Let's talk about where the REAL money goes

There is a time for resetting expenses on entertainment, eating out, groceries, household expenses, and the like.

But my position is that too many people try to save money over the obvious things, the things they can control short-term with low effort, like buying a 6 pack for the weekend instead of drinking at the bar, or making your coffee at home in the morning instead of stopping at Starbucks.

I strongly endorse those small things as a way to help you think about how much you spend, and to get in the habit of saying "No" to excess. But real savings comes from the major expense categories. Housing and transportation top the list. Let's talk about those for a bit.

Housing: if you know where you're going to live for the next 5+ years, buy a cheap, standard house and learn how to maintain and improve it in value-adding meaningful ways while you live there. When you're ready to sell it, read the e-book called Home Selling Mastery and sell without a realtor. Buy without a realtor too, and negotiate to get a cut back of the commission that would otherwise have been paid to the buyer's agent. If any of you are in the middle of this or approaching it and require more detail, say so and I'll write it up.

Transportation: Some of you are big-city folks where frugality might mean not owning a car at all. I have no experience with that situation and won't presume to write about it. For me, I'm a small-town guy with a wife, a huge dog, and three young kids. So we're a two car family and we drive about 20-25k miles per year. I've learned that there are basically four essential principles to frugal car ownership.

1. First is, get a reliable brand. If you want a cheap car that will last to 200k-300k miles with reasonable maintenance, buy Japanese. If you look at lists of cars that most often make it past 200k miles, 90% of items on those lists will be Toyota/Honda/Toyota/Honda. So that's what I've always bought. I both buy and sell through craigslist and strongly encourage this.
2. Second is, buy used. I do not understand how it is that the car industry has convinced people who make <$50k per year in household income that they need to buy new cars with $500/month payments. I just recently purchased a 2005 Prius with ~308,000 miles on it (the odometer stops at 299,999) for $900 cash. I am delighted with it. It was well-maintained and runs great. I expect to get 50-100k miles out of it over 5-10 years with scarcely any greater maintenance costs than I'd pay on a newer car. Previous purchases include a 13-year-old Honda Pilot, 165k miles, excellent condition, single owner, no rust, no problems, for $3,800 cash. It's now at 193k miles with no mystery problems. We love it. Another purchase was a 10-year-old Honda Civic Hybrid, 155k miles, single owner, full maintenance records, for $4,000 cash. I bought that in 2013 and sold it a few weeks ago for $500. Regrettably, I failed to maintain it properly (I didn't know the importance of paying the extra $1 for undercarriage washes at the carwash after winter driving on salty roads). Progressive rust led to a host of other problems and I recently sold it for $500. All of these car sales and purchases were made through Craigslist, which is in many ways the perfect medium for modern peer-to-peer car sales. If anyone wants a guide on either buying or selling used cars through Craigslist, I will take the time to write it.

3. Third is, maintenance. Especially, understand the maintenance required around the elements whose failure will essentially total an older used car: engine, transmission, and rust. I do my own car maintenance, but you can still be frugal in paying a trusted mechanic to do routine maintenance on schedule.

   1. Engine: Oil changes and coolant changes.
   2. Transmission: Transmission fluid changes.
   3. Rust: Do what I didn't—If you live in areas that use road salt, get frequent undercarriage washes during the winter.

4. Fourth is fuel efficiency. For a commuter car where you don't need lots of cargo space, and if you drive over 10k miles per year, there's really no excuse for most of us not to have hybrids or electric cars. That's strictly a statement about financial stewardship, not environmental stewardship. Compare 45 mpg in an older used Prius driven normally to 35 mpg in some of the best non-hybrid commuter cars out there. That's a really conservative estimate of the benefit of a Prius. If you drive 15k miles per year, that's 95 gallons of gas per year, so $200-400 in savings depending on gas prices and where you live. That money is just being thrown away. If you have never driven a hybrid and are suspicious of them, at least give it a chance and test-drive one or borrow a friend's before your next car purchase.

Thanks for reading. Over and out!

January 08, 2019 at 08:40AM