Are cars a big deal to you? Do you really like cars, and allocate a significant part of your budget to them?
Not me. At this point, I only spend on gas, oil changes, and the usual routine ongoing expenses with driving a car. The car itself is paid for, which is nice. What’s even better is that not much was spent on it to begin with. It’s a Honda Accord that I bought a few years back, and it was 2 years old when purchased.
Well, I suppose I shouldn’t say not much was spent, since I could have (should have?) picked up something cheaper. It just seems like an inexpensive car compared to what I see many other people driving, including some I know. Including a person who just recently told me that he bought an new Audi. This car goes for somewhere in the range of $50k when new.
I’m sure he makes a fair amount more than me, based on what I would assume about the situation. So, he can afford it while I can’t.
Sure I would like to drive that car. Sometimes it can be hard to avoid those little sparks of envy. After all, no matter how much I think keeping up with the Joneses is a waste of time, I’m only human. But I’d more like to be able to afford to have the choice to buy it. Knowing full well I wouldn’t actually buy it!
Analyzing how much more it cost to drive the expensive car was an exercise that made me feel better about it. Here’s the thing: the difference in the purchase price of those 2 cars is around $35k. Not a small amount!
Looking at this further, let’s assume that each car is driven for 7 years. This means that an incremental $5k per year was spent on the more upscale car by this guy. That comes out to just over $400 per month. It doesn’t matter if it was purchased up front or not, this is the effective price paid to use the car, regardless of payments.
Let’s assume he drives the car only 1 hour per day. That’s very likely too high of an estimate, since I believe he has a commute that isn’t more than 15 minutes each way. But let’s say 1 hour per day, to account for more driving on weekends. That means around 30 hours per month. To be even more generous, let’s go ahead and tack on another 10 hours. So let’s make it 40 hours of driving per month, which I’m guessing is more than what he actually drives anyway.
Doing the math, he’s spending $400 per month extra for 40 hours of an upgraded ride. Meaning, just over $10 per hour!
Would you pay $10 per hour of driving to upgrade your car? I sure wouldn’t. That wouldn’t make sense, or be worth it.
Yet, that’s essentially what this guy is doing, compared to a more modest yet solid alternative.
I know I’m probably rationalizing this a bit, but it makes me feel a lot better about the gently used car I bought and am still driving 🙂
My Questions for You
Have you ever thought of the costs of upgraded or expensive alternatives in this way?
Would you pay that much more for a better ride?
Are there any other purchases that you have made that have been worth the incremental costs, when viewed in this way?
IMO the average middle class person should not even think about buying a new car as they cannot afford to take the hit in depreciation that that car will suffer. Think about the effect on your net worth and on your wealth building. Buy used with cash and you will be in a good position with your transportation and your net worth.
Certainly, whether new or used (I bought used as you suggest), the average middle class person should think twice before spending a lot on a car. Good point on depreciation with newer vehicles.
We have one really expensive car. We are thinking about getting rid of it when I make the freelancing switch as we won’t really need it. We do love cars though. Everyone has something that they “love” right?
Michelle – true, everyone has something they love. Life is to enjoy after all! We just have to keep it real, and remember that there is an opportunity cost to keeping expensive things that are wants and not needs. As long as we’re ok with this, it’s up to each of us to do what works individually!
Thanks to amazingly effective marketing, cars seem to occupy a special place in the American psyche. The cost per mile or hour driven is astronomical, yet we feel cars are an absolute necessity and generally don’t think of the cost of each trip as anything more than the gasoline burned (if that!).
In fact, according to AAA, the 2013 average cost to drive a car is about 61 cents per mile or $7,000 per year (assuming 15,000 miles driven per year). Drive 4 miles roundtrip to get that gallon of milk and you’ve just about doubled its cost!
Looking at incremental costs is enlightening, especially when it comes to driving, because the big costs–capital, insurance, maintenance–are fixed or semi-fixed.
Great stat – 61 cents per mile! That can add up, no question about it. I see it the way you do about incremental costs, in that they can be eye-opening. Often times they get overlooked because the bigger expenses get the bulk of the attention/focus.
This doesn’t even account for the increased fuel costs and insurance liabilities! This is a great eyeopener for those looking into higher-end vehicles. By average costs like this, it doesn’t feel like a bargain.
-S.
Sam – I know, it’s eye opening even without those costs. And as we know, those other costs can add up too.
It’s funny because when I drove a Mercedes (which was not expensive for me because it was an older one and a hand-me-down), it wasn’t the expense that scared me away, it was how out of my way I had to go to do anything! Half the time repair places couldn’t find the specific part and it was a hassle to do. Although I have to admit to not loving the expenses, too!
There you go Tushar, with a good example of an alternative expense: time!
Hi
This car discussion is very interesting because there is so much involved in the decision of buying a car.
I wrote also in the “car longevity” thread.
From a purely “money” point of view, it is always cheaper to keep your old car. No matter what repair it needs, it will always be cheaper than buying a new one. When I say “new” I don’t mean absolutely new car of the year. Just a more recent one. It is, a previously owned car.
Ok, I have never bought any new car. Just used cars.
Im 38 y.o.
When I was 30 (8 years ago) I bought my first car, it was a Chevrolet Cavalier 2000.
When I was in college I did not have car, my dad lend me his from time to time
When going professional I didn’t have a car until I was 30. Well, my brother used to lend me his from time to time.
When I went back to school in grad college I did not have any car
Im 38 y.o.
I recently bought a Honda Civic 2010 and sold my old nice Cavalier 2000 to a good old friend.
You know, Im afraid there was really not any objective reason to ditch my old Cavalier, I kept it in very good shape and it was running great. My friend and his wife they are very happy with it and I know they are right because I took good care of it.
Now, Im afraid there was a good deal of vanity in buying this Honda Civic, it costed me about 14k and I bought it with cash after a year saving for it while I sold my Cavalier for 3K.
Ok, but I chose Honda Civic because after more than a year researching every soul I asked told me “Honda last forever”. This Civic was only 5270 miles when I bought it a few weeks ago.
I don’t drive much, I use public transportation for almost anything and as Im single and I have no kids, my driving needs are not really much. You, know my Cavalier was 56420 miles So you can see I don’t drive much. Driving for me is only worth for socializing, going with your girlfriend or relatives or for buying groceries
So again, from a purely objective point of view, I could have kept the old Cavalier.
So Im afraid I bought this Civic more as a matter of joy.
But now that I have it I have had some buyers remorse, second thoughts. It is too much of a car for me. Really, too much luxury and too much technology and gadgets on it. I feel as if it is too much of a car for my needs
For me, it is pure luxury
Im a frugal guy in almost all aspects of life. I buy good quality stuff only because they are gonna last long. For instance, I buy good quality pants and shirts because I know they last years. It is not to say I buy fancy fashion pants and shirts. I just buy good quality, not fashion fancy boutique stuff.
Ok, this civic has power sunroof. What for? I feel strange inside a car with sunroof, I think I had never been inside a car with sunroof before. Now, this Civic has an extremely nice sound system, it sounds amazing. Again, what for? I feel strange!. It has all sorts of things for making your seat too comfortable. Seat up, seat down. Lateral mirrors are electric, you can control them with a small button on your left. It has Air Conditioner. What for? I dislike air conditioner, Im always fighting people at office about shutting down air conditioner. It has all sorts of niceties that I just cant get used to it.
I feel strange.
So for me, I can’t imagine any more luxury than this car
Also, it looks amazing. Really, the style is gorgeous, it is a red coupe that shines brightly and looks great. I even like it more than any Mercedes or Audi or BMW. It is just my taste, of course.
Sometimes I just feel it was too much of a big jump going from my austere Cavalier to this Civic.
I plan to have this Civic for at least 15 years but ideally 20 years.
But I can’t avoid this buyers remores because I could have done well with a much cheaper vehicle. But I wanted Honda’s quality as a proof of longevity. Logevity is what counts for me, reliability. I know this Civic is reliable,
I think I wanted something reliable and I felt my Chevy Cavalier was no longer going to be reliable, I felt as if it has crossed the optimum point and from here down and down no matter how much a care for it.
If you ask me, my Cavalier was running great, no problems. Still I felt I wanted a newer car.
I wonder if I did a good move, Im unsure….