Category Archives: Cars

Why is it So Hard to Get Ahead?

Posted on May 9, 2013 | 4 Comments

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Broken piggy bank

It doesn’t take a genius to realize that if you spend every dollar you earn, you’ll never build up savings. Everyone knows that if you want to buy a car or house, or ever be able to retire, you need to save money. So why do so many people fall so far short of their goals?

It Takes a Long Time To Save That Much

Saving up a down payment for a house requires a lot of dedication for an extended period of time. When you first decide to start saving, you’re motivated and excited at the prospect of owning a house. But two years later when you only have $10,000 saved and you need $50,000 for a down payment, your motivation may start to wane. Skipping restaurant meals and shopping trips wasn’t so difficult when you were gung-ho about your goal, but after months and months of sacrifice, you may begin to feel like you’re never going to make it to the goal, so why bother trying? May as well enjoy your life now and worry about the future tomorrow, right?

They Think Only About Cash Flow

When it comes to car buying, the first question most people ask is, “what’s the monthly payment?” This is the wrong question to ask. Dealers are more than willing to accept a tiny down payment and stretch out a payment plan for 6 years or more to reduce the monthly payments. Paying $400/month for your car may not sound like such a bad deal right now,  but what happens if you lose your job two years from now and can’t make the payments any more? Are you really willing to bet on your job security for the next 6+ years just so you can have a shiny new car? On top of that, though your monthly payment may seem manageable, over the course of 6 years, you’ll be paying thousands of dollars in interest, which is just plain silly.

Retirement is So Very, Very Far Away

Even home ownership is a short term goal compared to retirement. Many people in their 20′s fool themselves into thinking that they have so much time until retirement that they don’t have to worry about it yet. Also, while you’re early in your career, you’re rapidly learning new skills, focusing on career advancement, exploring new possibilities, and are generally excited about work. The prospect of working into your 80′s doesn’t sound so bad — after all, your job is great! So why bother putting money into your 401(k) when you’re going to keep working forever?

Expensive Things Must Be Better

For many people, they just have an impossibly hard time accepting that pricing is not always based on value. “This shirt costs $50, so it must be higher quality than that one which only costs $20.” “I need granite counter tops because everything else is such poor quality.” “This apartment is too cheap, there must be a catch!” (Ok, there probably is a catch, but it may be something you’re perfectly happy living with, so don’t write it off until you dig deeper.)

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Posted in Cars, Frugality, Houses, Retirement, Saving

If You’re Broke, Act Like It

Posted on December 14, 2012 | 9 Comments

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empty pocketsI have an acquaintance who is going through some tough financial times right now. She tells me her job doesn’t make her very much money, and her car was recently totaled in an accident. She is, in her words, “broke.” To afford the monthly payment for a new(er) car, she had to move to a considerably cheaper apartment, though apparently her parents are still helping her out with rent and the car payment. I feel for her, but at the same time, I wish I could shake some sense into her. She’s made several financial missteps up to this point, and though she’s slowly getting better, she still has a lot of progress to make.

Despite my advice to the contrary, she bought a late model used car (I believe a 2010 or 2011) rather than a much older model. I was peeved by her insistence on buying such a new car when her finances were in such poor shape, but I saw glimmers of hope when she was willing to relocate to a cheaper apartment and shop around aggressively for the best car insurance rates. But I lost it a little yesterday when I saw her boasting about her frugal ways on Facebook because of her “bargain” purchase of a $300+ dress for 60% off. 60% off is great, don’t get me wrong. But there’s nothing “bargain” about a dress that still costs $120+, plus tax and shipping & handling. She’s making good progress in some areas, but she still doesn’t quite understand the kind of sacrifices you need to make when you’re broke.

There are a lot of different things going on with her situation, so let me try and break it all down into a few actionable items. Unfortunately, it’s too late for her to fix some of her mistakes, but hopefully others can learn from them.

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Posted in Cars, Frugality

Financial Lessons From My Fiancé

Posted on December 10, 2012 | 22 Comments

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Couple MoneyRounding out this series, I thought I’d add some financial lessons I’ve learned from my fiancé. For previous installments, see what I’ve learned from my mother and my father.

My fiancé had a very different upbringing than I did. My father was a salaried professional who recently retired from the job he’d held for my entire life. My mother was a stay-at-home mom for most of my childhood. They’ve been happily married (and living in the same house) for 35 years.

My fiancé’s parents on the other hand had separated a couple times throughout his childhood before finally getting a divorce not too long ago. His father moved his family around the country buying up businesses trying to turn a profit. As my fiancé puts it, it’s not that he was unsuccessful making a profitable business, it’s that he got greedy and would cut corners so he could pocket more money, over-expand the businesses, and turn down offers from buyers because he was holding out for more. He ended up selling most of his businesses for about what he bought them for in the first place, and had to take a loss on a few of them. At one point when his parents were separated, my fiancé lived with his mother on food stamps. This is all to say that my fiancé had a radically different childhood than I had.

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Posted in Cars, Frugality, Saving

Financial Lessons From My Mother

Posted on December 6, 2012 | 10 Comments

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financial advice from mom

This is neither me nor my mother. But we both have brown hair, so close enough!

Our parents have a lot to teach us, if we’d just listen to them. You spend most of your teenage years thinking your parents are the least cool people on the planet, so surely anything they say isn’t worth listening to. Then you go to college and bask in the freedom of not having to hear your parents constantly giving you advice. It’s a great time. Finally you join the real world where you slowly but surely realize that all that advice your parents had been giving you over the years was for your own good. Thankfully, your snotty teenage self did absorb some of the things your parents had told you, even though you ignored it at the time.

Looking back, there are several things I learned from my parents that have proved to be invaluable. Today, I’d like to talk about things I learned from my mother.

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Posted in Cars, Frugality, Investing, Life

Time to Buy a Car

Posted on May 18, 2012 | 2 Comments

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Well it looks like it’s that time. My car has been having vibration issues for a while now, and I finally took it to the shop to get checked out. I know absolutely nothing about cars, but my boyfriend had a few theories as to what might be causing the vibration, and guessed it would cost about $500 to fix. My boyfriend definitely knew what he was talking about, but unfortunately it turned out that ALL of his theories were true, and to fix the multitude of issues with the car, it would cost around $3000. Since Kelly Blue Book estimates the car’s value to be around $2500 if it were in perfect condition, this looks to be the end of my car. When I told the guy at the shop that I don’t think it’s worth it to put $3000 into a 1998 car with 162,000 miles when KBB says the car is only worth $2500 in perfect condition, he responded “if you’d rather spend 60 months making payments on a new car than a few months making payments on this one, be my guest.”

I didn’t really know how to respond to this. First, I thought it was a pretty well-established rule of thumb that if the repairs cost more than the car is worth, you shouldn’t do them. Second, this guy either thinks I’m going to go out and buy a $40,000 car or he doesn’t understand the concept of risk. If I put $3000 into a 14 year old car with 162,000 miles, I have no idea how much longer the car will last until it needs another costly repair. It might be five years, but it also might be just one. If I instead buy a newer used car with low mileage for about $15,000, I can be reasonably sure it will last me for many years. If I get a certified used car, it will also likely come with a warranty that would cover most major repairs for at least a few years, depending on the age and mileage of the car. Driving 12,000 miles/year, it would take me 11 years to drive a car from 30,000 miles to the 162,000 miles I have on my current car. Assuming I get a reliable car with a clean history (which I of course will), I should be able to go through those 11 years with minimal repair costs.

Then there’s the psychology around sunk costs. Intellectually, I know that if I pay $3000 now to fix my car and then the engine needs major work in two years, that $3000 shouldn’t affect my decision about the engine, but psychologically, sunk costs are really hard to ignore. The natural response is “if I get rid of my car now, that decision I made two years ago to repair my car wouldn’t have been the right choice. I need to continue driving my car so the $3000 repair is worth it.” But the problem is, in order to make the $3000 repair “worth it,” I would have to pour more money into an even older car, taking on even more risk. It would clearly be a bad decision, but I know that even with my knowledge of sunk costs, I’m not immune to psychological tricks. I don’t want to risk putting myself in that position.

So it’s time for a new car. I unfortunately don’t have $15,000 in available cash, so I will have to take out a loan. My boyfriend and I already carpool to work, so we’ll just use his car for a little while while I pull together as much cash as I can for the down payment. We may even get rid of his gas guzzler as well and consolidate to one car for both of us, which would significantly bring down the size of the loan we’d need. Perhaps there will be another post on the topic once we start shopping around.

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Posted in Cars