speed limit not only cuts down on the cost of speeding tickets, but it also reduces the wear and tear on your car. A minute more on a trip here or there can keep speeding tickets out of your hair and also extend the life of your car, so it’s well worth it to eliminate the speeding habit. I’ve found that setting the cruise control while outside of towns is a great way to keep my lead foot under control.

Start saving for your next car now, not later.
The final tip is one of the best. Start saving now for your next car instead of taking out a big loan. Let’s say you’re going to buy your next car in five years and plan on plunking down $8,000 on it. Just put $28 a week into an ING Direct savings account earning 3% a year and you’ll have that $8,000 in hand after five years. On the other hand, take out a five year car loan for that car at 9% and you’ll be spending $166.04 a month on that loan – $38.30 a week. Starting saving right now saves you $10 a week on an $8,000 car. If you’re buying a more expensive car, it’s even more savings – each week, every week.

Following all of these tactics will go a long way towards reducing the pain of your automobile “investment,” making a very painful loss much less painful. All of these tactics taken together can reduce your expenses significantly over the long run, putting you in a car that runs better, runs longer, and has smaller monthly payments.

Other ads in the series feature Ray Lucia (author of Buckets of Money) and Adam Smith (author of The Money Game).

Let’s look at the ads a bit more carefully.

Is this a good deal?
First of all, never, ever make your car buying decisions based on an ad for a new car. If you’re going to invest your money in buying a car, focus on late model used ones and use Consumer Reports and other car journals to research and find the most reliable and fuel-efficient car for your needs – and do the same if you must buy new for some reason. A late model used car with high reliability numbers and good gas mileage is the single best deal out there for car buyers.

Car commercials, for the most part, try to sell you on things that largely don’t matter – small sales up front (like 5% off), exterior appearance, and so on. Don’t base your automotive purchases on them – instead, go do some real research.

Is their advice any good?
Winget, Smith, and Lucia do provide good advice in the commercials. It does make sense to put your money in a highly diversified index fund or to pay off high-interest credit card debt – both are indeed good moves.

The problem with the commercial isn’t the use of the money – it’s the source of the money. They’re talking about using money that’s coming to you in the form of a rebate on an item that’s overpriced to begin with. You’ll lose more in depreciation of the value of the car the minute you drive it off the lot than you’ll gain back in the rebate from the sale.

In other words, their advice is great if we’re talking about $3,000 free and clear, but that cash is tied up in the value of the car you just bought – and you’ll lose more than that the second you drive it off the lot. A better option is to buy a cheaper car and then use the $3,000 you actually did save to pay off credit card debts and such.

Are these writers “selling out”?
The advice actually coming out of their mouths is good advice – the problem is in the context of all of it. By appearing in the ad, they do appear to be implicitly approving of the purchase (which isn’t a good financial choice for most people).

Given my condemnation of the ads, you’d likely expect me to say that these writers are “selling out,” or betraying the trust that their readers have placed in them. For the most part, I don’t feel that way, because if one of those writers had said no to the advertisement, Hyundai would have simply found another writer. By saying yes, they at least get their paycheck and a bit more attention to their books and public persona.

So, obviously, in the context of a car commercial, these guys are more interested in selling themselves to you than in providing an overall positive financial image. But by doing this ad, Larry Winget might just have been able to get a few more people to read You’re Broke Because You Want To Be, which does contain some excellent “tough love” style advice. If that book helps one of those new readers turn their life around, that’s overall a good thing, is it not?

Would I appear in such an ad if the opportunity presented itself? Honestly, I think it would depend on the car. For instance, if I were asked to appear in an ad for a car I would ordinarily recommend – one with good gas mileage, high safety ratings, and high reliability, I’d probably be fine with it because the people interested in such a car likely have some financial sense anyway. Alternately, I wouldn’t appear in an ad for a Hummer – but then the average Hummer buyer isn’t exactly going to be swayed by a guy writing a site called The Simple Dollar.

As a final note, since this post mentions Hyundai, I have to include one of my favorite comedy clips of all time – Stephen Colbert’s “I’m Singin’ in Korean” music video.

My question is about cars, inspired in part by your post this morning. We have a gas guzzling 2004 Ford Expedition in very good condition. There is about $3,000 left on the note, leaving us with about $10,000 in equity, should we sell it for Bluebook value. We could have it paid off in about 4-5 months. Our note payment is $408, rounded.

For fuel we spend no less than $300/month, often closer to $400 and beyond. We live in southern California, so we do drive quite a bit. Luckily, my husband has a company car, and for the most part we use that on the weekends. About $100/month is taken from his paycheck by the company to account for personal miles. It’s a predetermined amount by the company and does not reflect our use of the vehicle.

We are a family of four (two boys, aged 3 and 1 year) and can’t decide whether to sell the truck (now or when it’s paid off) and get something more fuel efficient or, keep the the truck free and clear. I don’t suspect a Prius will be able to accommodate our young family (strollers, etc.) but we would like a hybrid if it makes sense financially. My concern is that by selling the truck for a more fuel efficient vehicle the money we save in gas would simply go towards a new car payment, registration, and insurance.

Guess what, folks? It’s time to run the numbers!

A 2004 Ford Expedition gets 13-15 mpg in cities and 17-19 mpg on the highway. I’ll estimate that yours gets right in the middle – 16 mpg overall. If you live in an area with gas at $3.50 a gallon and are spending $400 a month on gas, that means you’re putting about 1,800 miles a month on your vehicle – $400 divided by $3.50 gets you 114.3 gallons of gas a month, and at 16 miles per gallon, that’s just about 1,800 miles.

So let’s go with that. Let’s say you replaced your Expedition with a 2008 Ford Escape Hybrid, which gets 30 mpg on the highway and 34 in the city, so for you we’ll average it at 32. I chose the Escape Hybrid because it’s comparable to the original in size and storage which you probably still need, but much more fuel efficient. If you drive 1,800 miles a month, that means you’ll only burn about 56 gallons of gas with this model versus the 114 gallons you were burning with your old one. That’s a savings of about $200 a month – you’ll basically halve your monthly gas bill.

Now, is that $200 a month worth it over the long haul? Over the course of five years of ownership, that $200 a month difference adds up to $12,000. The Ford Escape Hybrid has a base invoice price of $24,734. So, if you get $10K in trade-in on your current vehicle, you’ll likely be paying somewhere in the range of $15K for the new vehicle. Your break even point from the gas savings is then at about the six year mark. Of course, there are advantages in having a new vehicle – it’s going to be more reliable at first, for starters, and you’ll likely save on the maintenance over the next six years versus the older vehicle simply because you’ll be starting your maintenance schedule fresh and new.

If I were in your shoes, I’d probably be willing to make that switch. You’ll be returning to car payments for a while, but your monthly gas bill will be halved. After the new vehicle is paid off, though, you’ll be doing very well. There are compelling arguments both ways, though.

What about just adding another new car to the mix? Another compelling option is to simply add a highly fuel efficient car to the mix and using that as often as possible. Let’s say, for example, that you could get a 2004 Honda Insight, which gets an incredible 60 miles per gallon city and 66 miles per gallon highway, and you’re able to use it for 70% of your driving. That means that 30% of your driving would be at 16 miles per gallon in your expedition and 70% would be in your Honda Insight at 63 miles per gallon, giving you an overall effective gas mileage of 49 miles per gallon. Over 1,800 miles in a month, adding the Insight and driving it 70% of the time would save you 75.8 gallons of gas each month, and at a cost of $3.50 for a gallon of gas, that’s a savings of $265.17 per month on gas.

I played around on Kelley’s Blue Book and found that you can likely find one of these Honda Insights for about $16,000. If you walk into a lot with no down payment and get a 36 month loan at current rates, you’ll leave with a payment of $525.38 for the next 36 months, meaning that each month for the next three years will cost you $260.20 each month. After that, though, you’re in very good shape. Plus, you now have the redundancy of another vehicle that will likely be able to seat your whole family, so if one breaks down, you’re not hoping for a loaner or renting a car.

Note that I’m not figuring insurance or licenses into either case. I don’t know what this family would be paying for insurance or for licenses, but in especially the case with the extra car, this is an additional cost. Julia and her family should figure in these costs before making a choice for themselves.

What’s my conclusion? Fuel efficiency is becoming very, very important, especially with a high-mileage driving situation. It makes sense to look for a more fuel efficient car.

I think this family, given that they’re putting 1,800 miles a month on their car, should strongly consider making a change. Even if gas prices stick to their current levels, it ends up being a good deal for them over five or six years. If gas prices continue to go up, they’ll be in tremendously good shape in the future, especially if they couple it with some changes in habits.

My advice for them is to go for it. Once they get past the three or four year mark (depending on their payments), they’ll be in much better shape in terms of fuel efficiency. If they choose to drive the car for many years past that, then fuel efficiency will have saved them a lot of money.