In America we love our cars
We buy them, we customize them, and we turn them into music halls. If you read yesterday’s article you will recall I gave an example where someone would work 77 weeks just so they could buy their vehicle.
Yesterday’s vehicle example was $46,000.
Today’s vehicle example is a $93,000 van that was driven by my frugal wife. How can a frugal person have a $93,000 minivan? Well actually, the van did not cost $93,000; it SAVED us $93,000.
Normal in America is to finance a vehicle for five or six years. Typical payments are in the $4-500 dollar range. When it is paid for the owner typically makes a trip to the dealer to start the process all over again. The result is a $400 or higher payment for most of their driving years. (Note: Edmunds.com “suggests” using up to 20% of net income for car payments. Edmonds is normally a good source of information but this recommendation is just really bad advice).
Back to our story
We bought the van when it was two years old. The original owner lost 40% in depreciation in two years or an average of 20% per year. We lost the remaining depreciation (60%) in 15 years or about 4% a year. So we paid less (used) and we didn’t have a van payment for 15 years. It gets better.
Let’s use $400 as the “monthly amount” for this discussion. If you make a $400 payment for 15 years – you will pay $72,000. Remember the $1000 couch discussion? The factor we used for that discussion was 1.53 for non-tithing and 1.7 for tithing. So you multiply $72,000 by the appropriate factor. In our situation it came to $122,400. We would have had to earn $122,400, before paying taxes, to bring home $72,000 so we could make van payments at $400 a month for 15 years.
How much DID the van really cost us?
Purchase price minus what we sold it for = $12,900. Repairs = 4,100.
$12,900 + 4,100 = $17,000, x 1.70 factor = $28,900. This is the real cost of the van.
$122,400 – What we would have needed to earn to maintain payments for 15 years.
(- 28,900) -Subtract what we did earn to pay for the van and its repairs
=$93,500 – True savings of what we did not have to earn during this 15 year time period.
No payment for 15 years
In our situation, we saved around $93,500 by not having a van payment over that 15 year period. Let me clarify. By driving and repairing this vehicle for 15 years instead of buying new cars and having continuous payments, I did not have to go out and earn $93,500 (gross) to be able to make those car payments. By the way, this van did break down twice, needed some repairs, and it began to fade. You can pay me $93,500 anytime for putting up with fading paint, a couple of breakdowns, and some repairs. We actually sold it to a friend who got another 7-9 months of use out of it.
In a future article I will go through the steps of how to get the most value out of your vehicle.
You have a choice, and the choice is yours.
My Financial Life Coach, LLC
Delaware, OH 43015
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Balance Up is different than most other programs because it combines Goal Setting, Financial Management, Prioritization Management, Time Management, and Life Balance into a single program. In the mid 90′s Bryan developed and delivered corporate training in the areas of Goal Setting, Action Planning, and Time Management, so he understands adult learners. Bryan has combined that experience with his experience in financial coaching to create Balance Up.
- How Much Does a $1,000 Couch Cost? (myfinanciallifecoach.wordpress.com)