How to be a savvy spender

In summer 2015 I purchased a new Ford Fiesta car for £11,500 cash, to use for local trips and also for my eldest daughter to learn to drive in.  We have been very pleased with the car and have kept it in good condition.

I was recently contacted by the local main dealer who supplied the car, suggesting that they could offer me a great deal on a new Fiesta, at a slightly higher trim level than our current car.

Out of interest I asked the dealer to let me have his best deal, including taking my existing car in as part exchange. In the meantime, I asked to obtain the best price from their panel of dealers. I then asked to give me a quote for buying my existing car.

A comparison of the deal offered by the local dealer compared to the online alternative are shown below (sourced 17th January 2018).

                                   Online combo            Purchase price

Local dealer                     £15,595                    £14,589

Part exchange value         £5,350                       £6,105

Net cash cost                  £10,245                        £8,484

The difference in price was a staggering £1,761. When I replied to the local dealer to point out the massive difference in the cost of his deal compared to the alternative, he didn’t even bother to reply.

Bearing in mind that rarely pay top prices, as they have to make a profit, and the price from was actually from another Ford main dealer, that price differential of £1,761 is staggering.

If you also factor in the fact that many people who buy new and nearly new cars do so on some type of finance plan, and the cost of rocking up to your local dealer is likely to be even more costly.

There are a few money takeaways from this situation:

·      Be wary of unsolicited sales approaches from any retailer. Their need to sell has nothing to do with your lifestyle priorities and what’s important to spend your money on.

·      Ask yourself ‘Will this purchase make me happier and more financially secure or not?’ The pleasure from buying anything usually wears off quite quickly and the money SPENT is gone FOREVER.

·      If you do think you need to buy the item spend a little time doing some basic checks online to ensure the deal is competitive. Even on small items like a microwave the cost can vary by £100 or more.

·      Watch out for the additional cost of buying on finance. Ideally you should avoid using finance unless it is genuinely interest free and you already have the money to repay the amount borrowed, so you can meet the repayments if you lose your job.

·      If you decide that you do still want to buy an item defer the final decision to make purchase for at least 24 hours. That will give you a final cooling off time when you can abort the purchase.

We decided to keep our existing car as it works perfectly and in three years’ time our youngest daughter will be able to use it to learn to drive.

If we keep the car for, say, eight years, it might be worth about £2,500 if we keep it in good condition and do low mileage. That would mean we have paid £9,000 for the use of the car, or £1,125 per annum. In the meantime we’ll keep saving up for the eventual replacement and earn returns on that money.

My latest book – Money Moments: Simple steps to financial well-being –  includes a chapter called ‘On your bike: A rethink on car ownership’, in which I explain an alternative way to buy a car without borrowing.