Q: My car works but I can afford a new one. Should I buy?

By Kris Palmer, Minneapolis freelance writer

Last update: November 13, 2009 - 3:56 PM

Q: I have a 1994 Honda Accord with 165,000 miles on it. It has been running fine - my parents owned the car before they gave it to me and it has always been well maintained, including since I got it four years ago. I have looked at my finances and calculated that I can afford a car under $20,000. Does it make sense to buy one at this time? (Oh - I drive about 12,000 miles per year.) Thanks! - Caroline N., Minneapolis

A: The decision to buy a new car has a large emotional component. If your Honda caught fire and burned up, it would be fair to say that you "needed" a new car - putting aside other transportation options. Most people are not confronted with the catastrophic failure of their current vehicle. Instead, the attributes of appearance, styling, new features and advancements in safety create a longing for something new, whereas familiarity, fading, nicks and wear and tear create the sense that our current ride is no longer up to snuff.

I can't help you with the psychological dimensions of a new car purchase. Modern safety features make a 2010 vehicle a little safer than one from 1994. Of course, careful driving will increase your odds of emerging from a crash OK while driving any vehicle, whereas inattention at the wheel can be fatal no matter what you are driving. You don't need to buy a new car to be reasonably safe, as long as your car is in good running and mechanical condition and you drive with care.

Some people whose profession has a sales or image dimension may benefit from a certain level of style and newness to impress clients, to cast the successful image that inspires confidence and generates business. You have not mentioned that this is your situation.

Absent transportation or business necessity, I would stress practicality. The best thing about an older car in good running condition is that it is inexpensive. With the economy running cool and job security a national concern, avoiding unnecessary large expenses like an automobile preserves cash, which will prove useful if anything happens with your job. By contrast, dumping a cheap car that is serving you well and tying up thousands in a new car could put you in dire straits if your situation changes.

Because you express no immediate concerns with the car's functionality, you're not under pressure to make this decision. Put a towing rider on your car insurance, if you don't have AAA, and make sure your timing belt is not due (or overdue) for replacement. If other concerns arise, have a trusted mechanic check them out early, before a small problem, like a fluid leak, can become a large one, such as engine failure.

Here's another thing you can try - a test run of your new car idea. Pick the car you would buy and calculate its total cost to you per month - the total purchase price with all added fees, taxes and expenses, plus insurance. With that information in hand, write a check to your savings account each month equal that payment. This allows you to observe, directly, the monthly impact of a new car payment on your finances. Now keep doing it (perhaps checking with your financial advisor on where, exactly, to put that money). You've just increased your monthly savings and created an extra supply of cash for when you really do need a different car.

In the meantime, wash and wax that Honda and give it a pat on the hood for its good service.

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