Why It’s Okay to Drive a Beater

Why It’s Okay to Drive a Beater

BY CRAIG KIRKLAND, EVP/Director of Retail Banking, Nevada State Bank

My mom keeps nearly everything, and I recently came across her promissory note for a car she bought in 1976. It was a 1972 American Motors SST Brougham station wagon that was 18 feet long with a V-8 engine that got 13 miles to the gallon. It cost her $1,710, and even with 12% financing, her monthly payment was only $81. Adjusting for inflation over the last 45 years, the $1,710 she spent in 1976 would be $8,590 in 2022 dollars. 

Car prices are much different today. In 2021, the average used car price crested above $27,000 and the average new car price exceeded $45,000. Because of these high prices, it makes sense to really do some thinking before deciding how much car you can afford. 

The general rule of thumb is not to spend more than 15-20% of your take-home pay on your car payment, car insurance, and fuel. If you purchase a new car for $45,000, get a great rate at 3% and amortize your payments over 60 months, you would have a payment of $719 per month. Let’s say your insurance is $150 a month and you spend $175 on gas. So, we have a combined conservative estimate of $1,044 per month in car expenses. If the guideline is not to spend more than 15% of your take-home pay, you would have to take home about $7,000 a month to afford the car, which means you would gross anywhere from $9,500 to $10,300 a month, depending on your tax filing status and other factors. Does that new car sound like a responsible purchase so far? 

If you are not staying within the 15% guideline, consider lowering your expectations. Don’t be afraid to drive a beater — an older car with a lot of miles that still runs well. Driving a beater keeps you humble — humility is a great quality in leadership and in life in general. You can park a beater car anywhere because you’re not concerned about it getting scratched. You might be able to reduce your insurance expenses by just getting liability coverage because you won’t care if it gets a dent (consult your insurance agent). 

Beware of lifestyle creep and easy, cheap credit. Just because a dealer can get you into a car does not mean it’s a good financial choice. Your focus should be less on style and more on building savings and reducing debt. Get your hamster wheel off the hinges and on the ground so you are moving forward toward financial security.