Category Archives: The Frugal Mindset

How Much Have You Spent On Buying Cars?

I was never a car enthusiast like many of my friends, but I’d be lying if I said that I never cared about what car I drove and that a car is just a tool to get from point A to point B. Back in the Fall of 2000, I was very fortunate that my parents offered to help me purchase my first car when I was in my junior year of college. I checked out a couple of used car lots and set my eye on a burgundy 1997 Acura Integra. It was listed at $8500, which was a little above budget, but I was hoping I could negotiate the price down. When I told my dad about the car, he said that he wasn’t going to help me buy that car. He said that the repairs would be expensive with an Acura and also, he didn’t want me to have the “need for speed” driving a sporty little car.

512px-3rd-Acura-Integra-sedan

So instead of the 1997 Acura Integra, I got a 1997 Nissan Altima. The Altima had about 55,000 miles on it when it was bought used in 2000. I drove the Altima in college and continued driving it after I started working while many of my friends purchased nicer cars. Once when I visited an old college friend who I hadn’t seen awhile, he was shocked to see that I was still driving the same car, 8 years after graduating. I was a little envious of my friends with nicer cars, but I was going to law school part-time in the evenings and working full-time during the days. I was not earning all that much while racking up a lot of student loan debt. Using all my savings to buy a car or racking up more debt to buy a nicer car wasn’t a priority for me. I think I might have kept the car a little bit longer, but repair issues started popping up. It also left me stranded a week before my wedding, so I wasn’t too sure about it’s reliability. When I finally traded it in after driving it for 10 years, it had about 168,000 miles on it.

Not my car but looks just like it.

Not my car but looks just like it.

In 2010, I purchased a used 2009 Hyundai Sonata with 38,000 miles on it for $13,300. I paid cash for this car and the salesman said, “it must be nice to have that much in cash!” I felt a little awkward and told him I took a loan from my 401k even though I didn’t. Then he started lecturing me about how taking a loan from your 401k was a bad financial move!

As part of a promotion at Enterprise Car Sales where I purchased the car, they gave me $500 on top of the KBB value of my trade-in, so I got $1000. I purchased the Sonata because it had the latest safety features which was important because my wife and I were planning on starting a family. Hyundais had also gone a long way in reliability but prices were still pretty affordable because it wasn’t a brand that many car buyers coveted. By this time, I had turned 30 and was a personal finance reading addict. I no longer cared about using my car as a status symbol.

Car

I drove my Sonata for a little over 6 years and replaced it in late 2016. Unfortunately, I have a long commute to work and had about 190,000 miles on it by the time I bought another car. The car was a road warrior and had been good to me. It was reliable and I probably could have kept it for a little while longer, but since I had two kids and often transport another adult or two in addition to my wife, I wanted a bigger vehicle. At this point in my life, I was definitely not defined by the car I was driving. Even with all the ridicule that I heard relating to dads driving minivans, I bought one and am happy with its practicality.

I bought a used 2015 Toyota Sienna in the Fall of 2016 for $18,500 from Hertz Car Sales. They gave me $500 for my Sonata. I plan on driving my Sienna until the wheels fall off, or actually until I feel it is reliable and won’t leave me and my family stranded on the road. I financed this car purchase as the interest rate was relatively low and I’d rather use my cash to invest, however I plan on making extra payments to it and paying it off quickly.

Sienna

So adding all three cars up, including the Altima even though I didn’t pay for it, the total amount spent for the purchase of these vehicles is $39,400. I could also subtract the $1500 that I received on the trade-ins, but that doesn’t really change the number all that much. So it’s just a shade under $40,000 for about 17 years and counting of driving, which I would like to think is a reasonable number since I know many who spend that much on just one vehicle purchase. However, this number might be high for many people who live in NYC since they can cut out cars completely as public transportation is easily accessible for most and there are Zip Cars as well as ride-sharing options available to others.

To see what cars other bloggers drive, check out The Cars of Personal Finance Bloggers at Mustachian Post.

Another interesting one is the Car Timeline on Money Watch 101, which is what inspired me to post my own car timeline.

How much have you spent purchasing your car(s)? Do you buy new or used cars? Do you think of your car as a status symbol?

Facts Don’t Always Matter

facts

“When dealing with people, remember you are not dealing with creatures of logic, but with creatures of emotion, creatures bristling with prejudice and motivated by pride and vanity.” – Dale Carnegie

Sometimes facts don’t matter. Some people believe in “alternative facts!” One conclusion that can be drawn from this phenomenon is that people are humans and often times our decisions are dictated by our emotions rather than by logic or facts. Facts don’t matter as much as emotion does. Stirring up strong passionate emotions like anger, fear, outrage, and on the more positive side, love, inspiration, and hope will often trump facts, logic and math.

A friend of mine, who taught a financial literacy class, talked about Dave Ramsey’s snowball method of paying off debt to his students. With this method, you pay off the debt with the smallest balance first and then move on to the next one with the smallest balance. “The math doesn’t make sense,” I argued, and countered that you should pay the account with the highest interest rate first to save on the interest you pay. My friend explained that while math may be on my side, his experience told him that paying off small balances motivated people to continue on the path to debt freedom. What good are facts and logic if someone gives up on making those extra payments because it seems like such an uphill battle? We need to win the small battles to win the war.

In a similar financial debate, many often ask whether you should pay off debt first or invest. In a recent post from the Big Law Investor, Josh asked whether you should pay down an auto loan of 1.9% or invest. I always thought my decisions to be fact-based, rational, and logical. I always came down on the investing side and wondered why others chose to pay off low interest debts so quickly. If you look at the math, it would seem pretty easy to beat a 1.9% return.
In the comments section, one reader said, “In my experience, most folks don’t actually invest the difference and /or increase their lifestyle since they have the low-cost debt.” Josh replied, saying that lifestyle creep occurs without you even realizing it when there’s “extra cash sloshing” and that you’re probably tricking yourself into thinking you’re actually “investing the difference”. I started to think about what was said and realized that this was true with me. I had been tricking myself into thinking that I was investing the difference when that wasn’t really the case.

My student loan interest rates are low and I haven’t made any extra payments to them since paying off the high interest ones. I also recently bought a car with an auto loan even higher than the rate posed by Big Law Investor’s blog post (It’s at 2.9%). I didn’t pay it off either, but am I using that extra money that I have to invest? Not really. I keep thinking I will use that money to invest but just haven’t done it yet. Maybe I’ll buy another rental property, but maybe I won’t. However, in the 10 years that I’ve had my student loans, did I invest the difference because I didn’t put many extra payments towards those loans. I would say yes, to a certain extent, but it’s hard to say how much extra I invested. And I think it is highly likely that much of that excess cash also went to lifestyle creep instead.

After this realization, I think I’ll be taking some cash I have on hand and combine it with my tax refund this year to make extra payments on my auto loan. Speaking of tax refunds, I used to think it was silly for people to want big tax refunds. Getting a large tax refund is giving the government an interest free loan right? And having money now is better than getting the money later, so why not take the money now by increasing your withholding? It made sense, but when I owed money to the IRS a few years back, I was very upset. But shouldn’t I have been happy? The government had given ME an interest free loan, and I just had to pay it back. It didn’t feel like a win to me and I had to allocate some savings to cover the tax bill. With my higher paycheck throughout that year, did I save and invest that money? I’m pretty sure the answer to that is “NO.” After that painful lesson, I changed my withholding and have been getting a tax refund ever since. And now, every year after I get that tax refund, I make contributions to my Roth IRA account as well as my wife’s IRA account, contribute to our son’s 529 plan, pad our savings or make extra payments towards debt (mortgage/student loan).

Money is more about emotions than the numbers. And as disciplined and logical as I may think I am, I am still human. I’m not a robot analyzing every decision, inputting the numbers and running an algorithm to determine the best and most optimized choice. I have to remember that when making financial decisions and in giving financial advice to others.

Your Most Important Financial Decision

Couple_01

I am proud of many of the financial decisions that I’ve made in my life. I opened an IRA account while in college. I signed up for my employer’s deferred compensation plan my first day on the job, even though most of my co-workers said they were too young, had too little money, and that retirement was so far away. I am proud that I continued living below my means even as my income increased, and even as my peers inflated their lifestyles. But the decision that has had the most positive affect on my finances is marrying my wife. While, marrying someone is not just a financial decision, it is undeniable that it will have a huge impact on your finances.

The best investment strategies and savings advice won’t do much for you if you save and invest money while your spouse promptly spends it all. The leading cause for most divorces is financial stress. And a divorce will often leave you in financial shambles, as well as emotional shambles. According to a 2016 Fidelity survey, the top cause of money spats is the significant other’s spending habits.

Opposites often attract and a lot of times financial opposites attract. I’ve met a number of couples where one is the spender and the other is the saver. There’s the husband who wants the latest tech gadgets and the biggest flat screen television set. There’s the wife who has more name brand shoes than can fit in the closet and handbags which cost as much as or more than the big flat screen T.V. This causes conflict when the saver spouse doesn’t agree with those expenditure and prefers to save or invest that money instead. Sometimes the saver spouse will feel like he or she is getting the shaft and gives up on saving and spends on their wants too. I’ve also met some couples where both were spenders. In that case, they might agree on the SPEND SPEND SPEND philosophy, but their financial stress results when bills come due and money is tight.

I am very fortunate that my wife and I are pretty much on the same page when it comes to finances. In an old post from over two years ago, I wrote an Ode to My Frugal Wife. I wrote how we’d rather make an effort to make each other happier, rather than buy material things and spend money on things that won’t bring us happiness. But even though we have the same financial mindset, it was very helpful that we talked about these issues during a premarital counseling class. It is also important that we continue these discussions now that we’re married.

In a New York Times Article, Ron Leiber lists four money talks you should have before marriage.

1) How did your parents deal with money, how does that impact how you deal with it, and how might that impact the relationship?
According to the article, so many of our money behaviors are learned so it’s important to know your significant other’s “financial ancestry.”

2) Can I see your credit report?
A person’s credit report holds a lot of information about his/her financial past.

3) Who’s in control?
Gregory Kuhlman, a psychologist who runs marriage success training programs, says that control issues come up constantly when talking about money. He listed a few things that should be discussed: “If one person is making most or all of the money, does that person get to make most or all of the financial decisions? If you’re the car aficionado or have researched all of the local school options for the children, do you get to make the decisions about those things?”

4) Just how rich do we want to be one day? What is your “desired level of affluence?”
Mr. Kulman asks his clients, “are our career paths going to be something that pulls us together? Or, more often, are they things that will tend to pull us apart, where we’ll really have to be proactive to make sure it’s under control?”

I don’t recall many of the questions that my wife and I discussed at the premarital counseling class, but three questions stand out and they are questions we ask each other still when we discuss money.

What are your short-term financial goals?

What are your long-term financial goals?

How will we get there?

When my wife and I talk about finances, those are the core issues we focus on. Do we want to help our children with college costs in the future? Let’s open a 529 plan. Do we want to retire early? Let’s try to max out our retirement plans. Do we want to buy a house? Where should we go on vacation and how much will it cost?

I know that it is Valentine’s Day and talking about finances is not the most romantic thing, but to have a successful relationship, having conversations about money is necessary.

What are other “money talks” married couples and those looking to get married should have?

Am I a Christmas Grinch?

christmas-gifts
Growing up to immigrant parents who worked about 12 hours a day, 6 days a week, we didn’t partake in all the Christmas and Santa traditions that many of my peers followed. We had a Christmas tree up, decorations around the house and we got gifts. We would get a gift from our parents and gifts from some relatives. I think the gift count stood at like four or five gifts. This was amazing! Four or five gifts all on one day is A LOT! Isn’t it?

I’ve been hearing some parents say that they’re trying to LIMIT themselves to ONLY buying four gifts, not including some smaller gifts as stocking stuffers. This is on top of the piles of gifts that the grandparents, relatives and friends will be buying the kids. I wonder where do all these toys go because I’m sure the kids receive plenty of toys on their birthday as well as toys they might receive throughout the year.

Apparently, the latest craze in the toy world this year is some hatching bird toy called the Hatchimal. There have been stories of parents searching high and low for the toy and stalking other customers who had bought the last Hatchimal to their cars offering double the price that was paid. It’s available on Amazon for about three times the original price of $60, which I’m sure many are more than willing to pay. Parents who are unable to buy the Hatchimal have resorted to writing apology letters to their children from Santa Claus to explain why there will be no Hatchimal underneath the Christmas tree.

Recently, a co-worker asked me if I had given my toddler the Toys R Us catalog so that he could create his Christmas list. Um, nope! When someone asked my son what was on his list, he answered, “I don’t know.” Maybe when he gets older, I won’t be able to avoid this but as of now, he still hasn’t grasped the concept of Christmas meaning new toys and that he should make a Christmas wish list. I’d like to keep it that way for now. Plus, I think a wish list is just a recipe for disappointment if they don’t get what they asked for. Another person told me that telling your child that they may not get the Christmas presents they want if they don’t behave is a great tool to get your kids to do what you want, but shouldn’t they be good for “goodness’ sake.”

Some might be shaking their heads, thinking my poor child is deprived. I assure you he isn’t. He has plenty of toys to play with. He’s got trains, train tracks, cars, blocks (different types), Legos, a box of arts and crafts stuff, a play kitchen, puzzles, and dried beans. Huh? Did I say dried beans? Yes, dried beans. He has entertained himself with his beach toys pretending that the dried beans are sand. Yes, it’s cold here in the northeast and I guess he’s reminiscing about the summertime. Sometimes he puts the beans into his toy dump truck pretending it’s picking up dirt. When he was younger, he was more interested in playing with the box that the toys came rather the toy itself. And now that he’s an older brother, he plays with the baby’s toys too. He doesn’t discriminate against any toy…he’s an equal opportunity toy player.
puzzle

As much as us adults think that the expensive battery operated toys that makes sounds and moves are cooler, sometimes simple is better. I’m sure I’ll be accused of being cheap, but while that is a plus of buying simpler toys, it is not the main factor. The simple toys requires the child to use his or her imagination. My son will get excited with the battery operated toys that makes sounds and moves, but doesn’t play with them for long and eventually loses interest. With the simpler toys like the blocks, I see him building different things every time he plays with it and creating different storylines with them. Also, more is not always better. Research has shown that having too many toys may cause your child to be overwhelmed.

My wife and I will get A present for each of our two kids. They will also get gifts from the grandparents, aunts, uncle and close friends. And I am sure my older son will be excited opening his gifts on Christmas morning. Honestly, I don’t remember all that much about what gifts I received growing up, but I do remember Christmas day as a day my parents did not have to go to work and that we would have dinner with our extended family where I would play with my cousins with the new toys we got. I’d like to think that my kids will get the same amount of excitement from unwrapping Christmas gifts as they will spending time with their extended family.

Related post: How I was shamed for my frugality when I didn’t get something from Tiffany’s for my wife one Christmas. Update: My wife and I do exchange gifts but it’s usually something simple, something practical, something we made, or maybe we’ll go out to eat or some other activity. I would never buy something from Tiffany’s since we would talk to each other about such an expensive purchase first. And as a frugal person herself, she would not want me to spend that money. That year I was shamed. This year I was called a Scrooge!

What Christmas traditions did you grow up with? How many gifts are too many for kids?

It’s Okay to Drive a Minivan!

2011 Toyota Sienna XLE -- 05-18-2011

Recently, two of my co-workers were discussing their growing families and the need to buy a bigger vehicle. They discussed various SUVs with third-row seating to accommodate their needs. When the idea of a minivan entered the conversation, both immediately responded unequivocally, “I could NEVER drive a minivan.”

I have a friend who just had his third child and when I joked that it was TIME for a minivan, he said that his wife is completely against it as she does not want to be seen in a “soccer mom car.” But she IS a soccer mom? Another friend who also just had his third child, said that he has “held out” long enough and that he is finally “biting the bullet” and buying a minivan. It’s as if he were trying to avoid the bubonic plague!

All over the internet, in forums and articles about the best vehicles for families, I read the same vitriol towards the minivan. In the comments section of an article about minivans, one person asked, “is there anything sadder than seeing a dad shamefully climbing out of a minivan in front of his friends and colleagues…instantly beleaguered, defeated and utterly emasculated?” Wow! That’s harsh! Another commenter demanded that one’s “man card” be revoked for driving such an uncool vehicle. A mommy blogger compared it to wearing mom jeans and argued that she wanted to retain a semblance of her pre-mom coolness and did not want to be “defined” by her minivan. Some anti-minivaners would rather buy a behemoth like the Chevy Surburban than be relegated to soccer mom/dad status by driving a minivan.

After our recent addition to the family, we decided it was probably time to replace our old car. My wife was a trooper squeezing in-between two car seats in our Hyundai Sonata when there was another adult, but that wasn’t an optimal solution. A big vehicle really isn’t a necessity for a family of four, but my in-laws do not drive and my parents prefer not to have to drive as they are getting older. In any case, it just made sense to buy a vehicle where I could transport more people. So which is better? A large SUV or a minivan? I didn’t put too much stock in people’s opinion of the coolness factor as image is not my priority.

Doing the research on SUVs and minivans on various sites that talk about cars, I found a common theme. The writers would say that the minivan is the best people-mover, that it is the most functional, practical, and utilitarian choice, but lament the fact that it is ugly and uncool. Sure, I can see the possible coolness factor in a sports car or even sedans and cross-over vehicles, but was a huge SUV really sporty or cool compared to a minivan? I don’t know, and I’m probably not the best person to ask since I mainly see a vehicle as a tool to get from one location to another. Sure, I’d like a “sporty” looking car (whatever that means) with some of the newer safety as well as entertainment features, but ultimately I just want something reliable that does its job.

So after doing some research, deciding that the minivan was more practical, I bought a minivan. Here are a few reasons why I think a minivan is better than a large SUV based on what I read and on my experience so far:

Power sliding doors
– I love them. They’re awesome! I can open the door with a push of a button which is very helpful when I’m carrying a car seat or a bunch of bags. Sliding doors are also great because there’s no risk of the door banging into another car’s door in the parking lot.

Versatility – What good is a third-row if you can’t access it? My friends with SUVs that have a third-row tell me that you can’t get to the third-row if they have car seats installed. You’d have to uninstall the car seat, push the seat up, have the person climb into the third-row, then reinstall the car seat. Then you’d have to repeat this when it’s time to get out. That kind of defeats the purpose of having the third-row to begin with. Minivans also have more interior cargo space than large SUVs. Many of the seats in the minivans can be moved, folded down, or even removed to configure the space how you like it. This Motor Trend article is a bit dated but it does a great job comparing minivans with large SUVs.

Costs – If you compare the costs of a large SUV to the costs of a minivan, you’ll notice that minivans are more affordable. A large SUV like the Chevy Suburban can cost over $50,000 and the Ford Expedition starts at $41,700, while the Honda Odyssey starts at around $30,000. Your auto insurance premiums will also be cheaper. You’re a boring soccer mom or dad right? The insurance companies figure you’re probably not weaving in and out of traffic and making risky maneuvers on the road so you get a lower insurance premium! Fuel economy for minivans are generally superior to large SUVs so you’ll save money on gas too. The Chevy Suburban gets 16 city/23 highway while the Honda Odyssey gets 19 city/27 highway.

And finally, “it’s fun!” Well this is what my 3 1/2 year old son told me when he first climbed inside our new to us minivan. He also called it a “city bus.” Yea, it’s pretty big I guess.

Minivans have lost their popularity as most families flock to the big SUVs. Many car companies have tried to rebrand it, with Toyota calling its minivan a “swagger wagon.” Kia doesn’t even want to call its minivan a minivan, they call it an “MPV” (Multipurpose vehicle). It seems that when choosing a vehicle, most will choose style over substance. I don’t want to judge those who choose large SUVs over a minivan. It’s your choice, your money, and you can do whatever you want. But it just seems ridiculous that so many people will overlook a perfectly good vehicle choice because it might cramp their style.

Okay, can I have my man card back now? Oh wait, I never lost it. I’m not defined by what car I drive and I proudly drive a “dad mobile.”

Why do people despise minivans? Are they really that ugly looking?