There comes a time in every frugal man’s life when financial temptation comes to call. You have to ask yourself; am I thriftily walking my penny-pinching talk? It’s an important moment.
Open Mouth, Insert Wallet: If you preach simplicity and thrift, but leap at the first opportunity to upgrade to a 60” Plasma TV you don’t need because it’s 15% off, you have to accept that you’re a fraud of Televangelist proportions. My own test came this past month when I was given the opportunity to receive a free car. Said potentially free car would be given to me by my sweet old Granny. It’s a 2006 Buick Lacrosse – boxy, slow, pearl white (of course), and waddles like a drunken penguin. But with only 19,000 miles on it, Kelly Blue Book lists it at close to $12,000 for an expected dealer price, so by any definition this was a ridiculously good deal.
Courtney and I had been saving to replace my Mitsubishi, a fast and fun rally car, which was approaching 8 years and 160,000 miles. I had visions of something more family-friendly (no, there is NO news!) but still with a little flash and fun built in. Although value and practicality are my highest priorities for any purchase, I’m enough of a guy’s guy to want a little ‘cool’ in my car. Court encouraged me to accept the car only if I would be happy with it, not just because it was free (she’s kind of awesome).
Obviously, there was only one thing to do in a case like this: to the Pro/Con list!
So I took it, gratefully (with flowers sent to thank Granny), and did what any good money nerd does to salve his ego; I ran the numbers. And I was reminded that passing on even a single car purchase can have a very powerful effect on your finances…
Drive Your Retirement! Let’s say we spent $12,000 buying an equivalent car. According to Edmunds.com, the value of a typical $12,000 used car today drops to around $3,000 after 5 years. That’s a 75% loss on our money. Taking the Granny deal, let’s say we put that $12,000 into a good mutual fund instead; a ‘No Car Fund’ if you will. Assuming 10% average returns (you may adjust up or down according to your personal cynicism/optimism scale) we would have nearly $20,000 in the same 5 years – over SIX TIMES the value of that hypothetical purchased car! Even if we never skipped another car purchase or put another dime into the No Car Fund, that $12,000 seed would grow to over $90,000 in 20 years, and almost a quarter of a million dollars by retirement age! That’s a major deposit on our future for the price of just ONE car purchase.
Questions Worth Questioning: Yes, this is an unusual example; being handed a free car is rare but focus on the concept. The same math would apply when considering a $12,000 car instead of a $24,000 car, for example. The idea here is to start asking some questions about how we view and purchase cars. Are they necessities? Are they luxuries? Somewhere in between? Perhaps we can put the concept of the car opportunity cost to work to recoup at least some of this money without giving up the convenience. Can we get by with less expensive cars? Can we do with one car instead of two? Can we work harder to extend the life of our vehicles through proper care and maintenance and by using public transit or our own resources (biking, walking) more frequently?
The opportunity may be worth answering some of these questions for yourself.