The Financial Commandments for a Young Employee – Part 4

Commandment #4:  A Car is Nothing More Than an Expensive Disposable Tool

Our young employee, Malevolent Missy (MM) has just landed her first real paying J.O.B. and is on the path of figuring out the best use of that gravy train of cash that pulls into the station every two weeks.  It must be tempting to chug on over to the dealer and sign up for a brand new $50,000 SUV.

Slow your roll, Missy!  Let’s take a look at some associated costs and long-term affects of that potential decision.  If you missed the other parts of the story you can find them here.

The Financial Commandments for a Young Employee – Part 3

The Financial Commandments for a Young Employee – Parts 1 and 2

First Real Job as a New Graduate: Here are Some Young Employee Maneuvers

Let’s take a look at some numbers that I laid down for y’all in Commandment #3 where we calculated the cost of a fabulous new working life.  These are just some general assumptions but from the comments I think they are somewhat typical but exclude line items like a high-end gaming system or that premium GoldMember service on the Tinder dating machine.  I don’t recommend these things for any real adult but if you go down that rabbit hole please get games from Activision Blizzard, graphics chips from Nvidia, and GoldMember status from one of the Match Group companies as I own stock in ATVI, NVDA, and MTCH.

missy budget

When I calculated the car payment via an online payment calculator machine I made a few more assumptions.  I figures our heroine and caped crusader was lucky enough to have a vehicle to trade in at the rotten filthy thieving vermin car dealership for $5000 bucks.  Personally, I would just drive the $5k rig until the wheels fell off but that’s not the point of this piece.  I didn’t include a downpayment as we used a trade value and I included 10% tax and 3% interest rate on the 5 year loan.

What can our gal “afford?”

You might say that she could cut some other parts of the budget like sharing an apartment with multiple friends/roommates, which is always a great idea anyways if you can find people you trust and with whom you can get along.  Maybe the groceries are a little high or she’s lucky enough to have navigated the rotten filthy thieving American University System with zero student loan debt.  Hell, maybe she studied computer science and the take home pay is double what I estimated.  For me though, the calculated amounts for a fancy car were absolutely astounding!  We bought a car around 2006 for around 14,000 bucks and one around 2014 for around 20,000 and even making those payments made my colon clench.  If our gal Missy in the above example opted for the 25 grand model with the parameters I laid out that extra $730 a month to enjoy her new working life just dwindled down to just over 300 bucks per month.  If you really want the damned car then just be aware of the trade-off you are making.  It’s harder to put extra into that house fund or travel to exotic destinations if all your steam is spent paying for some fancy wheels.  Think of your extra money like air in a long balloon like those nerds use to make shapes and animals at the fair.  If you divide your extra into things you enjoy and then inflate the car portion of the balloon you just had to squeeze the other lifestyle end of the balloon that includes $7 Starbucks drinks and avocado toast.  If you opt for the grandly impressive $50,000 vehicle in this scenario you have not only blown your fun money budget but will likely have to cut other things like funding your E-fund or deferring your student loans.  Don’t do this.  Just don’t freakin’ do it.

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2005 Mazda 6.  Problem free for the past 12 years, except for having to clear away a foot of snow in 10 degree weather this past weekend

Oh, and there’s this if you’re not convinced yet

I calculated $140/month for transportation in the little budget in the graphic above.  That is just the cost of operating a car before you have even bought the damned thing.  I just calculated 3 years worth of expenses for just my car.  I only included maintenance, gas, car insurance, and government crap like license, registration, and safety inspections.  My calculated expense on that car is for a high insurance deductible and I only commute around 7 miles each way and rarely use the thing on the weekends.  It does include around 10,000 driving miles per year as we drive across the state 4-5 times a year and usually take one driving trip to the beach in North Carolina.  The 2018 costs included around 900 bucks for tires and around 900 for new brakes and rotors.  The rotors rust in this winter climate and I asked the guy at the garage if there was anything I could have done differently to extend their life.  You know what he said?  “No.”  So, ’16 and ’17 were inexpensive years for vehicle ownership at around $900 each for one car but ’18 rolled in around $2500!  If you must own a car then you ought to be prepared for those kinds of costs.  You can’t cry about it if you know they’re inevitable.  My average for that 3 year period was $116/month so I think $140 is reasonable for a person who drives a little bit more than us.  Let’s do another fun little calculation to determine The total cost of operating a car if you include the cost of the vehicle.  I’ll assume Missy takes the plunge and buys the Audi A3 because it’s super cool and the info-tainment system is “insane.”  She’ll do the semi-responsible thing and intend to keep it for 10 years so that’s 5 years with a payment and then 5 years with only the monthly gas and maintenance costs.

60 months x $503/month = $30,180

$30,180/ 120 months (10 years) = $252/month plus the $140/ month to operate the thing

So, the grand total is around $392/month over 10 years just for the privilege if going out and running the gauntlet of highways and other texting knucklehead drivers and such.  I don’t know about you but 400 dollars a month is a lot of money to me.  It doesn’t stop either.  You can count on these costs in perpetuity!  We haven’t even thought of the possibility you might crash the thing up or have it stolen.  Thieves love fancy cars if you hadn’t heard.  A young person is much more likely to crash a car when they think they have it all figured out.  Your rates will go up if you cause a crash.  Mark it down.  Almost all of my driving related mishaps occurred for me in my teens and 20’s when I was young and dumb.  Most of them were because I didn’t realize I was young and dumb!  So, are you getting to realize that your car is not much of an asset but just a fixed cost in your life to be minimized?  If not then I haven’t done my job very well.

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This one drove straight into the sea.

Is car ownership all bad?

Absolutely not.  You might need a vehicle if you’re like us and live in a rural area or just live in a place where public transportation sucks.  We also have that little thing called winter where it snows and makes riding a bicycle or scooter to and from work near impossible.  I know it’s not impossible, but I’m not riding a bike in the snow.  You might also have semi-frugal hobbies like kayaking or camping that almost always require you drive somewhere with your gear.  There’s another thing too.  It sure is handy and cost effective to pack up the rig and for about 100 bucks in gasoline to get at any destination within 800 miles in about a day.  It’s also handy to just drive to the store any time you want and get what you need.  Even though I don’t drive much other than to/from work it sure is nice knowing the car is there when you need it.  How can you minimize the impact of car ownership, here are some hairbrained ideas:

  • If you get a traffic ticket of parking ticket, take care of it on time.  These things multiply like minks if you ignore them.
  • Take car of your vehicle if you own one.  Find a decent mechanic who’s not at the car dealership and if you need references go and get them from somebody who’s been using a particular shop for some time.  Those places like Jiffylube and Firestone and the strip mall joints are not likely a good long-term choice.
  • If you live where it snows then wash your car a few times every winter.  If you’ve ever had a perfectly fine car fall apart due to rust you know what I’m talking about.
  • Maybe you’re lucky to have great public transportation to get to work and you can just rent a car or use some car-share service for when you need to go out of town or run big errands a couple of times a month.
  • Put down your phone and just drive.
  • Keep costs as low as you can for your needs.  You can shop your car insurance around every few years and try and drive less if possible.  You’ll save money on gas and aggravation.
  • We might consider a van to use as an art hauler next time we replace a car.  The bonus is that you can sleep in a van on a road trip.  They’re especially nice down by the river I’m told.
  • New cars vs. used cars are an individual choice.  I can see plenty of good arguments on both sides of this one.  Our last 2 cars we bought new with the money in hand to pay them right off if necessary.  I just want to emphasize the overall cost of driving more car than you maybe can comfortably afford or need.  Do some math but if your rig gets a little older you might want to set aside some extra dollars to baby the thing as long as you can.  Stuff will break.  Shit happens.

Ok, Smidlappers, what have I missed.  Did I just write 1600 words of obvious-ness?  It kinda feels that but all the Malevolent Missy’s and Derelict Dirks out there need the 4-1-1.  What’s your worst car horror story?  Are y’all convinced that a car is just a sometimes necessary cost to get you from place to place and not an asset or investment?

 

 

14 Replies to “The Financial Commandments for a Young Employee – Part 4”

  1. Great tips, but this one hits close to home for me. As much as I’ve been optimizing my life over the past 5+ years, the car has been my Achilles heel. In fact, the brand new vehicle I bought in 2012 was an Audi A3- you wrote this article about me!

    By some stroke of pure luck, I got caught up in the Volkswagen emissions scandal (it was a diesel model), and I got a buyout offer for nearly 80% of the sticker price after 5 years of driving the car. In the end, I ended up paying only about $200 per month for my luxury ‘rental’.

    I hope I’ve learned my lesson, but I’m not sure yet. I plan to drive my current VW wagon into the ground. I’ll update my comment in 15 years and let you know if I followed through.

    1. ha, as luck would have it there was an a3 parked right in front of my house when i got home last night. i almost gave in to that temptation when i bought a car in ’14. i was making a lot of money (for me) and could “afford it.” i’m glad i went for a mazda for 15k less.

      i like wagons. we might need to buy an art hauler next. i like vans because you can sleep in them. that was some great luck on that audi buyout.

  2. “Put down your phone and just drive.”

    This above all else. It’s dangerous out there folks and your risk of dying or being turned into a vegetable for life are not small. Great job laying out the costs, that’s a butt-load of money that could be invested. Kudos for steering your young employee in the right direction dude

    1. i could hardly believe the monthly cost of a 30+k car and almost 900 a month to borrow 45,000? it really never sunk in as i never had any need to know before. i look in our parking lot here at work and see why people are broke.

  3. I actually have spent a total of $8,500 out of pocket for the two cars I’ve owned thus far 😉 Fingers crossed I can go my entire life without a car payment. I’m so not a car person though, and would rather go without one if I could make it happen (without having to move).

    1. it’s great to be free of any car payment. that’s great that serviceable cars have cost you so little. we had one break down and stranded us before this but that’s what we always drove. now we’re content with one reliable/nicer one and one crappy car for around town.

  4. “I know it’s not impossible, but I’m not riding a bike in the snow.”
    Funniest thing I’ve read in a while. Thanks for the morning chuckle.

    $5K is a pipe dream if MM is currently driving a clunker. I know that this isn’t Car Haggling 101, but if there’s a CarMax near you, it’s definitely worth her taking the 1-2 hours there prior to walking into the dealership to get an estimate on what they’ll offer her for her car. It’s a print out that she can take with her, so when the dealer low balls her on an offer for her trade, she can say no thanks on the trade and go back to CarMax to sell her car and use that as a down payment. They’re not going to want her to leave, so they’ll generally try to match it. Anyway, it should help her lower her overall nut, which in turn should help her lower her TCO.

    We drive cars for about 250K miles, and so while the wheels haven’t fallen off, the cars are usually only good from a dealer perspective for scrap. At the rate I’m driving these days, my next vehicle should both be electric and self-driving. I can’t wait. Because until the cops start pulling people over for staring at their phones while they drive, the problem is just going to keep getting worse. So the sooner cars can drive themselves the better as far as I’m concerned. 😉

    1. we would go to 250k if the rust doesn’t kill ’em first. once they cost over a grand a year in repairs i usually look to replace. i’ve never heard of carmax, but that’s good info. i really detest car dealers and consider them among the lowest life forms. i had one wear me down so i gave him a bad rating. they get paid off that, so i say “you win.” i went car shopping on a football playoff sunday. my bad.

  5. I bought two brand new cars in my earlier years before I came to my senses and bought used. I wish someone would have guided me not to. Hell, my dad, who I consider to be very one savvy, has leases his whole life and wanted me to do the same. I didn’t do that, but I was saddled with unnecessary payments for so long because I thought “that’s what you do.”

    1. i always had crappy used cars until i needed a loan for a car and new was what i could get. i drove that little pickup truck for 15 years though. it didn’t even come with a radio! i’ll bet you can’t even consider going car-free in LA.

  6. Gonna put it out there- i bought the last 3 cars i’ve had brand new. with cash. Because, and I quote my husband “I ain’t fixing no more cars”. And this is for a 35 year old (ok, the first car we didn’t pay with cash, we financed and paid off in about 11 months). But don’t get a nice car. You will only cry the first time it gets a scratch on it from the parking lot.

    1. oh, i have nothing against buying new cars. i like to have the best 3-4 hopefully problem free years of a car’s life if it means i don’t have to think about it. we’re in the same boat on that one. i would advocate to save up for a car if that’s possible, like you did. i’m glad i put the first ding in the last one and not mrs. me.

  7. I was born, raised and have always lived in NYC so I never needed a car and don’t have a drivers’ license! That said, my husband loves to drive so we have a car which is one of the highest cost monthly line items on our budget. What softens the blow for us is that we do a lot of road trips and it does make a difference to be in our own car versus a rental. We can deduct some of the cost as a business expense b/c our consulting and real estate businesses require travel. There is also the psychic/ emotional benefit b/c my husband loves to drive and loves our car, and I like riding around with my husband!

What do you think? You must think something. This is the place to let it fly or just say hello.