When you first saw the title of this blog post, you probably expected me to tell you about my expensive, shiny car being an excessive overextension of my budget, but that’s not the case.
As a member of the corporate staff at PerkStreet, I consider myself a pretty financially savvy guy. Over the past few months, though, I’ve been thinking especially hard about ways to reduce my spending, boost my savings and get more out of my money. I blame this on my colleagues, most of whom are pros at budgeting and saving, rubbing off on me—a nice side-effect of working at PerkStreet. As I thought about all these things, I came to an important realization: Even though it wasn’t fancy, massive or particularly inefficient, my car was a money pit.
The phrase “money pit” may evoke the opposite mental picture: an old, rusty, jalopy missing a hubcap or two. But this isn’t the kind of money pit I had on my hands, either. My problem was a like-new, low-mileage hatchback in good condition. It was what I’d call a “real person’s” car. I shopped around when I bought it and I didn’t get something that was out of my intended price range when I picked it up.
It happened last winter, when I decided to replace my beloved old jalopy, which had required one too many serious repairs and had begun looking like that money pit I just mentioned. After months of extensive research and number-crunching, I purchased a certified pre-owned, low-mileage sporty hatchback that was a great value and fit well within the budget I had set. I put a good chunk down in cash, and got a great APR on the remaining balance. I even made a plan to pay the loan off early.
I had made all the right financial moves, but I overlooked one crucial piece of information: In all my research I hadn’t stopped to consider whether I really needed a car.
I live in Boston and ride my bike to work every day. Once the winter really blows in here in New England, I can take the subway to work. My girlfriend has a car she needs, but we don’t drive separately much at all, and we are generally together on the weekends. Still, I liked knowing I had a car and felt good about paying it off.
Just this month, I came to realize the magnitude of my mistake. When I added up my loan payment, gas, and insurance, I was paying nearly $500 each month. But I was using the car less than five times a month, and many of those trips were just around my (urban, public-transit-friendly) neighborhood! When I broke it down by trip, I was paying over $100 each time I used the car! Sure, this would have decreased once the car was paid off (in about a year), but still—it was clear I didn’t need it.
I couldn’t get past the fact that, if cars generally only depreciate in value, paying for it while I didn’t need it so I could pay less every month for it later on — when I still wouldn’t need it — was silly. I was working towards a goal that didn’t make sense.
I sold my car last week for about a thousand dollars less than I bought it for. (I hadn’t exactly put a lot of miles on it.) And I haven’t missed it yet. Looking back, I can’t believe I thought I needed a car in the first place.
In search for an upside, I’ve been thinking about what I can learn from this misadventure. A few things have emerged:
1) Regardless of how great a deal something is, it’s only a good deal if you actually use it! This applies to group deals, coupons and rebates, too. Small or large, if a purchase is unnecessary or irrelevant, let it go.
2) Sometimes it’s better to make do with what you have. Like the old saying goes, “The devil you know is better than the devil you don’t.” I probably would have come out slightly ahead if I had kept my rusty old beater and made the necessary repairs. If I spent less than a thousand dollars on it, I would have still come out ahead.
3) It’s important to question your assumptions about what you “need.” I thought I needed a car, because I figured that’s just what people do. But rather than focusing on “what people do,” I should have been focused the difference between my personal wants and needs. Buying things I think I need but don’t is the same as buying things I simply want.
Ultimately, this car experience reminded me of some valuable lessons. As a PerkStreet employee, it feels good to be able to say that, while we want you to live a better financial life, we also recognize that the process of doing that involves constant thinking and re-evaluating. We talk about money all the time here. It’s part of our job. But nobody’s perfect at money management. Life changes and it’s easy to get caught up in the same thought patterns. In the end, it’s sharing these kinds of experiences that makes us all better at managing our money.
What are some lessons you’ve learned about your own spending habits lately that could be illuminating to other readers? Please share them in the comments below.