Driving Value From Our Lives
After some of my recent lamenting about repeated and annoying car maintenance expenses, I had a fun conversation with a buddy. He found entertainment in my recent woes, as he and I have had a years-long back-and-forth about cars. His position, which he happily shared with me in this most recent conversation, is that it's cheaper to buy a newer and more reliable vehicle than the "beaters" I buy. At the heart of his argument is the assertion that any money I save on buying a cheaper car is given right back through my maintenance expenses.
Today, I want to illustrate these contrasting viewpoints with a real-life comparison. We've owned Sarah's Toyota Highlander for approximately 72 months. It was seven years old when we bought it, so it's now 13 years old and has a ton of miles. We paid $15,000 for it, and its private party resale value is approximately $7,000 (according to KBB). That works out to an $8,000 erosion of value, or $111/month. On top of that, we've spent about $9,000 maintaining and fixing it (or $125/month). Adding these two numbers together, this vehicle has cost us approximately $236/month for the last six years.
Now, my friend's scenario. He originally purchased a new SUV almost six years ago. He paid $61,000 for it, and it's worth approximately $28,000 today (KBB private party value). Therefore, his vehicle cost him roughly $458/month over the last six years. This doesn't include maintenance; he said there hasn't been any (not sure I believe that).
Even though we've spent around $9,000 to fix and maintain our vehicle over the years, it cost us roughly half of what it cost him. This $222/month discrepancy equals a $16,000 difference over the six-year period. However, there's also one major component missing here. I can save up and write a $15,000 check to buy a vehicle, but the only way for him to acquire a $61,000 vehicle is to finance it. His $458/month cost doesn't include maintenance OR interest from his loan payments. And it's a big loan! That's opportunity cost. Every month, he's eating those payments instead of using that money for something more meaningful.
The X-factor in all of this is depreciation. Generally speaking, vehicles lose roughly 15% of their value each year. He will lose 15% and I'll lose 15%, but not all 15% losses are created equal. When he purchased his vehicle, he was losing 15% of $61,000 ($9,100 loss in year 1) and I was losing 15% of $15,000 ($2,300 loss in year 1). Those losses add up over time! In the same six-year span, I lost $8,000 of value and he lost $33,000.
Yeah, I've been hit with a bunch of car maintenance expenses recently. But we need to zoom out and see the bigger picture. He lost as much value in his "reliable" vehicle in year 1 as I've spent on maintenance in six years. It's simple math, but it's powerful....and it changes everything.
Cars are important, but they shouldn't impair or impede other aspects of life that are far more meaningful.