It's funny. Fifteen years ago, daily personal finance was a chore for me. I didn't understand how to go day to day making smart choices that were aligned with my values. I wasn't even sure what my values were!
Today, things are much easier. Sure, there are challenges. Sometimes I make poor choices. But mostly, what I spend aligns with what I want out of life. (With the caveat, of course, that who I am and what I want shifts over time.)
I'm glad I've developed good habits. Right now, it's keeping me from making a rash decision. For most of 2019, Kim and I have both been fighting the new-car itch. The old J.D. would have succumbed by now. This year's model still does dumb things like spending hours building custom cars on the Mini website, but so far I'm not scratching that new-car itch.
Instead, I've come up with a plan, a path to a car purchase. And Kim has come up with a plan of her own too.
My Plan for Purchasing a New Car
“Look at this,” I told Kim a couple of weeks ago. I carried my laptop over to show her my latest Mini design: a super-powered orange convertible that makes no sense for our lives.
Kim shook her head. “You've got to stop going to the Mini website,” she said. “And you especially have to stop using that build-your-own-car tool. That's dangerous.” She's right.
Earlier this week, as Tally and I strolled through the hills and picked blackberries, I did some serious thinking about if/when I should get a new car. I think I've gained some clarity.
Sure, if I cashed out some of my investments, I could justify making this purchase today. But, as I learned last year, this sort of action carries a huge tax consequence. If I sold investments to buy the car, I'd effectively be paying a 15% premium to make the purchase. I'm not willing to do this.
Plus, it's hard for me to rationalize paying so much for a new car. It's crazy how expensive vehicles are these days. (Do I sound like an old man yet?)
Speaking of being an old man: The one thing that even allows me to consider a new new car is that I'm getting older. I'm fifty. It's highly probable that if I purchased a new vehicle, it'd be the last new-vehicle purchase of my life. (I tend to keep my cars a long time. I can see that at 67 or 70, I'd buy another used car because a new Mini would last me until then.)
While the dog sniffed the roadside for rabbits, I formulated an actual plan for buying a new car. I decided that there are three conditions that would lead me to make this purchase. From least likely to most likely, those conditions are:
- Interest rates on auto loans drop low enough for me to justify making payments. As I said, I don't want to cash out my investments to buy a car. My monthly income has reached a level where I could conceivably use part of it to pay for a car, but I don't want to pay a lot of interest if I do. Right now, the U.S. national average for a 60-month loan is 4.21%. That's too high. 0.0% would be low enough, obviously. But at what level would I be willing to take out a loan? I'm not sure. I think 2% may be too high, but 1% is okay.
- My current Mini Cooper dies. My car has had a couple of major repairs since 2016, but mostly it runs fine. There's no rush to replace it. But if it were totaled in an accident (heaven forbid!) or if something else major were to go wrong, well then I'd consider moving on to a new car.
- I save enough to pay cash for all (or most) of a new vehicle. GRS is starting to make more money. Not a lot — not like in the olden days — but some. I plan to set this aside in a car fund. Meanwhile, whenever I get lump sums, I'll stick that money in the car fund too. (I'm negotiating a project that might give me roughly $15,000 — if it ever happens.)
If any one of these three comes to fruition, I'll do pull the trigger. I'll buy a new car. (Unless, of course, I manage to shake this new-car itch for good. But that's unlikely.) In the meantime, I'll make do with the two vehicles I already own: my 2004 Mini Cooper and my 1993 Toyota truck. I like them both and they run well. They're good enough, you know?
If I could could MINI to sponsor Get Rich Slowly, I could make a fortune, couldn't I? I give them enough free advertising as it is…
Kim's Plan for Purchasing a New Car
Meanwhile, Kim is fighting a similar battle. As much as she cautions me to quit making mock-ups of my dream car, I often walk into the living room to find that she's browsing Craigslist or the Toyota site, looking wistfully at RAV4s.
Last weekend, we spent Sunday evening in downtown Portland for dinner and a Timbers game. As we walked around, she pointed out various compact SUVs. “That one's cute,” she said, pointing at a Subaru of some sort. “I like that color. What model is that? Do you think that's a 2017?”
Between the two of us, we agree that we should have one practical vehicle and one fun vehicle. Our definitions of “practical” and “fun” aren't exactly the same — I'd never buy an SUV, and she wouldn't buy another Mini — but they're close enough. Kim has decided that she's the one who'll pursue practical. For her, that means a compact SUV.
After I told her about my plan for a new purchase, I asked if she had a plan.
“Well, I'm further along in the process than you are,” she said. “You don't have anything saved for a car. I do. I have $15,000. And if I can sell that stupid motorcycle, I should have another $3500. Once I have $20,000 in my Ally account, I'll buy a car.” (Kim loves her Ally savings account. I'm not kidding. She's like a walking, talking ad for Ally — just like I'm an ad for Mini. It's hilarious.)
“You're close,” I said.
“I know,” she said. “That's why I've been looking at cars. I want to find out what's available and how much things cost. Yesterday, I called three local dealerships to ask when the 2019 models will go on close-out. They said they'd call me back in a few months. I hope I have enough saved by then.”
So, Kim's plan is simple: Once she has $20,000 saved, she'll buy a compact SUV. If she can afford a new one and can find one she likes, she'll buy it. Else, she'll buy a recent used model.
In addition, she prefers:
- A hybrid or electric vehicle.
- The ability to tow a trailer (although we don't own one).
- The ability to carry two kayaks (which we do own but don't use because we have no way to get them to the river).
- Low road noise.
- The ability to listen to podcasts.
- Good visibility all the way around.
I think she's going to be surprised when it comes time to buy. I think any modern SUV is going to satisfy her list of requirements. And based on her progress, I'm guessing that sometime this autum or winter, we'll be visting car dealerships to test-drive cars.
I know this is the second (third?) time I've written about this same subject in six months. That's because our car situation is taking up a lot of our brainwidth lately. It'll continue to do so until we have some sort of resolution.
I have no doubt that by this time next year, either Kim or I — or both of us — will own a new car. But I'm pleased that we've both resisted the urge to rush out and make a purchase before we're ready. We're taking the time to research what we want (well, Kim is, I guess — I'm just building custom Minis), and we've both formulated plans to save for the purchase.
In the meantime, I should thank all of the GRS readers who have left comments (or sent me email) with tips for getting better deals. (My favorite? Find a part of the U.S. where my chosen car sells poorly. Buy the car there for less, then drive it back to Portland.)
There's a little voice inside my head that says, “J.D., you shouldn't even buy a new car. You don't value cars enough to justify a new one. Just keep buying used vehicles. Look how much you love your 1993 pickup. It only cost $1900!”
That little voice has a valid point. Plus, I don't drive much. I drive maybe three times per week for a total of sixty miles. I make several longer trips each year, though. I'd guess my average annual driving is around 3000 miles.
Wait! I can figure this out! We've been back from our RV trip for just over three years. I know what my end-of-trip mileage was on the Mini. Let me go see what the current mileage is…
In the 1114 days since getting home, I've driven my Mini 14,601 miles. That's an average of 13.1 miles per day (or 92 miles per week), which works out to 393 miles per month (or 4718 miles per year).
Does it even make sense to buy a new car if I'm only going to drive it 5000 miles per year? I don't know. I suspect not. That's why the rational J.D. says, “Buy used.” Or maybe I could do what my buddy Rob Farrington does: Give up car ownership altogether and just use ridesharing.
p.s. Just after publishing this, I read a great article at A Wealth of Common Sense: The Thing That's Probably Blowing a Hole in Your Budget. Ben Carlson notes that the three largest debts in most people's lives are a mortgage, college loans, and car loans. The first two can be rationalized, even for folks who are struggling financially. A new car loan, on the other hand, is tougher to argue. If you're in good financial shape, fine. But if you're not, you shouldn't be borrowing $50,000 to buy a new truck. (See also: Why your luxury car is unlikely to materially boost your happiness.)
Author: J.D. Roth
In 2006, J.D. founded Get Rich Slowly to document his quest to get out of debt. Over time, he learned how to save and how to invest. Today, he's managed to reach early retirement! He wants to help you master your money — and your life. No scams. No gimmicks. Just smart money advice to help you reach your goals.