Maybe the economists have not had enough data to make up their minds yet, but to the average family it feels like a recession is well underway.

Just as businesses tend to over-hire and over-expand during boom times, so too with most household budgets.

This is the time to remind yourself that there are two ways to boost the bottom line. Increase income or decrease expenses. No more borrowing to cover the shortfall. No more tapping your home equity as a giant piggy bank. The banks are bruised and bleeding, and not as friendly about rolling over lines of credit as in times past.

You can start by looking at your consumption patterns. Maybe you don’t really need 500 channels on your cable package. All this spending scrutiny will help, but once you get past the big three (Home, Health, Education), the next major expenditure is your automobile. And right on cue, to plug the finance gap and goose their sales numbers, both domestic and foreign brands are once again rolling out their zero percent interest deals.

Is It Really A Good Deal?

Which you might be wise to pass up, this time around. I know. Everyone loves to brag about not paying interest, but you should first realize this is their teaser rate for those with pristine credit ratings. Don’t think they won’t work you over with bait and switch tactics, bullying you into accepting much higher interest rates as they pull the dings out of your credit report, looking back up to 10 years

And don’t think for a minute that the nominal interest rate reduction and “savings” have not already been stuffed back into the final deal structure. You did want that with the dealer’s special undercoating and pin-striping…..right?

It’s time to try something new. Which is to look at something used.

You know this already. Once you drive your shiny new zero interest car off the lot, it has already lost a big chunk of its value. A car is not an investment…it is a constantly depreciating consumption item pure and simple.

Let Someone Else Pay For Depreciation

It is not unusual for a new car to shed 40% or more of its value in its first three years, but after three years the rate of annual depreciation is much lower. It may take another six or seven years to lose as much value as it did in its first three years.

Armed with this fact, you should be looking at clean, low mileage cars just coming off their three year new car lease schedule. Leased cars tend to be more pampered, as the leasing company usually sets guidelines on allowable mileage and wear and tear. If the lease owner violates these set-points, they have to pay to make up the shortfall.

Most of the major safety innovations such as extra airbags and stability control were in common usage three years ago, so you will still be getting a very serviceable and safe car for family use.

Your neighbor may scoff at your thrifty purchase, but then again, his new Beemer in the driveway is one of the reasons he is having trouble servicing his household debt and his upside down house bought at the peak of the market. It was keeping up with the Joneses and all their mindless consumption that got so many of us in trouble in the first place.

The Internet provides a treasure trove of data on pricing used cars, right down to optional trim packages and your local zip code. You might start with Edmunds.com, which offers an amazing database, and candid comments from other owners of models you would be interested in.

Would it surprise you to learn that this is how many wealthy families buy all their transportation?

Here’s a quick and easy way to monitor your progress as you accumulate wealth. Watch closely the activities of those whose acumen and success you with to emulate.

That’s not being envious. That’s just doing your basic research.

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Posted: 03|12|08 at 5:37 am. Filed under: budgeting.
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