Living Within Your Means

I drive a 20-year-old car. I bought it used, when it was five years old, and I’ve driven it for 15 years. I’m not sure how many miles it has because the odometer broke five years ago at 134,000 miles. It leaks oil so I keep a newspaper on the garage flood to absorb it, although it doesn’t leak so much that I have to add any between oil changes. The rear wiper doesn’t work, and the cruise control buttons on the steering wheel are all melted or busted. The passenger window doesn’t go up and down anymore because the motor went out and I put a 2X4 in there to keep it up all the time. One of the latest things to go out were the dome lights, and there’s some kind of clicking going on under the console.

Yet, keeping this car so long has been one of the best decisions I’ve ever made.

I keep a spreadsheet that reveals a “Cost per month” for all of the cars we’ve owned recently. You take everything you’ve ever spent on a car (payments, repairs, maintenance, insurance, and even fuel), less the current value of the car (the amount that you could sell it for), and this gives you the total expense you’ve invested in the car. Then divide that by the number of months you’ve owned it, and that’s the “Cost per month.” Here’s what this is for that car:

Cost of Payments: $16,000
Repairs & Maintenance: $2,500 (mainly oil, tires, and batteries)
Insurance: $9,000
Fuel: $18,750
Total Expenses: $47,250
Current Value: $1,000
Total Cost / Investment: $46,250 / 180 months = $257 / months

In contrast, we bought my wife a new car in 2013, and we’re making payments of almost $600 per month for 6 years (although, fortunately at an interest rate of only 1.5% interest). Here are its numbers:

Cost of Payments: $16,200 (with nearly four years of payments to go)
Repairs & Maintenance: $300
Insurance: $2,700
Fuel: $3,000
Total Expenses: $22,200
Current Value: $3,000 (Value less what we still owe)
Total Cost / Investment: $19,200 / 27 months = $711 / months

What’s interesting to note is that instead of driving my same used car for 15 years, I could have bought three new cars during that time. I would have had 15 years of high car payments, and on each one of those cars my “Cost per month” would have probably been $700 to $800 per month.

Could I have afforded to do that? Probably so. I make decent money. Did I deserve three new cars during the time I drove my used car? I probably could have made that argument too. I’m entitled to it as much as the next guy. Why not drive a new car every five years? It would have certainly been more stylish to do so.

The reason I have driven my used car for 15 years is that I wanted to live frugally–within my means. My cost per month was only $257, but had I bought those three new cars instead, my cost per month would have been $500 more than that. I would have spent $6000 more each of those 15 years, but instead I chose to save $90,000 over 15 years.

And yet, my frugal living did not cause a negative impact on my transportation. I got everywhere I needed to go, whenever I needed (or even wanted) to, although probably not quite as comfortably. And I was able to use the $90,000 I had saved on other things, such as retirement savings, gifts for the grandchildren, and family vacations.

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