Suze Orman Money Matters

I totally get how enticing it is to own a sleek new car that exudes cool, but if I offered you an investment that was pretty much guaranteed to lose 60 percent, would you take me up on it?

I seriously doubt it.

Sadly, that's the cold truth about owning a car: It is a guaranteed money loser.

The simple fact is that the minute a new car is driven off the lot it loses up to 20 percent of its value. And it just keeps losing value each day you own it. After four years you'll be lucky if a $50,000 car gets you $20,000 at trade-in.

The reason a car isn't a good investment is simple: Cars aren't investments at all. They're simply tools to get you from point A to point B. Real investments are meant to take you toward wealth and security. An expensive automobile may make you feel like you've arrived, but that's an illusion. If anything, it's likely to carry you farther away from the financial destination you're trying to reach.

Fuel for Thought

Nowadays, with gas prices soaring, you can't afford not to do everything you can to offset what's happening at the pump. It can cost as much as $60 to fill up the tank in many new cars -- and a lot more in some SUVs.

Since there's no way you can control the cost of gas, how about a used new car? No, that's not an oxymoron. I'm talking about certified pre-owned cars (CPOs), which are a year or two old, have limited mileage on them, and come with a factory warranty. The price can be at least 15 percent cheaper than a new car, but you've still got a lot of the new car benefits.

If you go the CPO route, the savings on the sticker price could offset the rising price you're paying at the pump. That way you can have your car and afford to drive it, too. And hey, if gas prices ever come back down again, you'll have extra money to put toward your future.

Don't Let Them Sticker It to You

Your car needs to fit into your financial priorities. If you have a penny of high-rate credit card debt, are still paying off student loans, don't have an eight-month emergency cash fund, or haven't been able to save up enough for a down payment on a home, I'm thinking you aren't exactly in the best position to drive an expensive car.

Sure, it might cost you a few style points in the office parking lot to drive something less flashy, but keep reminding yourself of the lousy "investment" value of your car. You're going to win big by spending less on your car so you have more money to use for other financial goals.

For those of you who are going to buy a new car no matter what, it pays to do some homework before you walk into the showroom.

To get a good deal you need to focus on the right number. Dealers want to negotiate based on the MSRP, or Manufacturer's Suggested Retail Price. I suggest you ignore it. You want to negotiate based on the Invoice Price -- this is what the dealer paid to get the car into the showroom. The MSRP includes the markup.

Now don't think that the invoice price is as low as you can go. Just like when you're house buying, it pays to know what kind of market you're in. If the car dealer is dying to get rid of a backlog of cars, he's going to be more willing to negotiate with you. And realize that the dealer may be getting a deal from the manufacturer for selling you the car. This is known as a "holdback" in dealer lingo. A car salesman isn't going to volunteer the info, but it's worth asking. And at Edmunds.com, you can often find info on which manufacturers are offering incentives straight to the dealer. If you find out your car has a $1,000 holdback, use it in your negotiation with the dealer. Here's your pitch: "Look, I know you get a $1,000 holdback, so I'd be willing to pay $500 below invoice and we can split the holdback."

When negotiating, do not make financing part of the deal. Your first job is to nail down the price. Only then should you talk financing.

For those of you living in states that do not levy a state income tax or in one where it's very low, your car purchase may in fact trigger a nice tax break. How? In a new law that went into effect this year, you can choose to deduct from your federal tax return either your state income tax or your state sales tax.

I also want to encourage you to shop for your car beyond your immediate city or region; it couldn't be easier when you're cyber-shopping. You may find that the best deal could be hundreds of miles away at a dealership in another state. Even after you pay the shipping charge, you can still come out way ahead. For instance, a convertible that's all the rage in Los Angeles might not be such a hot item in Minneapolis. Like any other consumer item, it's all about supply and demand.

Finance 101

The best way to buy a car is to pay cash upfront for the whole enchilada. But I realize that's not gonna fly when you are young and broke. So our next task is to make sure you get the best financing deal.

You have two basic options: You can lease (rent), or you can buy the car with an auto loan. (See "Think Twice About Leasing a Car" for why leasing is such a lousy option.)

If you don't have the cash to buy the car outright, a straightforward car loan is your best financing option. And to land a great interest rate on the deal, you need to have a strong FICO score. I've talked about this before, but let's have a quick refresher course.

Just about every financial move you make is tracked by credit bureaus. Based on your timeliness in paying your bills, how much debt you are dealing with, and a maze of other factors, you are given a FICO credit score -- essentially a rating telling potential lenders how safe (or dangerous) it would likely be to lend you money.

The higher your FICO score, the better "risk" you are in a lender's eye. With a great FICO score of 720 or higher, you may be able to land a zero-interest loan. Remember, however, a FICO score is only one part of the formula that determines if you qualify for a loan or not. Your debt, income, employment status, etc., all go into the final lending decision.

You can get your score at www.myfico.com and learn how to improve your score before you start shopping for a loan.

Now even if you qualify for the zero-rate deal, don't jump at it without considering your options. In many cases, you will be given a choice of a zero-rate deal or cash back. As a general rule, my advice is to take the cash back on a car purchase under $20,000 and to opt for the zero-rate offer if your car costs more than that.

While dealer financing can be a great option, especially if you qualify for a zero-rate deal, it always pays to shop around at other lenders before you head to the dealer. Check out loan rates offered by banks, as well as any credit union you may be able to join. Credit unions often offer the best rates. Take a look at Yahoo!'s list of Credit Unions to see if any might work for you. Quite often, you can join a CU if you know someone who already belongs.

If the only way you can "afford" a car is to take out a loan longer than four years, I've got news for you: You can't afford those wheels. Adjust your price target; don't lengthen the loan term.

And by the way, if you really need to buy a new car ASAP, but you only qualify for a higher-rate loan because your FICO score isn't exactly sparkling, keep in mind that you may be able to refinance the loan as time goes on. If you take out a four-year loan and refinance a year later, refinance into a three-year loan. If you choose another four-year loan, you've stretched out the payments on that car to five years, which means another year of those costly interest payments. That's financially stupid.

Insurance Tips

After shelling out the big bucks to a buy a car, I see so many people make the mistake of trying to save money on their auto insurance. Folks, that is just downright silly. The quickest way to financial ruin is to shortchange your insurance coverage.

I want your policy to offer at least 100/300/50 coverage. Translation: $100,000 of bodily injury liability coverage, with a $300,000 limit per accident, and up to $50,000 for property damage. If you skimp on the coverage and end up the responsible party in an accident, the other party can go after your assets -- and, yes, that means your savings and home.

Getting the higher coverage will indeed raise your annual premium, so the least I can do is clue you in on some ways to save money on your policy.

• Boost your FICO score. Yep, once again your credit score comes into play. A version of your FICO score is used by many auto insurers when determining your rate. The higher your score, the lower your premium.

• Buy all your insurance from one company. If you own a home, shop for both homeowner's insurance and auto insurance with the same company and you may be able to reduce your costs by 10 percent or more.

• Clear your DMV record. Just because you paid your tickets doesn't mean the info has been updated on your official DMV record. Contact your state DMV to make sure any blemishes have been removed.

• Take the high deductible. Sign up for a higher deductible of $1,000. Remember, insurance is really only meant to protect you from big-time losses -- not small nuisance problems. By opting for the higher deductible you can shave 15 percent to 30 percent off of your annual premium and lower the risk of annoying your insurance company.