Are You Driving Yourself to the Poor House?

Throughout the American lifespan cars are something more to people than the sum of their parts of metal, plastic and rubber.  A love of cars is instilled in many of us before we even have any idea why we would want to drive.  As the saying goes, “It’s as American as CHEVROLET, baseball and apple pie.”

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Driving cars is associated with freedom.  Most teenagers count down the days to their 16th birthday when they can go for their permit and then license.  This isn’t a phenomenon just for the young.  We typically learn to take the freedom that comes with driving for granted in our adult years.  However, talk to an elderly person who has to give up their driving privileges because they are no longer safe on the road and you will again see how driving and freedom are associated.  I witnessed this firsthand with my grandfather.  At 90 years old, we finally convinced him that he was a threat to others and got him to stop driving after the number of dents and scratches on his car began to exceed the mileage.  Within weeks, he was deeply depressed and physical and mental deterioration accelerated quickly.

Cars are also status symbols.  If you are a doctor, lawyer or executive then you drive a BMW, Audi, Lexus or other expensive foreign import because you just do.  Likewise a mini-van, Toyota Prius, full size pickup truck or sports car each have stereotypical images of the driver associated with them.  A car isn’t just a means to get from point A to point B for most people.  It is an expression of who and what they are.

On the flip side of the equation, you have early retirement bloggers saying that cars are a huge wealth killer and you should give up your car to retire as early as possible.  Day 7 of the Early Retirement Extreme Makeover is:  Going Car Free.  For a more harsh but entertaining and hilarious take on our automobile culture, I will give you this Mr. Money Mustache link about us “car clowns.”

So what do you do if you’re like us and you are not ready to give up driving AND you want to achieve financial independence quickly.  Then like with everything else we talk about here, you figure out how to optimize your own situation to get the best results for you.  We have always been a two car household.  However, when we compare our spending on cars with that of our peers we realize this is one of the largest areas where we have been able to optimize, giving us the opportunity to achieve financial independence at an early age.  Here has been what we’ve done differently.

1.)  We never finance vehicles.  The vast majority of the population purchase their cars with loans because they simply think that they couldn’t afford not to.  If you just take 2 seconds to think about this, the insanity of this thought process will become apparent.  If you are financing your cars then you are paying the full price + the cost of the financing.  Check this link to get an idea of the true cost of financing a car.  If you can somehow pay for a car with the financing, how could you possibly not be able to afford the car without the financing?  It is simply a matter of changing from short-term thinking (I need the best car now!) to long-term thinking for one cycle.  Go car free or buy something really cheap that you can afford with cash one time.  Then pay yourself what you can “afford” for a car payment until you have enough to pay cash for your next car.  At worst, you’ll have reversed the cycle if you continue to do this and save thousands of dollars on every future car purchase by forever eliminating interest payments.  More likely, you will also spend less for all future car purchases because you will see the true cost of the car purchase when writing one big check instead of tricking your brain into thinking you can afford a monthly payment which looks smaller but drains your cash.  How do you pay for your vehicles?

2.)  We take time to think about what we actually will use our vehicles for, and then buy vehicles to serve those purposes.  This may seem obvious, but again most people don’t do this.  How many people do you see daily driving full size pick-ups or SUV’s?  How many of them do you know that ever haul anything more than one or two times a year, live on a working farm or even go anywhere requiring vehicle clearance.  None the less, they freely pay more for these large expensive vehicles.  Over the life of the vehicles they then pay more to insure them, more for gas, more for the bigger tires when they wear out, etc.  We currently have a Subaru Impreza that gets close to 40 mpg for all work driving and any highway driving and has AWD for getting around in Pennsylvania’s less than stellar winters.  We also have a Subaru Outback which has higher clearance for our off-road adventures, gets us around reliably for winter skiing, comfortably sleeps both of us (and less comfortably us plus the baby) and easily hauls anything we need with the seats down and a roof rack.  How do you choose your vehicles?

3.)  We never buy new (except for one-act of stupidity).  A very little bit of research shows that the bulk of a car’s depreciation occurs between the moment if drives off of the new car lot and the first 2-3 years.  Simply putting this knowledge into action, we always bought newer used cars that have been reliable, safe, still in excellent condition AND much cheaper than new.  My one mistake was not an act of a young and inexperienced person, but rather the act of a dumb ass who after getting the house paid off decided I “deserved” to “treat myself” to a new car.  I can tell you from experience after having driven used cars my whole life that a new car provides exactly ZERO increase in happiness or life satisfaction and comes at a steep financial price.  Bonus Lesson:  New cars don’t stay new for long.  I learned this when I hit a large raccoon at about 65 mph in the Impreza with about 5,000 miles on it, causing me to get a whole new front end on my now used car!  Do you buy new or used cars?

4.)  We cut out the middle man when possible on car transactions.  In case you haven’t noticed there is an entire industry based on selling used cars.  How do they stay in business?  They get cars in trade-ins or from auctions, clean them up and then charge thousands of dollars more to re-sell them at a profit.  We all know people who are “car people” who minimize their driving and take great care of their car.  Why not ask them if they would consider selling you their car directly?  Nothing annoys someone who takes care of their car more than having a salesman try to low-ball them on a trade in offer.  Check the fair trade-in value and ask them to sell it to you for that or even $500 more and you win big and they are saved the headache of negotiating while getting what they would or more if they traded the car in.  On the flip side, sell your car directly and you will get more than you would on a trade-in with minimal effort and simplify your buying experience.  Bonus:  We have actually given away a car to Mrs. EE’s younger brother and sold my last car directly to a friend’s son at about 1/3 of its book value to help them each get started out on the right foot.  This would obviously not be the best financial decision for you or help you reach financial independence faster, but for us achieving financial freedom is about having the ability to do what we want with our money more than taking the fastest path there.  Nothing you can buy feels as good as helping out someone else! Where do you look for your vehicles?

5.)  We try to limit our driving.  Most people think about the cost of a car in terms of purchase price or monthly payments.  Much more important is your total transportation costs.  The more you drive the more gas you use, the faster your car deprecates, the faster your tires, brakes, etc wear and need replaced, the more often you need oil changes and the more expensive your insurance becomes.  This has been an area we have gotten progressively much better at.  When starting our careers I commuted 45 minutes each way 5-6 days/week while Mrs. EE commuted about 10 minutes to a park-and-ride and then paid for a bus pass further adding to our transportation expenses and another hour to her work days.  Within a year, we realized the cost of this in both time and money and moved to our current location where I drive about 20 minutes one way (25 when taking my daughter to daycare) and Mrs. EE decreased her commute to less than 10 minutes.  She recently started a job working from home, totally eliminating her commute.  We also have applied this to our recreation.  When we rock climb, we usually drive 1.5-3 hours one way.  We would typically drive in a morning, climb all day, drive home the same day and then repeat the next weekend.  We now try to leave our daughter with my parents, climb one day, stay over and climb the next morning before driving back and picking her up.  Other weekends, we will stay home with her, climb at the gym or get out in the woods near our home.  As such, we are getting out as much or more, having more time with our daughter and greatly decreasing our driving time and costs.  How can you make your driving more efficient?

6.)  We try to keep our cars separate from our egos and emotions.  As stated above, many people buy a car for what the brand or model tells others about who they are.  We try to simply be who we are and buy cars that get us where we want to go.  Are you buying your car for what it does or the message it sends to others?

7.)  We limit time wasted when driving.  While we try to limit our driving, we realize that we still spend a fair amount of time in the car.  When getting my last degree, I would listen to my lectures in the car.  I continue this habit of trying to learn something every time I drive.  I am currently working on increasing my personal finance I.Q. as I wrote about in this post about Automobile University.  Are you wasting both money and time while driving, or at least doing something productive?

In summary, I can not disagree with the ERE philosophy that the fastest path to financial independence and early retirement is to go car free.  However, with a little thought and effort and doing just a few things different than average person you can keep your car and your early retirement goals.

Elephant Eater

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4 comments on Are You Driving Yourself to the Poor House?

  1. I really like your blog! I have added it to the sites that I check in on regularly.

    With regards to this post, IMO, the cost of driving and maintaining a car has the lowest ROI of any activity, save smoking cigarettes or street drugs. Lol! Paying the US average (~$9000 per year per car) for this inefficient, trauma inducing, smog producing machine makes very little sense to me. Especially if one can find a way to avoid it (and I admit that most people cannot!) My family is a one vehicle household, with a long paid off car for my wife’s <1 mile commute and a fleet of bicycles that takes me wherever I want go, including my 28 mile commute to work. Our total monthly car expense averages out to about $110. The money saved is put to much better work than paying for another one of these silly machines…

    1. Thanks for the kind words!

      I agree with your sentiments completely. One area we have looked at when considering our expenses now verses post-retirement is the ability to become a one car household. Just by eliminating a vehicle and all of the expenses associated (inspections, oil changes, insurance, etc.) we will lower our annual expenses considerably. There is also great expense just commuting to work every day between gas, car depreciation and of course time.

      A consistent theme we share on our blog is that we live a pretty standard lifestyle but just do it more efficiently than most and this will still allow us to build wealth and retire very early compared to most. However, if you are looking for maximum efficiency, there are people much better than us in almost every individual area. (You sound like one of them here. CHEERS!) We will never tell anyone what to do with their own lives. We just make them aware that there are many options out there.

  2. Good tips on getting off the right foot when it comes to car ownership. The car is usually the 2nd or 3rd most expensive cost in a budget, so if you can eliminate those costs it will help anyone have more cash flow for investing.

    1. I couldn’t agree more. If you want to make big increases in your savings rate, most people will generally be able to have the biggest impact by decreasing in the areas where you spend the most (housing, cars, food, and don’t forget TAXES!)

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