Monday, October 5, 2020

Vehicle Expenses

 

The second largest expense for most people is the expense of a vehicle.  This area is where most people have the biggest opportunity to make progress on building wealth, but they squander it.  This year my hot water heater died after 10 years of service.  When the plumber asked me if I had a preference for a replacement hot water heater, I told him “I’d like a reliable low cost hot water that gets the job done.”  This same logic should be applied to vehicle purchases.  However, so many different emotions get rolled into a car purchase because other people will see us driving it.  We link our vehicle to our self worth.  We want cars that tell people that we are a success.  We don’t want a used cheap vehicle because we think it shows others that we aren’t successful or don’t make a lot of money.  You must get past this mentality.  This mentality keeps you making large monthly payments on vehicles that hurt your opportunity to build wealth.  Vehicles go down in value over time and therefore are very rarely an investment.  They are not a  wealth building tool and you should divert as much of your income away from vehicles as possible.  I drive a 2007 Honda Civic (13 years old) and my wife drives a 2009 Toyota Sienna (11 years old).  We bought both of these vehicles new and planned to keep them as long as they run.  These vehicles have been amazing for us and have helped us keep our monthly vehicle payments low (see the graph below).  




Our highest monthly vehicle payment year was 2009 when we still had payments on my Civic and we bought the Sienna.  Notice in the graph above that 2009 was our second lowest year for savings.  Once we paid off both vehicles in 2013 our monthly savings began to take off.  Some of our monthly savings has been diverted to a vehicle fund as we plan for the purchase of our next vehicle with cash, but I’ll discuss that in a future post. 

  To sum up lessons related to the vehicles you own and how they influence your ability to become a millionaire.

1.       Treat the purchase and ownership of a vehicle the way you would a hot water heater.  This removes the negative emotional elements of vehicle ownership.

2.       Purchase a reliable make and model and plan to keep the vehicle a minimum of 10 years.

3.       Try to pay cash for your vehicle.  I didn’t in my first 2 vehicle purchases, but I plan to for all future vehicle purchases.

4.       If you have all your vehicles paid off, try to keep it that way and put the money you would have spent on a car to work by investing or saving it.

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The Real Millionaire

 I am a 39-year-old man with an amazing wife and 4 awesome kids.  I am also considered a net-worth millionaire.  Achieving this goal has alw...