Time for a New Car

I love to drive. I really enjoy it, long trips or short, it doesn’t much matter. I’ve driven Mercedes-Benz, trucks, SUVs, compacts, station wagons the typical gamut. Yet, I wouldn’t really call myself a car enthusiast. I like cars but I don’t like to spend money on them. I used to dream about having a Ferrari 308 GTB but since then I’ve decided that I didn’t want the headaches associated with maintaining and driving a valuable item that could be stolen or destroyed so easily. So, I let others bear the risk of expensive cars and I enjoy them from afar. Instead, I’d rather spend my money on travel.

I love to travel more than I love to drive. Now, some people say they like to travel but what they really mean is they like to arrive. They don’t really like the process of traveling. They travel only to arrive at their destination. I actually like the process of traveling, from the time I leave my front door take the train, the shuttle, the airplane, the metro and finally the cab to my new temporary residence. I’ve traveled from Rome to Hokkaido, enjoying every minute of it. When I flew to Tokyo I was so excited by the flight that I didn’t sleep the whole way. I traveled with a group of friends. After we landed, we boarded a bus to go to our hotel. Once on the bus, I fell sleep immediately and missed Disneyland Tokyo :-(. Travel memories can be treasured in a way that a car can’t. Besides memories can’t be dented. Memories don’t rust. They don’t depreciate in value. They never leave oil stains on the driveway or leave you stranded on the side of the road.

So what does all this have to do with a car. I get a lot of miles out of my cars. I don’t think I’ve ever put less than a hundred thousand miles on a car; new or used. Well, I bought a used card about 8 years ago. When I bought it, it already had about 200,000 miles on it. I’ve put another 60 or 70 thousand miles on the car.. Sadly, it’s starting to show its age. So, I need a new car, but I hate to spend money on cars. Never-the-less it is time to start shopping.

If someone were to plop 50,000 dollars in my lap, what would I do? Buy a BMW or maybe a fuel efficient Toyota or Honda? No, I’d probably put 5,000 on a good used Mini Cooper and put the rest of the money toward a trip for my family. What can I say, travel is in my blood My ancestors probably came up through Mexico with Coronado. Some have suggested leasing, which is just a tricky way to say renting. You pay for the whole car but don’t get to keep it. If you use it just a little too much they’ll sock it to ya when it’s time to turn it in.

I’ve also heard the phrase “invest in a car.” Hah! I say. A car is not an investment unless it’s a collectible. An “investment” is something that increases in value. Unless you make a profit when you sell the car it is NOT an investment. I’m analytical enough to know that a good car is worth the money. But, darn it, I’d still rather spend the money on a good trip with family or friends.

I took my son on a trip to Paris, Chartres, London, Edinburgh, Glasgow, Dublin, Limerick, Cork, and Avoca. It was a whirlwind of a tour in a tiny car. We covered about 2,500 miles in a week. We spent less than $2,000 on a collection of memories and stories that will last a lifetime. Cars are fun. And I admit, I’d love to drive a new BMW 325i but I’d rather spend a month in Europe and Asia showing my family the sites for the same amount of money. What’s most important to you? Are you taking steps to get it?

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The Cost of a Dream

Nothing is Free

Everything, I mean everything costs. You may not be able to associate a dollar figure with it but it costs you time and energy. Are you spending resources on something that is of value to you? Do you have a dream? I hope so! Do you have a plan to accomplish that dream? You need one you know. No great dream and few middling ones were ever accomplished without a plan. Part of a good plan is a cost estimate. You need to count the cost before you pursue your dream. Knowing the cost helps you stay on track. Knowing the cost helps you prioritize life’s activities.

Effective Cash Rate

Try this technique to help you measure the true cost of goods, services, and activities. I call it the Effect Cash Rate (ECR). Take your last pay stub and divide your net pay by your gross pay. Most likely, you will get a decimal fraction between .7 and .99. If you give 10% to your church and another 2% to charities, on average, subtract .12 from the number. Here’s an example, Myra divided her net by her gross and came up with .9042. We’ll drop the last 2 digits and just use .90. She regularly gives to a variety of charities a total of about 13% of her weekly income So, .90 - .13 leaves her with .77.

Using the ECR

Myra’s dream is to spend a month in Paris studying the architecture of Notre Dame de Paris and visiting the local museums. She’s calculated her total travel and living expenses to be $6,750. So how much will it really cost her? She takes 6,750 and divides it by .77 and gets 8,766. That’s how much she’ll have to earn to get the money to go to Paris. If she makes $20 per hour she’ll need to work about 439 hours to get the cash she needs. This is above her regular living expenses. Every Friday she goes out with friends and spends about $75. Now that she knows her goal and her costs she takes that $75 and divides it by .77 and gets about 98. She shares her dream with her friends and decides to go out only twice per month, thereby saving her $150/month. Using this method she evaluates her purchases for clothes, food, and services. Every dollar Myra saves or spends is really worth about $1.30 (1 divided by .77).

Myra is determined to get her trip to Paris and now she is armed with the analytical tools to help. With the 2 free Friday’s a month she takes a part-time job at a restaurant that pays $15/hour and gives her a free meal. The 8 hours at $15/hour net her about $92 in cash (8 times 15 times .77). However, the free meal saves her from having to buy dinner. If dinner normally costs her $8 she is really gaining $10.38 (8 divided by .77). So, in this case, the part-time job is worth 92 + 10.38 or $108.38 per week or 216.76 each month.

Don’t be Too Analytical

This method is not exact and there are other variables to consider. If the part-time job required special clothing or extra travel expenses they would have to be figured into the total. The point is not to go totally anal about the precision of the effective cash rate. The goal is to give yourself a reasonable tool to help you quickly evaluate expenditures and income. Myra didn’t give up all social activities. Had she completely given up her Friday nights she could have built her cash reserve much faster. Had she kept all her Friday nights she could still achieve her dream but it would take longer. There are no cops to throw you in jail if you are driving to slow on the highway of dreams. How long it takes to get your dream is up to you. So, make a plan and get busy.

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