Cars

I was bringing Fern to soccer practice last fall when he asked me about driving.

Fern:  Do you ever just want to step all the way down on the gas?

Deadwood:  No.  Of course not.  ( ! )

Fern:  Awwww, I'll never get to drive.

When I was in college, I had a friend who told me he couldn't wait to graduate and earn money.  This was curious to me, because I had no desire to leave school whatsoever.  As for earning money, that meant working.  Where was the appeal in that?

"So...why are you so eager to earn money?"

"Because I need to buy a BMW."

This was getting even more curious.  He was never a car enthusiast before.

"And why do you need to buy a BMW?"

"Because I have to drive one to my five year high school reunion."

And that's what he did.  Pretty much as soon as he landed a job, he bought himself a shiny, new BMW.  And he drove it to his high school reunion.

Years later, when I was talking with him on the phone, I mentioned that I had retired.

"Oh, man, I don't think I can ever retire."

(Well, yeah, not when you drop $40,000 on a frickin' high school reunion.)

So this is one of my favorite quotes.  Like, ever.
 

“Too many people spend money they haven't earned, to buy things they don't want, to impress people they don't like."

You know who said that?  Will Rogers.  So that quote is like 90 years old or something.  The times change, but people don't.  Still insecure.  Still trying to impress.

And you know the worst thing about it?  It doesn't work anyway!

Let's say, you go to your high school reunion.  And let's say, someone that you never really liked is there as well.  Maybe you thought he was a jerk, maybe you just never really cared for him.  And he drives up in a shiny, new BMW.  What are you thinking?

Are you thinking...

"Wow, he's really successful!"

Or maybe you're thinking...

"Man, I should have given him more of a chance back in high school.  He's really got it together and boy, do I regret not being his friend!"

Yeah, I'm pretty sure you're not thinking any of that.  You're probably thinking something more like...

"Wow, his parents were really nice to let him borrow that BMW."

Or even something along the lines of...

"Ha!  I always knew he was a jerk.  Look at him trying to impress people with that car.  How pathetic."

You are not impressed by what people spend their money on; you've outgrown that.  You don't care one iota about other people's cars, so what makes you think they care about yours?  They don't.  And if, by chance, you run across someone who actually does judge you by your car?  You shouldn't respect their opinion anyway.

Save your money.  This isn't high school anymore and you aren't a teenager trying to find a date.  In fact, if you're reading this, there's a high probability that you're a middle aged man without any chance of impressing anyone with anything.

"Now, wait a minute, Deadwood, wait just a minute!  Maybe I want to buy a nice car just for me.  Maybe it has nothing to do with other people."

Oh, hi Slash.  Yes, that's quite possible.  There are car enthusiasts who just really enjoy nice cars.  I accept that.  But I challenge you to think deeply about how much of your purchase is for your enjoyment versus your status.  At least, if you want to retire early.  Because cars, like houses, are big time expenses.

"So then what?  Drive a ratty old junker like that little, rusty Toyota you used to tool around in?"

Something in between the two extremes is okay.  I recently spoke at a money management seminar.  The presenter who followed me ("Trent") has a really interesting perspective on car buying.  He doesn't think of it as a purchase at all.  He thinks of it as renting.

"You mean leasing?"

No, almost the opposite of leasing.

"Uh...what do you mean?"

In general, leasing cars is about the worst thing you can do.  You are buying the right to drive the car during the first three years of its life.  That's really expensive.

Trent only buys cars after three years.  That's when cars come off lease and flood the market.  And that's when cars already have depreciated significantly.  So he buys three year old cars, drives them for several years before reselling, and then recoups much of his purchase price.  In effect, he rents used cars for relatively little expense.

According to Edmunds, the moment you drive your new car off the lot, it has depreciated about 11%.  So if you paid $30,000 for it, just one minute after taking ownership, it is now worth only $26,700.  In other words, that one minute of driving cost you over $3,000.

Here's what the average $25,000 car depreciation profile looks like over time, according to data I pulled from Money-Zine.com.  (I used their depreciation calculator.)

So, in this scenario, Trent would wait three years and pay $14 K for a three year old car instead of $25 K for a new car.  Then, he would sell the car after about five years and recoup $6 K.  On a per year basis, he ends up paying $1,547 to "rent" the car.

"Is this what you do, Deadwood?"

No, not yet, anyway.  Rooty and I have owned a total of three cars between us.  The first two we bought when they were both about six years old and ran them into the ground.  Our current car is our first new one.  We plan to run it into the ground as well - we just plain enjoy using stuff to its fullest.  But interestingly, by taking that approach, we save no more money than if we "rented" years 3 - 8.  (The table below shows the annual cost of the purchase price using different approaches.)  And we have a lot more maintenance costs because it already has 217,000 miles on it.  So it is actually more expensive inclusive of repairs.  We may go the "renting" route next time.

Huh.  Maybe status cars work for some of us old men, after all.