What does that even mean? For most of my life, I didn’t know. Money came in and money left. I rarely (if ever) kept track of how much money I spent on this or that. This started to hurt me in high school. I wanted to go to college of course, and I actually had a pretty solid summer job through my high school years. I probably pocketed $7,000-8,000 each summer. I was into cars, so I spent a decent amount of my money on the occasional modification for my Mustang (yeah I was one of “those” high schoolers). I’ve always been a tech guy, so I had a smartphone in high school, an iPod, I bought a digital camera and I had an HP laptop too. Between all that stuff, buying gas, taking girls on a few dates, and just being a moron in general when it came to money, I didn’t have much to contribute to college when my senior year rolled around. Honestly, I can’t even blame my parents for this. To their credit, they taught me about credit card debt, spending less than you make, and saving. Shoot, I even took a personal finance class in high school. I knew a decent amount about finances, but like many things, if you don’t put what you know into practice, it does very little good for you.
Fast forward a few years, and I found myself with my first “big boy” job as a general manager of a hotel. I was making $45,000 a year as a 24-year-old (I also quickly got a raise to $50k). My rent with utilities was just over $500. I was only shelling out 15% of my paycheck for rent and related expenses. And at that age? I should have (and could have) been killing it. Instead, I was killing my bank account with sheer stupidity.
I thought I needed a car to fit the image I thought I needed to have. I was having success, and my ’98 Buick LeSabre didn’t scream “general manager” to me, so I sold it… to my much smarter, fiscally conscientious roommate at the time. But that is a different story. There was nothing wrong with that car. It was comfortable, pretty quiet and great on long road trips. The insurance was cheap, it was decent on gas, and I really should not have had any complaints about it. But I thought I could afford a nicer ride. So I went down to a local dealership and pulled out $17k worth of car loan to finance a 2010 Ford Taurus SHO. A quick rabbit trail: that car was awesome. 365 horsepower from a twin-turbo V6 is enough to embarrass some sports cars from a stoplight. That’s what attracted me to it, it was one of those “sleepers”. See, told you I like cars! It’s a weakness of mine.
Overnight I went from having a paid-for, reliable vehicle that I paid $400 a year to fully insure, that got 25-30 miles per gallon, and took regular (cheaper) gas, to a car that I had to pay $280 a month on, cost me $1,200 a year for insurance, and almost never cracked 20 miles per gallon. To make matters worse, it guzzled more expensive premium gas. Even all those expenses aside, my stress level regarding my car went up exponentially. With the Buick, I didn’t treat it badly, but I also didn’t freak out if I hit a pothole, got an unavoidable chip in the paint from rocks flying up on Montana highways, or if my buddies and I piled in after a hike, smelly as all get out. It was a functional car that I didn’t worry about. With the new ride, I felt like I had to keep it clean all the time, didn’t like it when people slammed the doors… you get the idea. It made ME more obnoxious.
I had that car for less than a year. It stressed me out, it was more car than I needed, and at the end of the day, it really bit me… In the end, it lost almost $5,000 of its value. And just so you know, a bank doesn’t care how much your car has depreciated when they go to collect on your outstanding loan balance. All in all, it was a really terrible financial choice.
I think I could go on here. But you get the idea. A few things I’ve learned that I am now practicing that help me “live within my means”, and may be able to help you too:
- Nobody cares what car you drive!!! I now have a paid-for, cheap 1993 Mazda Miata. The funny part? I have gotten more compliments from people on THAT car then I got on my Mach 1 Mustang AND Taurus SHO combined. It almost makes me cry.
- Not having a car payment frees up a bunch of cash each month that you can use to pay off debt, loans, or if you are smarter and farther along than me, you can start saving CASH for your next newer ride. Keep that no-loan thing rolling!
- Older, less flashy cars are almost always cheaper to insure, put gas in, maintain, and operate overall. As a bonus, you won’t worry about a ding or a scratch here or there.
These are just a few things I’ve learned regarding car loans, used and new cars, and living within my means. If you haven’t made the mistakes I’ve made in buying and selling cars, please take my advice and hear it from me first: the new car’s not worth it!