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Save Money With an Expensive Economy Car? Think Again

Dan Morton

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As late as last year, Toyota dealers almost couldn't give the Prius Hybrid away. Incentives of up to $2,500 were offered to tempt buyers to take one home. Now, they're all the rage, complete with 6 month waiting list and inflated pricing. So why the change? The short answer is when the price of a gallon of gas passed the $4.00 mark. This single event has breathed life into hybrid car sales and small cars in general, and is causing folks to spend money in ways that just don't add up.

Like Marci Solomon of Rochester, Washington, who paid $7,300 for a bottom-feeder 1996 Geo Metro on eBay recently - about 5 times the car's actual worth. She bought to replace a Honda Element that was getting 28 mpg during her 100 mile commute to work. To save approximately $50 in gas per week she flushed over $5,800 down the toilet, just to feel good about “saving" a little cash. She called it “a good investment. " I'd sure hate to see her 401k if this is a good investment. The point here is that emotions caused someone to make a very bad purchase - if this money was to be saved , she may very well have lost the opportunity for a secure retirement or the ability to buy a home in the future, both very real possibilities considering the opportunity cost of this cash as an investment.

Remember just a few years ago people were buying technology stocks regardless of the price or the financial underpinnings of the parent company. Investment “gurus" were heralding a new era of investment where stock fundamentals didn't matter anymore and stock prices were on a permanent upward trajectory - just sell to the next guy willing to give you a healthy profit. Look up “greater fools theory" on Google if you get the chance. As with most things that go up, stock prices tumbled rather quickly after the hot air behind the “new economy" ran out, taking more than a few secure retirement plans down with crashing portfolio values. Again, decisions made by emotions rather than cold, hard facts proved disastrous and put many retirees back to work as their investment incomes tumbled.

The moral of the story? As you angrily pump another $80 worth of gas into your current gas guzzler and swear you're going to get “something smaller, " do yourself a favor first. Add up the TOTAL cost of car ownership before you buy anything. Make sure that at the end of the year, you're spending less, not more for your car, and make your decisions based on facts - not emotions.

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