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If you had one financial do-over, what would it be and why? When I saw this topic, the first thought that went through my head was, “Wow, that’s going to be difficult!”, not because I couldn’t think of any, but because there are so many financial mistakes that I would like to do over. On further reflection, one mistake stands out above the others. It’s not something I want to do over because of the magnitude of the error but because it hurt me at a time when I was financially very shaky. So here goes –
Buying My First Car – A New Honda Civic Hybrid
I had just completed grad school, and by working while studying and living off Ramen noodles, I graduated with about $5000 in the bank. I got a job that I liked, moved to a beautiful place, and was generally feeling on top of the world.
At that point, I decided I needed a car. I shopped around a little (mistake 1) and decided that I would go for a new Honda because they depreciated very slowly. In addition, I planned to travel quite a bit, so I decided to go for a Hybrid to get the better gas mileage.
So, I went down to the Honda dealership and started the haggling over a new Honda Civic Hybrid. After many trips and conversations with the dealer, I managed to whittle him down from $25000 to $22000 and congratulated myself on my excellent (in my own eyes, of course) negotiation skills.
In order to reduce the amount of money I had to borrow, I decided to put down most of my $5K savings. I brought the car home and a couple of days later while looking through the glove compartment, came across a sheet of paper that shipped with the car from the manufacturer. Across the top of the page in big, bold, black text were the words – “Recommended MSRP = $21000”. There I came crashing down from the cloud 9 I was floating on thinking I had made this great steal. Things just got worse from there. I didn’t understand the terms of my loan agreement properly (big big mistake). I assumed that any money I paid over the monthly requirement would be used toward reducing the principal. Nope. The loan said that I had to pay a certain amount of interest, period. So paying more than necessary each month just brought in the end date but didn’t reduce the amount I had to fork over.
In addition, I was stupid enough not to regularly check my statement to see if the principal was being reduced over time. I just kept paying as much as I could toward the loan every month. At the end of 3 years, I had paid off the 7 year loan, but I had next to nothing in savings. Would I have been better off paying the monthly amount and investing the remaining money elsewhere. You betcha!
Honda Civic Hybrid Break-Even Analysis
Now let’s look at the car itself. The difference in price between the Civic Hybrid I bought and a regular Civic, at the time, was $4500. I was betting that I would drive so much that the extra mileage from the Hybrid would save me money.
Now let’s look at the facts. I get on average 43 mpg. Friends of mine who own a regular Civic, bought at approximately the same time, get about 35 mpg. So that’s an average of 8 more mpg that I get. Over a tank of gas therefore, I get 80 miles more than a regular Civic. Over the 6 and a half years I have owned the car I have driven 100,000 miles. At 43 mpg, that works out to 2326 gallons approximately. At 35 mpg, I would have filled in 2857 gallons instead. A difference of 531 gallons over 6 and a half years.
How much did that save me? Given that I live in Southern California, I pay more for gas than the rest of the country. To keep the math simple, lets assume that over this period gas has on average been selling at $4 per gallon, which is higher than reality. Applying that number, owning a Hybrid has so far saved me $2124. But wait a minute, I put down $4500 extra to start with. So I’m still in a hole for $2376.
In addition, we have to add the money I would have earned if I had invested that $4500. But, I look bad enough as it is. I don’t have to make things worse. You might say that well, I haven’t got rid of the car, so as gas prices rise, I will continue to save. That’s true, but keep in mind that the Hybrid has a battery pack that doesn’t last forever. Let’s say I replace it in 10 years. At my current rate of driving, over 10 years I would have saved $3271 (still assuming an average of $4 a gallon). So, without having broken even, I now have to shell out money for the battery pack. Oops!
When I went through these numbers a year or so ago, I felt really depressed. By my own stupidity, I had wiped out money I had struggled to save, then gone on to pay a loan off early thinking I was saving interest when I wasn’t, and gambled on a car that wasn’t going to save me money at all. Pretty depressing. I guess the only silver lining in the cloud is that when gas prices go up, I actually feel a little better :)!
If I could go back in time, I would have bought a used car and saved myself a lot of money.
If you had one financial do-over, what would it be and why?
Jacob’s Thoughts – Listed below are my random thoughts as I was reading this article.
- Sorry to hear that you paid $1000 over the MSRP price! Did you check around on any online resources to see what these cars were retailing for before buying?
- Thanks so much for sharing your experiences with this. I really like how you performed/included the break-even analysis.
- I performed a similar analysis on this site last year, comparing “green” hybrid cars to regular cars to determine which is more economically sensible. Turns out that I concluded pretty much the same as you did here – that owning a “green” car isn’t the most economically justified course of action.
- This really is unfortunate because it’d be nice if the economics of “saving-thy-planet” worked out in the consumers favor.
- Personally, I wouldn’t beat myself up too much for making a mistake like you did, provided that you learn how to improve for the next time you buy a car. You bought a reliable, fairly inexpensive car that will most likely save you money compared to a lot of vehicles on the market (for example, if you bought a $40,000 Suburban right out of college).