Mr Beerver Gets Some Wheels
For the last few weeks, I’ve been talking about debt. I really don’t have much good to say about debt. I think that while there are some people and organizations that make optimal use of debt and can turn it into positive leverage, it’s not for me.
It’s come to my attention recently that Virtu had one single day of loss in 1,238 consecutive days of trading. That’s 4 years of DAILY profit for a High Frequency Trader (HFT). Impressive. This is one company that would have done VERY well using debt to boost its earnings.
That’s also NOT normal and rather stinks of the suspicious if not criminal.
For regular folk, though debt can be seen this way: It’s a way to get today what you could only afford tomorrow at the expense of A LOT of future spending. Debt is not a freebie! It is quite simply future consumption DENIED! That’s it. What you buy using debt had BETTER be worth it!
Last week, I talked about modest housing. This week, I’d like to start by addressing cars. Unless you live in an urban hub, cars are pretty much a necessity in the U.S. and Canada. Unfortunately, cars are also a major source of debt for most people.
Here’s a fun car salesman video for you:
DaveRamsey.com has the complete lowdown on cars. He explains it all better than anyone else I’ve read, so I’d really recommend that you read what he has to say on the subject. Follow his advice and you too can own a car debt-free and worry-free all of your life! His site is HERE
Any car-related data in this post comes from his site, btw.
The average price of a car is just over $26,000, most of which goes straight towards the average bloke’s total debt count because of all the “incentives” for zero-down financing.
Did you know that GM makes ALL of its profits from car loans? The last time I checked their data, they were selling cars at a net loss. Recently, they were denying losses of $10,000/Volt sold. No, that’s not true… they admitted to a net loss on every Volt sold but denied that the exact number was known to the public. Blarg. I need a beer to wash the taste of that statement away!
Anyway, back to financing. The typical car loan is for six years at a rate 9.6%. That’s a monthly price tag of 475$. And now you see why the Bank of GM would like to thank you for your loan!
That’s money Mr Beerver can’t afford to spend! But no worries because thanks to this bit of genius, Mr Beerver can avoid most if not all car debt! Awesome! Except he’s not going to go that route. The plan at DaveRamsey is sound but it is not what Mr Beerver will do. Instead, he will consciously take on debt to buy a car.
Why? Because taking public transportation takes way too much time and Mr Beerver would like a bit more freedom to roam. And so, he’s consciously taking a sub-optimal financial strategy to gain an intangible benefit. Despite what you may read here, money isn’t everything, after all.
Also, there’s MORE! DaveRamesey mentions that cars depreciate heavily and fast. They suffer a 70% loss of value after 4 years. CarsDirect says that cars depreciate 20% the first year and about 15% every year afterwards before slowing down a bit after year 5. So, the best used car may be a two or three year-old one with moderate mileage.
Hum… I can’t seem to find any good used two-year-old cars that meet my criteria. Perhaps then it’s best to consider that the average car life is 11.4 years and so to buy a five-year old clunker to keep for 7 years.
OK, this 7,321$ one’s coming up on 10 years. It’s getting close to the average length of car-life so buying this model may be iffy. The mileage’s the main thing though!
Aha! Here’s my baby! If Mr Beerver were to buy himself a car today, it would be this one!
The 2006 Suzuki Forenza will be Mr Beerver’s ride from now on! Party on! No more public transportation for him! Cars.com says that the loan will cost 220.55$/month and Mr Beerver can expect to pay 830$/year to insure his ride. It’s one of the cheapest vehicles to insure out there! Bonus!
Uh oh… I hear a ripping sound in Mr Beerver’s budget. Even just using the car to commute will run him about 400$/year in gasoline which will bring his total cost up to 3,900$/year. Yowza! That’s 26% of Mr Beerver’s budget being blown on a car!
Fortunately, Mr Beerver’s a sly fellow and is buying his textbooks used, thus saving him quite a bit each year. In fact, this act is the only thing saving his budget. He has no money for clothes. Those come from Mom and Dad at Christmas and on birthdays. Thanks again mom and dad!
There is no budget for a girlfriend. Sorry! Certainly, Mr Beerver can’t afford to go out to the pub or even to drink much at home. His budget is so tight that he has to limit himself to free or nearly-free entertainment.
But you know what? That’s fine and good. Living a Spartan lifestyle for a bit is good. It shows you what the true bare necessities are and lets you appreciate even small increases in quality-of-life later on.
For now, Mr Beerver will have to be content knowing that he has a set a wheels he can (barely) afford! Good on you Mr Beerver!