At coachcarson.com I love to write about starting a business, doing deals, flipping houses, and finding many other ways to increase income. Our incomes are the essential engines that help us retire early and reach a destination of financial independence.
But, as I also write about, more income by itself is not sufficient. There are high-income earners who continue to struggle with money for their entire lives.
To permanently win with money, we must also stop the major money leaks in our personal lives. These leaks are the equivalent of money running through our hands and out of our lives forever. If we don’t plug the leaks, we’ll have a hard time saving enough to achieve an early financial independence or to achieve any worthwhile financial goal.
This article is about two very specific, very common, and very large money leaks – our car and our home.
Opportunity Costs are Real
Before we get into the actual illustrations, there is a main financial principle I need to share. The principle is this.
One dollar spent today loses its earning ability forever.
In other words, there is a very real opportunity cost for every dollar you spend on anything that does not give you back a return. Once you spend it, you permanently lose the ability to invest that dollar and have it grow and compound.
Just how much do you lose?
At a 7% yearly rate of return, $100 spent today equals $197 lost ten years from now or $387 lost twenty years from now (practice on your own with this future value calculator).
But worse than that, regular spending of $100 per month, for example on a cable bill, would equal a loss of $17,300 after ten years or $52,000 after twenty years.
See my article on the Rules of 752 and 173 for short cuts to calculating the loss of future wealth with recurring purchases.
Unfortunately, the major leaks I’m talking about with cars and houses are not in the $100/month range. They are MUCH higher, and therefore the future loss of opportunities are much more gruesome.
Let me illustrate with some examples.
One Old Car Leads to Life-long Financial Security
Ben is a 25-year old recent college graduate with a solid job earning $50,000 per year. Ben decides that he deserves to drive something nice as a reward for his new job, so he buys a brand new Toyota Camry for $25,000. Ben pats himself on the back, because after all he was much smarter than his friend and a coworker who spent $35,000 and $45,000, respectively, on their new car purchases.
Sarah is also a 25-year old recent college graduate with a solid job earning $50,000 per year. Sarah fights against peer pressure and buys a 10-year old Toyota Camry for $5,000. It’s a little worn, the paint is fading some, and it doesn’t smell new anymore. But, with only 110,000 miles the car is safe and is likely to last for many more years if she performs regular maintenance.
It’s obvious that Sarah was more frugal than Ben by paying $20,000 less for a car. But, the long-term negative financial effects for Ben and positive financial effects for Sarah are much larger than $20,000.
The opportunity cost of that $20,000 invested at 7% is $39,343 over ten years and $77,394 over twenty years.
This means that Sarah could take her initial savings of $20,000, invest it, and end up wealthier than Ben by $39,343 in ten years and $77,394 in twenty years.
What could Sarah do with her $77,394 in twenty years at age forty-five that Ben could not?
She could put 25% down on a $300,000 4-plex income property with net rents of $24,000 per year. If she obtained a 2o-year mortgage, she could have the building paid off by age 65 or sooner.
When Sarah reaches 65 years old the rents might have increased enough to give her a free and clear net income of $43,000 per year for the rest of her life.
What one choice led to her retirement security and $43,000 per year for life? Buying the $5,000 car instead of a $25,000 car when she was 25 years old!
But the fun does not stop here. Do you think this is the only financial decision Sarah made differently than Ben? Of course not. Let’s look at each of their housing choices.
One Fixer-Upper House Leads to a $325,000+ Windfall
Five years later Sarah and Ben are each doing well with their respective jobs and lives. Since the time of their new car purchases, they both got married to wonderful spouses. This year they each are fortunate to save $20,000 from a combination of bonuses, wedding gifts, and tax refunds.
Naturally each young family decides to buy their own home.
Ben does not want to just buy any house for himself, his wife, and future kids. They all deserve something nice. Do you detect a theme yet?
So, Ben and his wife purchase a new construction single family house with a 2-car garage and a neighborhood pool. Because their combined incomes are well over $100,000, they are easily approved for a house with a value of $220,000.
The simple version of their purchase numbers look like this:
- $20,000 down (10%)
- $200,000 loan
- 4%
- 30 years
- $1,250/month PITI + mortgage insurance
Sarah again shows wisdom beyond her years, and she is able to talk her husband into purchasing an older, fixer-upper home for $100,000 in a modest but up-and-coming location. They will live with some dust for a couple of years, have painting parties, and look for materials on clearance so that they can slowly make the old home look brand new.
The simple version of their purchase numbers look like this:
- $5,000 down (5%)
- $95,000 loan
- 4%
- 30 years
- $625/month PITI + mortgage insurance
- $15,000 put into reserve for repairs/materials
Did Ben simply buy a house for $120,000 more than Sarah? Not at all.
The difference between the monthly payments was $1,250 – $625 = $625/month. So each month Sarah could save and invest this $625.
At a rate of 7% compounded monthly for 10 years she would accumulate $108,125!
At a rate of 7% compounded monthly for 20 years she would accumulate $325,579!
(By the way, you can do this calculation with a free financial calculator like this one.)
Simple Decisions, Life-Changing Money
Let’s pause a moment and calculate the total amount of additional wealth Sarah was able to accumulate after twenty years at the age of 45:
$77,394 + $325,579 = $402,973
In twenty years she accumulated an extra $402,973 that could be reinvested. Because of her frugal habits and self-discipline, I am willing to bet that she also saved and invested other money which will make her net worth much larger than $402,973.
It’s very reasonable to assume that these two college grads, with the exact same abilities to generate income, could find themselves in vastly different places financially within a decade or two of graduation.
The difference was not their income generation. The difference was not their I.Q. The difference was how they chose to spend their money, especially on the large purchases like cars and houses.
Did Sarah live a deprived lifestyle? I think not. It was only a few years before those decisions that she lived in a shared apartment and ate budget Ramen noodles as a poor college student. And her “frugal” choices would be luxurious in a large part of the world today.
Yet the ramifications of both Sarah’s and Ben’s decisions are not just numbers on paper. They will affect each of their lives in a meaningful way for years and years.
Sarah, with a sizable nest egg will have less overall stress and worry. She will have more flexibility to change jobs or to pursue a rewarding career path that pays less (or pays nothing). She will have the ability to take a mini-retirement or two. She will be able to payoff the loan on her residence early. She will be in a position to help pay for her children’s college.
In a nutshell, Sarah’s financial decisions have given her more life options. Ben’s seemingly harmless and very normal decisions have locked him into a cycle of job servitude for another twenty years.
Does it surprise you that Ben’s decisions and his predicament are more normal than Sarah’s? Remember that when you feel pressure to be “normal.”
“It is no measure of health to be well adjusted to a profoundly sick society.
Jiddu Krishnamurti
No Judgement, Just Information
Writing about your personal car and home is risky business for me. I’m likely to step on some toes and receive some backlash by suggesting that more modest purchases in these areas could make a difference in your long-term financial success.
Please understand I have no intention to judge your prior or existing purchases. You are an adult, and you can make your own decisions. My job is to put some awareness on those decisions and point out the financial consequences of different paths, for better or worse.
There are no clearly right or wrong choices. Life is too complex for that.
But I can assure you that if you choose to integrate the concept of opportunity cost into your daily decision-making, you will certainly move your financial life in the right direction.
In the end you are the navigator of your financial ship. You must make the important, real-time decisions that affect yourself and your family.
I hope you will keep these concepts and illustrations in the back of your mind to help you make the best decisions possible.
Have you had any ugly old cars or houses that saved you money? Did you get any push back from friends or family? I would love to hear from you in the comments below.
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Rick Angell says
Inspiring. Great article. Will be sharing.
Chad Carson says
Thanks Rick! I appreciate the comment and the share. I hope all is well.
Jenni says
Great article. I wonder if it’s worth noting that while Sarah took a less expensive route than Ben, her housing choice still allowed her to “live” day to day. She did not choose a housing option that shut her off from the world while she “waited” to be financially free. Often, in my observation, people end up in housing scenarios “to save money” that also represent a failure to live during the time they are saving. There is, in my opinion, a danger to saving all your “living” until later years /retirement. Worthy of note is that Sarah’s choice of housing in this scenario suited her lifestyle and personality, such that she would still have family over and invite friends over….she would still LIVE, as she was fixing up her place.
I could see someone with a personality like Ben’s, heeding your advice but shutting out friends and relatives until the fixer upper was “complete”. In that scenario, the person would have saved financially but lost in terms of living. Like the financial losses you speak of in this article, failure to live, over time is both detrimental to overall “life wealth (friends/family/mental health)” and retroactively unrecoverable.
Food for thought. Always a caviat for good advice. Context is important.
Chad Carson says
Jenni,
I couldn’t agree more. VERY well said.
Saving is powerful, as this article shows. But LIVING is what we’re here to do.
My personal experience has been more like Sarah’s. I have lived in less than perfect houses, but the savings have given me more flexibility and time to live now. It’s not just about saving for old age. It’s about not having to grind away and selling out doing activities that don’t fulfill you right now.
Thank you for reminding us all of this important point. And thanks for reading!
Dave McMillan says
Thanks for the article and some great points (especially about the opportunity cost of purchases vs. investment).
However, I think there’s a huge difference between money spent on a depreciating asset vs. an appreciaging assets (i.e. Car vs. House).
Also, including some allowance for higher maintenance costs on the older on the more frugal options would be more accurate.
In my case I own a house much larger than I need since I am planning on enjoying the tax free gain later (here in Canada). I also own a six year old car bought used (albeit expensive, it was barely more in after inflation terms than my previous car that I kept for eleven years).
Thanks again. Dave.
Chad Carson says
Dave,
Thank you for coming by to read, and thanks for the feedback.
Please see my more detailed replies to Paul and DGForce above regarding maintenance on used cars.
In summary, my opinion is that even if used cars have higher maintenance costs (I have not found that to be true), the higher tax, insurance, and financing costs will likely offset or exceed the increased maintenance and replacement cost of the used car. I kept the comparison in the article simple for that reason.
Homes only tend to keep up with inflation over the long run (~3-4%). I like real estate, so I’m not against owning. But I don’t see overspending on my residence as the best investment. I’d rather live more frugally in my home, and spend that surplus on true investment real estate that produces income. You’d probably come out far ahead.
Thanks again for providing your take, Dave.
Matias Nardi says
Thank you for posting this excellent article Chad.
Chad Carson says
Thanks Matias. I’m glad it was helpful.
Jp Cane says
It’s interesting how even if you’ve read some of these ideas before and thought about them, it is valuable to read them again stated in a fresh way and keep challenging your motivations in life, work, and consumption. I’ve read some of the books you’ve referenced, but the lessons fade and old habits creep back in. Thanks for taking the time to share your take on investing and life empowerment. I’ll definitely be checking back with your site regularly!
Chad Carson says
Thanks JP! Yes, the best thing about writing on these topics is they keep reminding me of the stuff I already knew but need to apply better. So I’m with you. And thanks for following the site. Much appreciated.
Mrs. SimplyFinanciallyFree says
Great article! And is perfectly timed with a conversation I had with my sister just yesterday. She was saying how lucky we were because my husband started out making good money right out of school. Although that helped tee us up I would argue that no, it has to do with spending less. We have always spent way less than we earned.
Our mortgages and taxes are pretty close (and incomes are probably fairly similar at this point) but there are some major differences. Our mortgage is our only debt and it is covered by the rent from the other unit in our duplex. We have one 8 year old car. They have 3 cars, two that are newer each with a loan as well as an MG. They still have student loans. I am not positive but they may have credit card debt. I can’t even remember the last time we had cable as we cancelled it more than 6 years ago while they have the whole package, including all of the sports channels. My husband and I are both savers and we are working together towards our goals. We discuss our finances, a lot! My sister can’t get her husband to discuss finances and he is a spender. So yes, a good income may help, but it is totally about the other choices we make. We are choosing to save so we can create a secure future for ourselves while they are spending for today. Decide what matters most to you.
Chad Carson says
Hi Mrs. SFF,
Thanks for coming by. Great points! So many people simply use income as a comparison. While it’s important, all of those other decisions you and your husband are making combine to make an enormous difference over the long run. And the fact that you two are on the same page, working towards the same goal is admirable (and rare!). I feel very fortunate that my wife and I are on the same page too. When we first met she liked to go camping in tents, so these moves up to ugly houses were a huge jump up in comfort!
I look forward to checking out your site.
Mr. Groovy says
Hey, Coach Carson. Very nice post. If I were a younger man, and new what I know now, I would have definitely started the local chapter of the ugly-car-and-ugly-house club. Unfortunately, I didn’t wake up financially until my early 40s. But I have an ugly car now. And the house my wife and I plan to build after we retire next year will be under 1400 square feet.
Chad Carson says
Ha,ha. I love the sound of the ugly car club. We could all park our old, ugly cars together and talking about compounding savings:)
It’s better to wake-up financially in your 40’s than never at all. And I love the idea of the simple 1400 sqft house. My current house is not pretty, but it’s a lot bigger than we’ve ever had. I have an itch to just sell it every other week, but we got a great deal and the kids are happy right now.
Thanks for dropping in to read and comment!
Socrates A says
The title attracted my attention cuz it descibed us perfectly. Having a reliable brand does helps:)
My wife drove her first car a Toyota Corolla for about twenty years, the second was a Toyota RAV4 for 15 years & she is now on her third vehicle. She was known at work for being part of the “crappy car club”.
Same w/ our house we lived in for 20 years a modest 1200 sqft. Didn’t want to keep up w/ Jone’s.
Sold it in 2005 luckily right before the mortgage meltdown & we now own our paid for slightly larger home.
This affords us to retire early (in our late fifties), me this year, spouse next year!
Chad Carson says
Thanks for commenting, Socrates! I love your story. You and your wife are real-life confirmation of the concept. Thank you for sharing.
DGForce says
Keep in mind that Sarah will incur hundreds to thousands of dollars of maintenance costs per year on her 10 year old Camry and will have to replace it with another used car sooner than Ben will have to replace his. I think she still comes out ahead, but not nearly as much as you would have us believe. Just sayin’…
Chad Carson says
DGForce,
Thank you for reading and thank you for your comment. You make a valid point that I did not take into account maintenance for the used car. It would have been more accurate to include it, but I left it out for a couple of reasons.
For a well-researched, quality-brand used car, the maintenance does not have to be a lot more than a brand new car. All I know is to share my own experience for the last 5 years driving 2 cars averaging about 10 years old.
We averaged $2,398 per car per year for ALL costs, including maintenance, repairs, gas, licenses, taxes, etc. I drove about 15,000 miles per year. I hire out 100% of maintenance, oil changes, and repairs.
On the other hand, the 2016 Consumer Reports Buying Guide I have in front of me says a brand new Toyota Camry will cost on average $.50/mile to drive, including depreciation, fuel, interest, insurance, maintenance/repair, and sales tax.
15,000 miles x $.50 = $7,500.
Maybe I’m unusual and spend less than the normal person. But $2,398 vs $7,500 leaves a lot of room for error.
That disparity above takes into account that most buyers finance their new cars. What college grad really has $25,000 sitting around? I was nice to Ben in my example and gave him the benefit of the doubt.
The disparity also acknowledges that taxes and insurance are much higher on a new car. I don’t even buy collision insurance for my used car. Just liability insurance. Instead I have a large reserve fund that will buy a new car if this one is totaled.
So the savings on used cars either equalize or far exceed brand new cars, in my experience. The maintenance and even the replacement cost need not be an issue if you shop well for used cars.
Paul says
I think DGForce makes a good point. Though I know that a used car will ultimately cost less than a newer one, I think it may be unrealistic to assume a ten year old car will last another 20 years just as easily as a brand new car will.
In the example in the article, it may be safe to assume that Sarah will need to replace her now 20 year old car at year ten, thus eating into the savings she enjoyed in comparison to Ben’s decision.
If she were to buy another ten year old car at that point, Sarah and Ben’s cars would then both be ten years old, and their expenses would arguably be the exact same.
Thus, the true difference in savings will be limited to the first ten years of the example.
Again, I know a used car is cheaper than a new car, but comparing a ten year old car to a brand new car over a period of 20 years is not exactly comparing apples to apples.
Chad Carson says
Hi Paul,
Thanks for commenting. Your point is well taken that Sarah may have to replace her car In 10 years and Ben may not. But she still has more options financially. She could buy another 10-year old reliable car for $6,700 or so (3% inflation from old price) and use her $39,000 in extra savings to pay for it. Or she could splurge and just buy a brand new car for cash.
It would be nice if Ben benefited from his new car purchase in the beginning and drove it until the wheels fell off. But I have a sneaking suspicion that Ben will be the one selling his 10-year old car to Sarah, and he will use the $6,700 as a down payment on a financed, even fancier car. Alas!
And so the sad financial story goes – decade after decade. We can squabble a bit over the specifics of the math, but the differences in behavior patterns and general financial consequences are clearly night and day. That was the general idea I was trying to convey here.
Paul says
Excellent points. As sad as it makes both of us, I’m sure you’re right in thinking that someone like Ben would be the one to sell his ten year old car to Sarah. 🙂
AF says
At 25 years I bought my first car. A beautifully kept 6 year old Toyota Corolla (beige with no power windows) with 21000mi in 2005 for $8000. It now has 74500 well maintained miles and I’ve made it my personal goal to keep it on the road to at least 2020. I love that little car.
Your advice lets me feel good about not keeping up with the Joneses.
Chad Carson says
I love that, AF! Yeah, that little Toyota should keep humming to 2020 or well beyond. Toyota’s are great for lasting a long time.
And NOT keeping up with the Joneses sure does feel good when you run the math:)
andres says
Great article; I am driving a Infiniti 94, seats ripped but runs pretty good; was denied recently in a dealer for a new car and give thanks to the Lord for that; I am happy I am saving $300.00 per month plus insurance,20% interest and no losing value on the car; my wife hates the infiniti, but I am the one that pay the bills, so I just turn my ears to the opposite direction.
Chad Carson says
Thanks Andres! You could join me and some of the others who commented in the “ugly car club.” Our motto could be, “We love ugly cars (and being rich)!”
My wife is pretty much on board with the ugly car club. But she gets to drive the nicer of our two cars – the 2003 Toyota Avalon, and I drive 2005 Ford Station Wagon. She drives in the lap of luxury with seat warmers, leather seats, and a nice audio system while I rattle around a little bit in the Ford. Maybe you can work out a similar deal to help your wife out a little:)
We paid under $5,000 for the Avalon several years ago from an older family member. We paid $5,500 for the Ford last year off of Craigslist. Both are under 100,000 miles. Both are in great driving shape. So we don’t feel deprived at all.
Paul says
Good article. But you failed to mention the cost of car and house maintenance. Obviously an older car will need to be repaired sooner and more often than a new one and will need to be replaced sooner as well. Those costs need to be factored in for the comparison to be accurate. Similarly with an older house. A fixer-upper is going to need to be fixed up – the roof will need to be replaced (probably something you wouldn’t need to consider for 25 years if you bought a new house), the furnace might need to be replaced, etc. I’d be interested to see how the figures work out after all that has been calculated. I still think your route of buying older vehicles and houses will pay off, just not as much as you think it might.
Chad Carson says
Paul,
Thank you for reading and for your feedback.
Please see my comments on used car maintenance in response to DGForce above.
Regarding the older house, I did account for $15,000 in cash that Sarah had to spend on her fixer-upper house. That would be more than enough to completely upgrade all the major systems, like roof, HVAC, hot water heaters, and potentially plumbing. I’m in the house business, so I see those numbers daily.
So at that point, the two couples should have a comparable house maintenance bills.
And while I didn’t specifically mention it, the brand new house is probably a lot bigger than the fixer-upper, older house. So Ben’s maintenance, heating, and cooling costs will likely be a lot higher.
And I’ve found from my own observations that people with brand new houses tend to buy more brand new furniture, which further burdens Ben’s finances. A used house buyer may be ok with hand-me-down or nice used furniture that fits in nicely with their used house:).
In the end, there are a lot of variables to compare here. But I think we all seem to agree on the main point – someone will be better off financially (by a long shot) plugging the leaks of excessive car and home purchases.
Skyline says
My wife and i started the sarah themed discipline at age 28 , 11 years ago our cars are not pretty and we ended with buying an older and small short sale home on the water that is now paid in full, at age 39 our net worth is almost 500k. You have illustrated here very nicely the benefits of fincancial discipline, there is another benefit achieved from this type.of living and thaf is when life throws you curve balls like huge medical expenses or other burdens. You don’t drown.
Chad Carson says
Wow, thank you for sharing your story! It is great to hear about another example that confirms the principle. And yes, financial flexibility for uncertain curveballs is a big benefit.too many people assume TODAY’S expenses and income will be the same as tomorrow’s.
Rob says
Your article is interesting and thought provoking with a lot of truth in it. One thing my life experience has taught me is that old cars and old houses can be money pits. Requiring lots repairs from time to time (or all the time if you are unlucky). Your financial calculations did not take this into account and favoured the used side too much in my opinion.
Chad Carson says
Hi Rob. Thanks for commenting and adding your own experience to the conversation.
Please see me replies to Paul and DGForce above for my take on the difference between ownership costs for used vs new cars. I’ve personally found the repairs on used cars to be non-issues. And the significantly lower price and yearly cost savings (cheaper taxes, cheaper insurance) allow me to buy another nice used car whenever mine finally croaks.
My personal approach has been to just buy and sell my used cars every few years so that my model doesn’t get too old. I actually broken even on price after 2 years with one of those deals!
But your point is valid that some older cars and houses could be money pits. I think all of this math has to be combined with some common sense and discernment as a buyer of cars or houses. We need to do our research to find the most reliable used cars (Consumer Reports is great), and we need to know our real estate markets and our construction costs well before buying a house.
Those wildcards of being a knowledgeable and prudent buyer make all of the good math possible.
Jan says
First thing – before you decide to marry – decide how you can live on one income (just in case some one looses their job)
Second thing – PLAN ALL OF YOUR BIG PURCHASES AS IF YOU ONLY HAD ONE INCOME!
Third thing – when buying big ticket items – i.e. cars / houses – buy solid – buy for re-sale value – know how to fix things (or factor in the cost to pay for someone who can fix things)
Fourth thing (and the hardest!!) – DO NOT BUY STUFF OR GO ON VACATIONS TO IMPRESS YOUR KIDS OR YOUR FRIENDS!!! To appreciate this you must go to the church of George Carlin – learn about the “COST OF STUFF”
What do we do with our money?
We Invest…
How?
The best investment is in your kids.
We finance their education, and we buffer their mistakes and bad choices – (I used to hate this part until I read Steve Job’s Biography)
So thank you for this post.
We do it, others can do it…
We always wonder why other people say that they just can’t make ends meet on 2 incomes…we have made it on 1.
Next challenge…
We do not have company pensions…we had to plan for that too!
Chad Carson says
Great advice, Jan! Thanks for sharing!
Yes, the assumption in my article was that your next challenge, growing wealth and income, is a given. It’s another ball game after you learn to do all the good stuff you have outlined above.
It’s a little self-serving, but much of what I write about here at coachcarson.com is about using real estate investing to replace that pension. It’s my favorite way.
Mad Money Monster says
Loved this post. Mr. MMM and myself nearly committed financial suicide about a year ago trying to keep up with the Joneses. We nearly purchased a home (out of emotion) that would’ve put us in a bad financial situation. Thankfully, the home had mold at inspection time and we were able to walk away. Phew. We have now transformed our financial future and have decided to to be content in our smaller home. We’re using the extra cash that would’ve been going to a large mortgage for investments. Yay! I just wish we could rewind the clock and make these awesome decision straight outta college. Better late than never!
Mrs. Mad Money Monster
Chad Carson says
Thanks for the comment, Mrs. Mad Money Monster!
Wow, close call on the house. But kudos for turning that experience into a transformational one. Now you’re out sharing your story and impacting others in a positive way!
And yes, better late than never. Some people spend unconsciously their entire lives and never realize what happened.
Thehappyphilosopher says
Great article chad!
Opportunity cost is a difficult concept for many to wrap their heads around unless they really study personal finance. That and it’s tough to think about even when you do understand it, just isn’t a natural way for the mind to think. I know I gloss over this on many of my purchases.
Housing and transportation are the biggest 2 expenses for most people so getting these right can go a huge way towards financial security and independence.
The next level analysis is factoring in time and safety. A fixer-upper often takes a lot of time and sweat. An older car may take more maintenance and not have the latest greatest safety features. These factors are much more difficult to price and value and I’m not sure how to factor them in as often times they are a guess or gut feeling.
My compromise has been to buy new cars that depreciate slower than most and keep them until I can’t stand looking at them! Something about that toxic new car smell that is so intoxicating! 😉
Sorry if this is a duplicate comment, computer crashed on me.
Chad Carson says
Hey Happy Philosopher,
Thank you for commenting. Good points you make.
Yeah, your personal time does add another dimension into the argument. I like your strategy of driving reliable cars until the wheels fall off. The same strategy works staying in the same house. I was always impressed that many millionaires featured in the Millionaire Next Door book lived in the same house for years and drove cars for years.
Cheers!
Sandeep says
Nice article Carson. I really enjoyed the opportunity cost and also how to calculate. I liked the word “money leaks in our personal lives”. I wish to fix that myself (in my life), despite living a frugal life (have a used SUV, planning to buy a simple detached house for around 350K in an expensive city called Calgary; so hard to find one), no cell phone bill, no cable bill but only internet and buying clothes at factory outlets and saving money to buy things that I like.
Despite all of this I still have that money leaks off my wallet. This is something that I will be fixing in coming 2016 (and will be turning 42 as well).
Will keep visiting your site regularly (found your site through my financial adviser) to gain nuggets of financial wisdom 🙂
Merry Christmas and Happy new year 2016!
Chad Carson says
Hi Sandeep!
Thank you for reading and commenting. I think we ALL have room to improve in 2016. I’ll be working to plug some more leaks myself! Groceries are at the top of my list.
Merry Christmas and Happy New Year to you, too! Thanks to your adviser for sending you over. I look forward to staying in touch.
John Bowman says
I’m not sure if this site is still active but I disagree on a few points.
Regarding the car: the cheapest way to own a car is to buy it new and keep it till it dies. This all depends on how much you need a car but presuming you need it for a good commute there’s no comparison. if you buy an old car that needs repairs the costs will weigh you down and so will the time. If you buy an old car you’re buying someone else’s problems. if you buy a new car you can take care of it and the car will last for a long time (I normally keep cars for 200,000 miles).
Regarding the house: it makes sense to buy a lower priced house in a great area, so that it appreciates in value. Thus you don’t want to buy the least expensive house but the least expensive house in a great area, which will be more than many other houses. Since the value of a home can appreciate it should be looked at as an investment, not an expense.
Chad Carson says
Still active! Thanks for stopping by to comment. Agreement is not a perquisite! I like contrarian discussions.
I’m not sure I agree that buying a car new and keeping it until it dies is the cheapest way to own. A lot depends upon which car you buy, of course. But even the most reliable – like a Toyota Camry – I think would be better deals bought certified used 3-5 years later instead of new. You can still drive those for hundreds of thousands of miles, you may still have a warranty, and you get it cheaper than brand new. Yes, new guarantees you didn’t buy someone else’s lemon, but that doesn’t mean you won’t have repairs too. Savvy used car shopping for reliable cars is really hard to beat financially, even for those making commutes.
I actually wrote an article recently about the whole idea of turning your housing into an investment – https://www.coachcarson.com/battle-of-housing-dream-home-house-hacking/. Appreciation actually has to be pretty high to make housing a good investment. But no matter what – I agree that if you buy choose a quality location that has potential to go up.
Eddie says
Due to naturally occurring frugal instincts I’ve always been a member of the “old car club”. I mostly commute by bike and have owned two old Honda Civics-each of which lasted me well over 200k miles, my current ride is an ’01 Tacoma out of which I expect to get many more years of service. It’s only recently that I’ve found out about the concept of FI and realized (lucky me!) that I’ve been on the right track for years without even knowing it! Now that I’ve started to really understand the math and numbers I feel even better with a lot of my life decisions.
I have definitely experienced some nay-saying and push back (mainly from family) which I truly do not understand. I’ve been a self-employed musician for my entire adult life, and despite rarely making more than 30-35k a year I’ve been able to travel the US and the world, buy>move into and improve>rent out>sell a house (at a tremendous profit), and generally enjoy the hell out of my life in the company of great friends. Despite all this, when I talk to my parents about money they tell me that it’s “impossible”, “totally unrealistic”, “a fantasy” that a person could buy a reliable used car, not drive it that much, make a financially responsible housing decision, and then save enough money to do whatever they want.
I’m so glad I’ve stumbled into this whole world of FI-I’ve been devouring books and blogs about investing and early retirement and it’s wonderful to have found a community full of like-minded folks and people who have taken the time and effort to put their knowledge out there for the rest of us!
cj says
This is EXACTLY what I needed to read to stop myself from making an insane purchase. Thanks!
Chad Carson says
nice to hear!! Thanks for reading, CJ!