How To Buy a Car As a Good Investment For The Future

Automobiles are some of the worst investments you’ll make in your life. They immediately start losing value the second you drive them off the lot. They require constant additional cost to stay on the road (in the form of gas, oil, insurance, and repairs). They’re prone to breaking regularly. They’re a potential physical danger. Best of all, when you finally decide to sell it, you get only a pittance of what you paid for it in return.

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. I’m also taking care to consider what my car insurance options are for the vehicle I end up buying.

Here are eleven steps we can all take to ensure that our next car 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 “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. It’s in your best interest to take a look at how aftermarket parts affect your car insurance.

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 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.

Trent Hamm

Founder & Columnist

Trent Hamm founded The Simple Dollar in 2006 and still writes a daily column on personal finance. He’s the author of three books published by Simon & Schuster and Financial Times Press, has contributed to Business Insider, US News & World Report, Yahoo Finance, and Lifehacker, and his financial advice has been featured in The New York Times, TIME, Forbes, The Guardian, and elsewhere.