Continued from part 1...
So here's the budgeting experience so far:
I'm using Quicken to track all our expenses. It really helps to see trends and quickly check previous numbers. Turns out just entering in the purchases isn't enough though. So, I went in and updated the budget number so that I could more easily track how we're doing.
The first thing I noticed was that that I hadn't updated some of the expenses. It makes a big difference when my actual Life Insurance expense is twice the budgeted amount for example.
The second thing I noticed was that while we were mostly on budget for the budgeted items, we added some non-budgeted items. These weren't accounted for elsewhere, so we ended up overspending for the month. For example, we bought some movies earlier this month, but there is no budget for it. So if we stick to the budget for everything else, we're still left going over budget. Buying the movies is fine as long as we recognize that something else has got to give.
The third thing I realized was the importance of categorizing items properly. The two biggest examples of this were vacation spending and loans. When we went away for my wife's birthday, we bought alcohol and food for the trip. We also bought a few items that some friends had asked us to pick up. The problem was that these items were all categorized as food. You can just imagine what that did to our food budget. So to track these expenses more accurately, I actually created two new categories: Vacation:Food and Loans.
Lastly, I noticed that our small "savings accounts" weren't being tracked at all. Haircuts, car maintenance, eye glasses, etc. These are expenses that I've broken down into monthly payments, so I that I'm not hit with a huge bill when the time comes. This month was the time we buy the cat his 20lb bag of cat food for example. That kind of throws that budget out.
Once I get this under control, I should be able to find more money to throw at the debt. For example, I budget 250/month for gas. If I only spent 200 one month it's not likely I'll need 300 for the next month, so I can then throw this extra money towards the debt. Also, the next time the car maintenance comes around I'll actually have some money set aside for it.
So, I'm going to keep working at it and I'll let you know how it goes. Overall, I say I appreciate more now than ever the importance of watching your spending closely.
So how do you keep track of your finances? What's working what's not? Do you think it's worth the effort?
Monday, February 1, 2010
Thursday, January 28, 2010
Easier Said Than Done Part I
The reason I created a spending plan in the first place was so that I could pay my debts down faster and to not have to go into more debt in the future. Having the budget gave me that general framework, but it ended up being quite easy to just forget about the money at the end of the month. Then money like my poker savings just disappeared.
So now that I've said I want to budget my money, here comes the tough part. Actually doing it.
I don't currently have a lot of wiggle room in my budget. About the only number I can play with is the amount of debt repayment that I make. With both my wife and I in school (and some previous poor choices) we've managed to get a substantial debt built up. We're not really living outside our means now, but we have a pretty big hill to climb and I'd like to pay it off as quickly as possible.
My biggest motivation is to get out of the condo I'm in. Both to get away from my loud bass playing neighbors and so that we can start on a family.
So I started to tackle the job this week. I'm a pretty organized guy and pretty frugal so I have to confess I figured I'd jump on here and write about some minor tweaks I made and give some great advice about tracking these numbers. Unfortunately I have to admit, it's not quite as simple as I thought.
First off using a credit card complicates budgeting quite a bit. I can see why most financial books recommend avoiding them now. It's not just about carrying a balance. The concept of credit is buy now and pay later, so this months bill is for last months purchases. Mix in cash and it gets very confusing.
It probably wouldn't be so bad if I put the cash aside when I made the purchases to pay the bill next month. At this point though I'm essentially a month behind with not a lot of hope of catching up. In hindsight I shouldn't have let that happen, but let's move on...shall we.
I still won't say credit cards are bad, but they do make for some interesting budgeting issues. In fact, I wrote a posting on why I use my credit card for almost everything. I'll post it in the not too distant future.
At some point I'd like to catch up, so I'm not a month behind (tax return perhaps?). In the meantime, I tally up this months surpluses and deficits and use the difference to pay more (or less) on the line of credit in the following month.
My advice to anyone just starting out is to put money aside when you make those credit card purchases.
Part II next week...
So now that I've said I want to budget my money, here comes the tough part. Actually doing it.
I don't currently have a lot of wiggle room in my budget. About the only number I can play with is the amount of debt repayment that I make. With both my wife and I in school (and some previous poor choices) we've managed to get a substantial debt built up. We're not really living outside our means now, but we have a pretty big hill to climb and I'd like to pay it off as quickly as possible.
My biggest motivation is to get out of the condo I'm in. Both to get away from my loud bass playing neighbors and so that we can start on a family.
So I started to tackle the job this week. I'm a pretty organized guy and pretty frugal so I have to confess I figured I'd jump on here and write about some minor tweaks I made and give some great advice about tracking these numbers. Unfortunately I have to admit, it's not quite as simple as I thought.
First off using a credit card complicates budgeting quite a bit. I can see why most financial books recommend avoiding them now. It's not just about carrying a balance. The concept of credit is buy now and pay later, so this months bill is for last months purchases. Mix in cash and it gets very confusing.
It probably wouldn't be so bad if I put the cash aside when I made the purchases to pay the bill next month. At this point though I'm essentially a month behind with not a lot of hope of catching up. In hindsight I shouldn't have let that happen, but let's move on...shall we.
I still won't say credit cards are bad, but they do make for some interesting budgeting issues. In fact, I wrote a posting on why I use my credit card for almost everything. I'll post it in the not too distant future.
At some point I'd like to catch up, so I'm not a month behind (tax return perhaps?). In the meantime, I tally up this months surpluses and deficits and use the difference to pay more (or less) on the line of credit in the following month.
My advice to anyone just starting out is to put money aside when you make those credit card purchases.
Part II next week...
Monday, January 25, 2010
Doing Magic with Numbers
Time for a little magic!!
Last posting I talked about my poker strategy. I mentioned at the end of it that I had some problems tracking the funds. Here's the first part of the magic trick...the money disappeared.
That's when I noticed that there is a problem with my budgeting technique. I talked about the benefits of budgeting before, but I realize now that creating a budget is just the first step. It gave me a general idea of my limits and for the most part I kept within those constraints even though I wasn't checking the numbers regularly. And, if it wasn't for unexpected expenses it probably would work just fine.
When it comes time to pay the Visa and we need to decide how much to pay, the waters always seem to get a little muddy. We sort of just eyeball the balance in the chequing account and figure out how much we can comfortably afford to pay and still make the next mortgage payment.
To clarify, we don't leave a balance on the Visa ever. However, in this particular case we had some unexpected car expenses and some frivolous (but glorious) travel expenses that needed to be taken care of. So the question was how much to take from the chequing account and how much from the line of credit.
So using the eyeball method and seeing this inflated chequing account, we included my poker winnings in the amount to pay from chequing. Not intentionally of course, but I hadn't really been watching what was in there too closely. Well...there goes my poker plan...or so I thought.
Now here where the real magic begins. Ignoring my other expenses for the time being, let's look at just the car repairs and the poker savings. The poker winnings in this case were $200 and the car repairs were $3000.
Scenario 1:
I put my poker money into a savings account and draw the full $3000.00 from the line of credit.
The result: +$200.00 in savings -$3000.00 on the line of credit
Net result: -$2800.00
Scenario 2:
I use my poker money to pay down the visa and draw 2800 from the line of credit.
The result: $0.00 in savings -$2800.00 on the line of credit
Net result: -$2800.00
Prest-o change-o! The result is exactly the same. Actually I'm better off in scenario 2 because I save the interest on the $200 for as long as I don't pull it back out. And by changing my thinking the disappearing poker money comes right back into view. It's just a number in a column somewhere. Or, it would be if I had been tracking this better.
Keeping that in mind, I don't think it makes a lot of sense to have separate accounts for all these savings (i.e. poker, vacation, car, haircuts, etc). Especially when you have a large outstanding debt like I do. So instead of earning little to no interest I can put these things into the line of credit and save interest. This only works because I can pull the money back out again when I need it though. Putting these towards the mortgage for example would mean the savings would be lost.
The problem is only how to properly track these amounts. I'll discuss this more next post.
Last posting I talked about my poker strategy. I mentioned at the end of it that I had some problems tracking the funds. Here's the first part of the magic trick...the money disappeared.
That's when I noticed that there is a problem with my budgeting technique. I talked about the benefits of budgeting before, but I realize now that creating a budget is just the first step. It gave me a general idea of my limits and for the most part I kept within those constraints even though I wasn't checking the numbers regularly. And, if it wasn't for unexpected expenses it probably would work just fine.
When it comes time to pay the Visa and we need to decide how much to pay, the waters always seem to get a little muddy. We sort of just eyeball the balance in the chequing account and figure out how much we can comfortably afford to pay and still make the next mortgage payment.
To clarify, we don't leave a balance on the Visa ever. However, in this particular case we had some unexpected car expenses and some frivolous (but glorious) travel expenses that needed to be taken care of. So the question was how much to take from the chequing account and how much from the line of credit.
So using the eyeball method and seeing this inflated chequing account, we included my poker winnings in the amount to pay from chequing. Not intentionally of course, but I hadn't really been watching what was in there too closely. Well...there goes my poker plan...or so I thought.
Now here where the real magic begins. Ignoring my other expenses for the time being, let's look at just the car repairs and the poker savings. The poker winnings in this case were $200 and the car repairs were $3000.
Scenario 1:
I put my poker money into a savings account and draw the full $3000.00 from the line of credit.
The result: +$200.00 in savings -$3000.00 on the line of credit
Net result: -$2800.00
Scenario 2:
I use my poker money to pay down the visa and draw 2800 from the line of credit.
The result: $0.00 in savings -$2800.00 on the line of credit
Net result: -$2800.00
Prest-o change-o! The result is exactly the same. Actually I'm better off in scenario 2 because I save the interest on the $200 for as long as I don't pull it back out. And by changing my thinking the disappearing poker money comes right back into view. It's just a number in a column somewhere. Or, it would be if I had been tracking this better.
Keeping that in mind, I don't think it makes a lot of sense to have separate accounts for all these savings (i.e. poker, vacation, car, haircuts, etc). Especially when you have a large outstanding debt like I do. So instead of earning little to no interest I can put these things into the line of credit and save interest. This only works because I can pull the money back out again when I need it though. Putting these towards the mortgage for example would mean the savings would be lost.
The problem is only how to properly track these amounts. I'll discuss this more next post.
Thursday, January 21, 2010
Poker Strategy
I'll be the first to admit that poker probably isn't a good place to try to make money for most people. I gave it a shot but so have millions of others around the world. So, why would I be talking about poker in a personal financial blog??
I have two reasons. The first, is because I'm pretty happy with myself for the system that I came up with. The second is, it leads up to an interesting budgeting problem that I wanted to talk about. I thought about getting it all done in one posting, but then I thought "what's the hurry?".
Before you get all concerned about me here, poker isn't part of any long term financial plan of mine. It's just a hobby that I enjoy to do and I budget $60/month to play. So it's not like I can't pay the mortgage if I lose a lot in a month. For some people that could happen because they have an addiction. Clearly I'd advise them not to play.
I consider my poker money a sunk cost. That's a big economic word for money that can't be recovered once spent. So as I put the money on the poker table I count it gone. Any winnings then are free money. In the past that generally meant that I went out for lunch or bought a video game or something.
Probably not the most practical money management, but it's the way the human mind works. At least mine! It would certainly take at least some of the joy out of winning, if the money went towards groceries or Visa payments. We had those bills covered beforehand anyways. Otherwise the gambling would be irresponsible win or lose.
At the end of last year I won two fairly large tournaments. Large for me anyway. I spent the winnings from the first on a bunch of video games for my PS3. Then a month later I won another tournament. This time I wasn't sure what I wanted to do with it. So I hung onto it.
That's when I came up with the idea to save up my winnings. The winnings can then accumulate and I can draw them out to play more, play at a higher stakes, or better yet fly to Vegas! Wish I'd thought of this sooner.
One issue did come up through all of this though. How do you keep track of this money? Next posting I'll explain how I lost the winnings and then found them again through the magic of numbers.
Anyone else with a hobby that pays? What do you do with the money? How do you keep track of it?
I have two reasons. The first, is because I'm pretty happy with myself for the system that I came up with. The second is, it leads up to an interesting budgeting problem that I wanted to talk about. I thought about getting it all done in one posting, but then I thought "what's the hurry?".
Before you get all concerned about me here, poker isn't part of any long term financial plan of mine. It's just a hobby that I enjoy to do and I budget $60/month to play. So it's not like I can't pay the mortgage if I lose a lot in a month. For some people that could happen because they have an addiction. Clearly I'd advise them not to play.
I consider my poker money a sunk cost. That's a big economic word for money that can't be recovered once spent. So as I put the money on the poker table I count it gone. Any winnings then are free money. In the past that generally meant that I went out for lunch or bought a video game or something.
Probably not the most practical money management, but it's the way the human mind works. At least mine! It would certainly take at least some of the joy out of winning, if the money went towards groceries or Visa payments. We had those bills covered beforehand anyways. Otherwise the gambling would be irresponsible win or lose.
At the end of last year I won two fairly large tournaments. Large for me anyway. I spent the winnings from the first on a bunch of video games for my PS3. Then a month later I won another tournament. This time I wasn't sure what I wanted to do with it. So I hung onto it.
That's when I came up with the idea to save up my winnings. The winnings can then accumulate and I can draw them out to play more, play at a higher stakes, or better yet fly to Vegas! Wish I'd thought of this sooner.
One issue did come up through all of this though. How do you keep track of this money? Next posting I'll explain how I lost the winnings and then found them again through the magic of numbers.
Anyone else with a hobby that pays? What do you do with the money? How do you keep track of it?
Monday, January 18, 2010
Financing the New Car
OK, Thursday I talked about buying a new car. Today let's discuss the financing options.
Option 1, is to lease the vehicle again. I'm sure there are valid reasons to do this and if you think you have one talk to an accountant. I think for the most part these benefits only apply to businesses and only certain ones at that. Even if you want a new vehicle every 2 years it's cheaper to buy the car and then resell it than it is to continue to pay the lease amount. It's certainly not worth it to me when I want to buy a used vehicle and drive it until the wheels fall off. A lot of companies are starting to drop this option as well anyhow.
The only reason I leased the first time was because I bought a car I couldn't afford. Mind you I think they were pushing the lease and compared a 2 year finance to a 4 year lease, but that's beside the point. I don't think it's smart to buy a car you can't afford any more than it is to buy a home you can't afford. So, for me this option is out.
Option 2, is to finance the vehicle. You could finance it through the bank or through the car financing company. One thing to take into consideration which I didn't the first time around, was any financing fees. The car dealers financing options are almost always going to look better than the banks. However, when we financed the dealer charged us a $500 fee. They wanted to charge us $1000 but I told them there was no way that was going to happen. Even with the higher interest at the bank it would have been cheaper to go with them it turns out.
An attractive offer from the dealerships is 0% financing. Again though, this might not mean what it sounds like. Read the fine print. 0% might exclude any offers you would have gotten if you paid cash. It also might have extra fees to finance, etc. Borrowing the money from the bank might allow more bargaining with the company for those cash incentives.
If you have enough room on a line of credit, you don't even need to go to the bank and ask for the loan. If I buy directly from a personal seller and not through a dealership, dealership financing won't be an option anyhow.
So, I'm going to be looking at some form of Option 2 because I don't have any other funds set aside. I'll use the line of credit if I can free up enough room, but otherwise it will be some sort of financing. However, there is a 3rd option that I plan to use on every vehicle from now on.
Option 3, is to pay cash from a good old fashion bank account. Sounds crazy I know, but let me explain before you give up.
Let's say I borrow the $12,600 from the bank to buy a 2yr old Ford Focus. Ignoring the $1000 push, pull or drag event. Assuming I finance that over 4 years at say 5%, the monthly payments are approximately $275/month. Here's the trick, once I'm done paying off the car, I continue to make the payments. Only this time to myself. Assuming the car lasts my projected 10 years, I then have $13,200 sitting in the bank for the new car.
The next car becomes even cheaper because I have longer to save for it. I could put $130/month aside and be able to pay cash for the next vehicle. You get a much better feeling of satisfaction when you pay for something with your own money. Not only that but earn interest on your money instead of paying interest on the money borrowed.
Now, if you're thinking you can't afford to put the money aside monthly, then how are you going to afford to make the higher monthly payments to finance it yourself? Somehow we always find a way. That's the same sort of mentality you have to bring to this to make it succeed.
Now that you're talking about a significant amount of savings, let's look at a way to make the money grow even faster. This results in lowering our monthly car payment even further.
For example, if you put $125/month aside into a saving account and want a new vehicle every 8 years. After 1 years of savings, you can buy a 7 year GIC. Then the following year you buy a 6 year GIC, etc. Earning much more interest than in a simple savings account. This technique is called laddering. I think the 5 year GIC might be a max, so you might need to buy a 5 year then a 2, but you get the idea.
Using INGs current GIC numbers, you end up with $12,846.59. More than you need with $5 less a month. Money you earned rather than gave to the finance company. If you compared 4 years on your own to 4 years with the finance company you save at least $25 a month. Not to mention the benefits that paying cash gives you.
The best part of all of this is that this technique applies to every big purchase, not just cars. Reversing the cycle of borrow, buy, repay can save you a lot of money in the long run! Not to mention the great feeling of not being indebted to anyone.
I'm going to use this technique on my vacations, flooring, and new electronics as well.
As always I'd love to hear your thoughts.
Option 1, is to lease the vehicle again. I'm sure there are valid reasons to do this and if you think you have one talk to an accountant. I think for the most part these benefits only apply to businesses and only certain ones at that. Even if you want a new vehicle every 2 years it's cheaper to buy the car and then resell it than it is to continue to pay the lease amount. It's certainly not worth it to me when I want to buy a used vehicle and drive it until the wheels fall off. A lot of companies are starting to drop this option as well anyhow.
The only reason I leased the first time was because I bought a car I couldn't afford. Mind you I think they were pushing the lease and compared a 2 year finance to a 4 year lease, but that's beside the point. I don't think it's smart to buy a car you can't afford any more than it is to buy a home you can't afford. So, for me this option is out.
Option 2, is to finance the vehicle. You could finance it through the bank or through the car financing company. One thing to take into consideration which I didn't the first time around, was any financing fees. The car dealers financing options are almost always going to look better than the banks. However, when we financed the dealer charged us a $500 fee. They wanted to charge us $1000 but I told them there was no way that was going to happen. Even with the higher interest at the bank it would have been cheaper to go with them it turns out.
An attractive offer from the dealerships is 0% financing. Again though, this might not mean what it sounds like. Read the fine print. 0% might exclude any offers you would have gotten if you paid cash. It also might have extra fees to finance, etc. Borrowing the money from the bank might allow more bargaining with the company for those cash incentives.
If you have enough room on a line of credit, you don't even need to go to the bank and ask for the loan. If I buy directly from a personal seller and not through a dealership, dealership financing won't be an option anyhow.
So, I'm going to be looking at some form of Option 2 because I don't have any other funds set aside. I'll use the line of credit if I can free up enough room, but otherwise it will be some sort of financing. However, there is a 3rd option that I plan to use on every vehicle from now on.
Option 3, is to pay cash from a good old fashion bank account. Sounds crazy I know, but let me explain before you give up.
Let's say I borrow the $12,600 from the bank to buy a 2yr old Ford Focus. Ignoring the $1000 push, pull or drag event. Assuming I finance that over 4 years at say 5%, the monthly payments are approximately $275/month. Here's the trick, once I'm done paying off the car, I continue to make the payments. Only this time to myself. Assuming the car lasts my projected 10 years, I then have $13,200 sitting in the bank for the new car.
The next car becomes even cheaper because I have longer to save for it. I could put $130/month aside and be able to pay cash for the next vehicle. You get a much better feeling of satisfaction when you pay for something with your own money. Not only that but earn interest on your money instead of paying interest on the money borrowed.
Now, if you're thinking you can't afford to put the money aside monthly, then how are you going to afford to make the higher monthly payments to finance it yourself? Somehow we always find a way. That's the same sort of mentality you have to bring to this to make it succeed.
Now that you're talking about a significant amount of savings, let's look at a way to make the money grow even faster. This results in lowering our monthly car payment even further.
For example, if you put $125/month aside into a saving account and want a new vehicle every 8 years. After 1 years of savings, you can buy a 7 year GIC. Then the following year you buy a 6 year GIC, etc. Earning much more interest than in a simple savings account. This technique is called laddering. I think the 5 year GIC might be a max, so you might need to buy a 5 year then a 2, but you get the idea.
Using INGs current GIC numbers, you end up with $12,846.59. More than you need with $5 less a month. Money you earned rather than gave to the finance company. If you compared 4 years on your own to 4 years with the finance company you save at least $25 a month. Not to mention the benefits that paying cash gives you.
The best part of all of this is that this technique applies to every big purchase, not just cars. Reversing the cycle of borrow, buy, repay can save you a lot of money in the long run! Not to mention the great feeling of not being indebted to anyone.
I'm going to use this technique on my vacations, flooring, and new electronics as well.
As always I'd love to hear your thoughts.
Thursday, January 14, 2010
Thinking about a New Car
I've been thinking about this for awhile and figured I'm running out of time to figure this out. Our Honda has had a good run and while technically running fine now, it's getting up there in age. Car years are like dog years right?
When I leased it originally, I wasn't all that financially savvy. So I didn't give it much thought. My wife wanted a Honda and I figured we'd get rid of our two old vehicles and buy brand spanking new. I figured it would pay for itself just by saving on all our repair costs. Well...I was wrong. Leasing was the only option for us (or so I thought) because of the high cost.
Almost 8 years later it is paid off and I'm thinking of doing it all over again. Only this time I wanted to give this some more thought before I make this big purchase.
OK, now for the details. I'm not married to any make or model although I was pretty happy overall with my Honda Civic. I don't want or need a luxury vehicle and in fact never plan to own one. Although, I wouldn't mind a few more features this time, like automatic windows, mp3 player, etc. My preference is for a new vehicle, but I'm not opposed to buying used.
Seeing as I'm not devoted to any brand like I know a lot of people are, I have to consider domestic vs import. Those terms are used lightly these days as the parts for either are made and put together around the world. I searched and searched for some good statistics, but all I've found are opinions. From what I've gathered the life span and repair bill are roughly the same no matter which option you choose. I'm talking about cars built in the last 10 years or so. Once the vehicle becomes too costly I plan to move on anyhow and a newer vehicle should have few problems regardless of the make and model.
Just like our retirement calculation we have to make some assumptions. I'm going to assume the average car has a lifespan of 300,000km or about 10 years. When I did some searching I found the average age of a vehicle in the US to be about 13 years old.
For my comparisons I chose Ford Focus for my domestic and Honda Civic for my import. "Why?" you ask. I just wanted to keep the comparison simple for now and the make/model doesn't matter too much. I gave them similar features that I consider musts like A/C, floor mats, power windows/locks and MP3 players. The actual vehicle I decide to purchase might be completely different, but it gives us a general idea about which option will win out. Although if import wins out, Honda is likely to be my next purchase.
If it sounds like I haven't made up my mind yet, it's because I haven't. You'll be reading the results as I figure them out.
So my next question is whether to by new or used and when to trade the vehicle in. This is where the import/domestic comes into play again. The domestics are obviously cheaper and will therefore come out ahead in most scenarios. However, if I plan to buy a new car every 2-5 years, having a vehicle with a higher resale value is important. If I plan to drive the car into the ground like I did this time, then the low depreciation of a Honda/Toyota is irrelevant.
One last thing about depreciation. I've often looked at a 1-2 year old Honda and wondered why anyone in there right mind would buy used over new, when the saving was so small. The mistake I was making was that I was looking at the list price. The real price is going to be quite a bit higher on a new vehicle once you factor in taxes, financing fees, rust protection, etc. These used vehicles have all that included.
So let's run some numbers and find out who wins...
The 2 year old and 5 year prices were calculated using a depreciation calculator not actual prices. Although I did find the actual values to be pretty close to this.
I broke the costs out by the monthly amount in order to make the comparison. For example, a 5 year old ford every 5 years would cost $107.17 ($6430/5yrs/12months). The new Honda every 10 years would cost $211/month.
If you want a new vehicle every 2-5 years, the Honda wins out due to the lowered depreciation levels. In fact if it has to be a Honda you're better off buying a 2 year old vehicle and keeping it for 8 years than you are buying a 5 year old every 5 years. Odd I know! This phenomenon doesn't happen with Ford.
If you're looking for the best deal overall though, the 5 year old Ford wins out. So it's not that surprising then that the wealthiest people in the US generally buy used domestics. I learned that tidbit from The Millionaire Next Door (book review one day maybe?).
Preferences would obviously take a big role in this decision. For me personally I can't justify the extra cost of an extra $100 per month (plus the financing costs) to own a new imported vehicle. I have better uses for that money. However, I have decided that it is worth it to me to get the 2 year domestic over the 5 year old domestic. The cost difference is under $30 more a month, but it's worth the piece of mind to me.
I'll talk about how I plan to finance this next. This topic has already grown way to large.
So, what do you think? Is the extra $$$ worth new or import to you?
When I leased it originally, I wasn't all that financially savvy. So I didn't give it much thought. My wife wanted a Honda and I figured we'd get rid of our two old vehicles and buy brand spanking new. I figured it would pay for itself just by saving on all our repair costs. Well...I was wrong. Leasing was the only option for us (or so I thought) because of the high cost.
Almost 8 years later it is paid off and I'm thinking of doing it all over again. Only this time I wanted to give this some more thought before I make this big purchase.
OK, now for the details. I'm not married to any make or model although I was pretty happy overall with my Honda Civic. I don't want or need a luxury vehicle and in fact never plan to own one. Although, I wouldn't mind a few more features this time, like automatic windows, mp3 player, etc. My preference is for a new vehicle, but I'm not opposed to buying used.
Seeing as I'm not devoted to any brand like I know a lot of people are, I have to consider domestic vs import. Those terms are used lightly these days as the parts for either are made and put together around the world. I searched and searched for some good statistics, but all I've found are opinions. From what I've gathered the life span and repair bill are roughly the same no matter which option you choose. I'm talking about cars built in the last 10 years or so. Once the vehicle becomes too costly I plan to move on anyhow and a newer vehicle should have few problems regardless of the make and model.
Just like our retirement calculation we have to make some assumptions. I'm going to assume the average car has a lifespan of 300,000km or about 10 years. When I did some searching I found the average age of a vehicle in the US to be about 13 years old.
For my comparisons I chose Ford Focus for my domestic and Honda Civic for my import. "Why?" you ask. I just wanted to keep the comparison simple for now and the make/model doesn't matter too much. I gave them similar features that I consider musts like A/C, floor mats, power windows/locks and MP3 players. The actual vehicle I decide to purchase might be completely different, but it gives us a general idea about which option will win out. Although if import wins out, Honda is likely to be my next purchase.
If it sounds like I haven't made up my mind yet, it's because I haven't. You'll be reading the results as I figure them out.
So my next question is whether to by new or used and when to trade the vehicle in. This is where the import/domestic comes into play again. The domestics are obviously cheaper and will therefore come out ahead in most scenarios. However, if I plan to buy a new car every 2-5 years, having a vehicle with a higher resale value is important. If I plan to drive the car into the ground like I did this time, then the low depreciation of a Honda/Toyota is irrelevant.
One last thing about depreciation. I've often looked at a 1-2 year old Honda and wondered why anyone in there right mind would buy used over new, when the saving was so small. The mistake I was making was that I was looking at the list price. The real price is going to be quite a bit higher on a new vehicle once you factor in taxes, financing fees, rust protection, etc. These used vehicles have all that included.
So let's run some numbers and find out who wins...
| Ford Focus SE | Honda Civic SE | |
|---|---|---|
| New | 21,805 | 25,365 |
| 2 Years Old | 12,560 | 18,511 |
| 5 Years Old | 6,430 | 13,050 |
The 2 year old and 5 year prices were calculated using a depreciation calculator not actual prices. Although I did find the actual values to be pretty close to this.
I broke the costs out by the monthly amount in order to make the comparison. For example, a 5 year old ford every 5 years would cost $107.17 ($6430/5yrs/12months). The new Honda every 10 years would cost $211/month.
If you want a new vehicle every 2-5 years, the Honda wins out due to the lowered depreciation levels. In fact if it has to be a Honda you're better off buying a 2 year old vehicle and keeping it for 8 years than you are buying a 5 year old every 5 years. Odd I know! This phenomenon doesn't happen with Ford.
If you're looking for the best deal overall though, the 5 year old Ford wins out. So it's not that surprising then that the wealthiest people in the US generally buy used domestics. I learned that tidbit from The Millionaire Next Door (book review one day maybe?).
Preferences would obviously take a big role in this decision. For me personally I can't justify the extra cost of an extra $100 per month (plus the financing costs) to own a new imported vehicle. I have better uses for that money. However, I have decided that it is worth it to me to get the 2 year domestic over the 5 year old domestic. The cost difference is under $30 more a month, but it's worth the piece of mind to me.
I'll talk about how I plan to finance this next. This topic has already grown way to large.
So, what do you think? Is the extra $$$ worth new or import to you?
Monday, January 11, 2010
New Years Resolutions
Happy New Year Everyone! I suppose this should have been last weeks topic, but I had to finish up that series first. :)
I'm not big on New Years Resolutions. What I mean by that is I don't like waiting until the new year to resolve to get something done. If I resolve to change my life in March I start in March, not January of the following year. If I fail in February, I don't say "oh well, there's always next year".
I do believe in resolutions though. I also believe in "clean slates". If I fall short of my goals, I dust myself off and start again. Depending on the goal, that might be the next day, week or month. For example, my weight loss goals this past year were weekly and when I gained or lost little in a week, I just started fresh the following week and carried on. It sure helps prevent getting down on yourself (or at least keeps the mourning shorter).
So, if I'm opposed to "New Years" resolutions, why am I doing one now you ask? Well, it's only because my latest resolution happened to fall in January. :)
Ever since I did my budget (years ago) I've been staring at the big eating out number. I keep feeling like there isn't enough money to go around and it's really the only number I can play with at the moment. It doesn't feel like we're eating out that much, but every month we seem to spend about $300 on dining out.
I know what some of you are thinking right now! Before you freak out on me for that number, make sure you know what your number is first. I was very surprised when I found out mine!
So we resolved to cut this eating out number down. It's already been tough and tempting to break this resolution. Especially when we're both tired after work/school or when I wake up late and don't want to pack a lunch. What keeps me going is knowing how much we can save by eating at home and what we can do with that money.
I also just don't make it an option. When I sleep in (which is always by the way) I just tell myself that buying lunch is not an option. After all if I'm behind by a few minutes I still need to brush my teeth, get dressed, etc. I'd never cut those things out when I sleep in, so I just make packing a lunch one of those things.
I suppose I could have also resolved to pack my lunches at night and go to bed earlier, but one man can only do so much! ;)
Another resolution that I made, is to eat less processed foods. Why? Because it's generally cheaper and better tasting to make the food "from scratch". Less chemicals in the body probably won't hurt either.
While convenient, the processed foods don't really save all that much time.I already make my own pancakes from scratch and have often mocked the use of instant mix. Being the hypocrite that I am though, I buy pre-made patties, microwavable lunches, etc. Honestly I don't think the increase in time will be that significant, while the health and financal benefits will be.
Anyhow, wish me luck. What do you think? What resolutions did you make?
I'm not big on New Years Resolutions. What I mean by that is I don't like waiting until the new year to resolve to get something done. If I resolve to change my life in March I start in March, not January of the following year. If I fail in February, I don't say "oh well, there's always next year".
I do believe in resolutions though. I also believe in "clean slates". If I fall short of my goals, I dust myself off and start again. Depending on the goal, that might be the next day, week or month. For example, my weight loss goals this past year were weekly and when I gained or lost little in a week, I just started fresh the following week and carried on. It sure helps prevent getting down on yourself (or at least keeps the mourning shorter).
So, if I'm opposed to "New Years" resolutions, why am I doing one now you ask? Well, it's only because my latest resolution happened to fall in January. :)
Ever since I did my budget (years ago) I've been staring at the big eating out number. I keep feeling like there isn't enough money to go around and it's really the only number I can play with at the moment. It doesn't feel like we're eating out that much, but every month we seem to spend about $300 on dining out.
I know what some of you are thinking right now! Before you freak out on me for that number, make sure you know what your number is first. I was very surprised when I found out mine!
So we resolved to cut this eating out number down. It's already been tough and tempting to break this resolution. Especially when we're both tired after work/school or when I wake up late and don't want to pack a lunch. What keeps me going is knowing how much we can save by eating at home and what we can do with that money.
I also just don't make it an option. When I sleep in (which is always by the way) I just tell myself that buying lunch is not an option. After all if I'm behind by a few minutes I still need to brush my teeth, get dressed, etc. I'd never cut those things out when I sleep in, so I just make packing a lunch one of those things.
I suppose I could have also resolved to pack my lunches at night and go to bed earlier, but one man can only do so much! ;)
Another resolution that I made, is to eat less processed foods. Why? Because it's generally cheaper and better tasting to make the food "from scratch". Less chemicals in the body probably won't hurt either.
While convenient, the processed foods don't really save all that much time.I already make my own pancakes from scratch and have often mocked the use of instant mix. Being the hypocrite that I am though, I buy pre-made patties, microwavable lunches, etc. Honestly I don't think the increase in time will be that significant, while the health and financal benefits will be.
Anyhow, wish me luck. What do you think? What resolutions did you make?
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