Saving $46,728 by Bucking America's New Car Norm

My friend recently sold her 1992 Volvo that she’s owned since 1996.

I’ve had countless conversations with people trying to balance their financial life, and when the conversation turns to their transportation expenses, excuses pop up faster than a Ferrari. The most common excuse: “I don’t want to deal with the high maintenance cost of a used car.” I sketch out the math for them, I explain that if they set aside half of their current car payment for maintenance, all but the most serious of problems would be paid for, and I tell them how much I’ve saved by my car choices. Still, it’s a rare instance I convince someone that they can reach their goals by ratcheting back their transportation costs.

It’s under this context that when my friend, also a financial professional and frugal by nature, told me she kept a maintenance cost spreadsheet on her 1992 Volvo that I got excited. I knew that someday I was going to have a treasure trove of data to share with clients and readers. Well, this year is the year. In her spreadsheet calculations, after 22 years of ownership, the math no longer penciled out on getting the Volvo fixed. She’s moved on to a Prius.

I set about researching the historical average expenditures by U.S. households on transportation and calculating how much she saved by bucking the American norm of getting a new (or new to you) car every 6-7 years. The grand total she saved over the 22 years she owned her Volvo? $46,728.

She’s likely saved a lot more, perhaps $10,000 to $15,000, on insurance costs and registration. Most people, when considering the cost of buying a new car, only look at the monthly payment. They don’t take into consideration all the other factors that they’ll be paying for: interest, higher insurance, higher registration, warranties, and for those leasing, the “turn-in fee.” The largest “expense,” though, is depreciation. A new car loses 20% of its value in the first year, and 15% each of the next nine years.

American’s love their cars. I get that. Personally, I don’t care about cars, so it’s easy for me to choose to spend less on transportation so that I can meet other goals. And if you’re meeting all of your financials goals, then how much you spend on a car doesn’t really matter. But if you’re struggling, living paycheck to paycheck, not funding your retirement, or having constant financial emergencies, perhaps it’s time for you to take the Volvo approach.  

If you'd like to learn more about spending money, and saving money, Stacey's book is available on Amazon and at thefinancegym.com, and videos available at You Tube.

Money Management Tips - Are You Frugal or a Spendthrift?

Welcome to The Finance Gym Action Plan for a Better Life with Money Video Series. My name is Stacey Powell and if you’re ready to not just know better but do better, you’ve come to the right place.

Today we’re going to be talking about how we all spend money. Are you frugal or are you a spendthrift? I am always fascinated by the spending decisions that we all make. I have lots of clients over the years that it doesn’t matter what they buy. They’re going to buy the most expensive thing they can possibly afford.

I also have a lot of clients that it doesn’t matter what they buy. They’re going to buy the cheapest or the best deal and just be frugal about all of their spending decisions. Then there are some people right in the middle. It just depends on what they’re buying. Some things are really important to them. So they buy the best. Other things aren’t really so important. So that’s where they go and find the best deal.

I illustrate this on page 81 in the book, if you’re following me along. It’s two shopping carts full of the same six things – a couch, a watch, a TV, a necklace, a vacation and a car. These people over here, they have to have the best of, $311,000 price tag. These people over here, $16,000 price tag. It’s the same six things. When you sit on a couch, maybe it makes a little bit of a difference what kind of couch you’re sitting on. But in the end, you just need a place to sit.

So if you’re buying a $4000 couch or a $300 couch, why are you making that decision? I’m not placing the judgment on either decision. If you can afford a $4000 couch and you’re fully funding your reserves and your retirement and taking care of everything else, then by all means go buy that $4000 couch. But I also know there are a lot of people that buy that $4000 couch on credit and pay for it over many years and then they pay more for it. Why are you making those decisions? So in this video, I’m really just asking you to spend some time thinking about which side you’re on. I’m going to ask you to spend some time writing about some of your spending decisions.

In the book, page 78 and 79, I ask you to talk through your spending habits. There’s a worksheet that has a bunch of questions for you to fill in. You can go to TheFinanceGym.com and in the store, there’s a whole area of free pages of the book and we’re going to put these up there for you to go and download and fill them out even if you don’t have the book. I’m going to help you, so head on over there.

While you’re there, be sure to sign up for the newsletter. You can also go to Facebook and join our Team Do Better group, a great place to talk about your spending habits on there, you can chat with me. And also you can sign up for our video series down below so that you can catch every single one of these as they come out. Now go do some thinking about what kind of spender you are.