Thursday, October 25, 2012

Update from Stupidland

The title is an allusion to one of my favorite MMM posts.

Today I drove to work, though I should have biked. I had the radio tuned to NPR where there was some news about new car buying being down in Europe. Since new car sales are important to the economy they had a guest from, an online source for car information.

I was a little miffed because the Edmunds woman talked (and was asked questions) mostly about buying new cars, when really macroeconomic analysis of car buying and its relation to the broader economy would have fit the news story more closely. I was also listening intently for the poor advice that passes for common knowledge, like that people should buy new cars at all.

When the host asked a question like "how much should a person spend on a car?", I was floored by the answer: "no more than 20% of your net income". Twenty percent?!?!? Are you crazy?! This could make sense if she meant the cost of the entire car. But no, of course she was referring to monthly payments on a car. As we all know, the real number that matters is the price of the car, not some monthly payment number. To be fair, she made sure to mention including cost of insurance and repairs, so she's not completely misleading people, but it was pretty close.

Here's some better advice. How about: "You NEVER, EVER borrow money to buy a car." This is fantastic advice I freely admit I did not follow, though it was a calculated bit of wussypants stupidity on my part. (The non-wussypants option is to bike literally everywhere.)

My monthly take-home pay is around $4700. Twenty percent of that is $940. At 0% interest, for a 5-year loan, that's over $55k of car, if I ignore maintenance and insurance. Maybe with maintenance and insurance that translates into a $40k car, give or take. That is crazy. I'm getting the heebie jeebies just thinking about it.

There was talk about leasing and when it makes sense to lease. Leasing makes sense if you're the kind of person who wants to have a new car every two years, but in that case, what the hell are you doing? I think of leasing as the most efficient means of throwing one's money away on cars. Stop treating cars like status symbols and show off your badassity instead.

The Edmunds woman kept mentioning fuel efficiency. It sounds like car people think of fuel efficiency as just another feature, like power steering or a sun roof. I don't understand why people would care much about fuel efficiency when they're buying a new car. You're wasting thousands of dollars to "save" a few tens of dollars a month in gas from a baseline of a gas-guzzling SUV or pick-up truck. And even then, fuel efficiency will only really come to play when you do a crap ton of driving, like way more driving than people should be doing.

And yet this is how many Americans think about cars. What is a monthly payment that fits into my budget? How much will I have to spend on gas for my commute? How swanky a car can I finance?

It is so important for people to have the right mindset when it comes to automobiles and related issues like commuting. By my estimation, getting this right will get you half of the way to a golden Mustachian existence, if not measured in badassity then at least measured in money saved.


  1. "By my estimation, getting this right will get you half of the way to a golden Mustachian existence, if not measured in badassity then at least measured in money saved."

    That's always been my thought as well... it takes a whole lot of dinners out and cable TV to equal the harmful effects of one big stupid purchase like a new car. I'd throw "too much house" and "destination vacations" in that same category.

    1. I agree with "too much house"; it's something I'm learning firsthand. I still don't feel we made a mistake buying an expensive house early, but I didn't realize how much easier it was saving money when we were still renting.

      At least house prices tend to rise over time.

  2. 20% of income on car payments/costs would be ridiculous! Maybe as a decent estimate for the cost of buying a vehicle in cash... i.e. if you made $50k/year you could afford a $10k car. That doesn't seem too far off.

  3. "leasing as the most efficient means of throwing one's money away"

    Good one; so true!

    1. I don't mean to be too down on leasing. If you're unwilling to give up a new car habit, it's likely that leasing is the smartest thing to do. I just feel it's best to give up the habit.