Apr 15, 2011 56 comments

Getting Started #3 – Eliminate Short-Termitis, the Bankruptcy Disease

No SUV Required

I just saw one of those automatically generated text ads at the top of my Gmail account. Here’s what it said:

2011 Pilot 4WD LX $319/mo

(note: this article was first published in April 2011 but you can substitute the current year whenever you read it.)

It gave me shivers to look at it, just because it is advertising a purchase that is so wrong on so many levels. We’ll get into all of those levels in future postings, but… no, fuck it, let’s talk about this particular piece of financial suicide right now.

The model year. Why the hell would you buy a brand new car? Unless you’re a taxi company and you are going to systematically run that vehicle 60,000 miles per year until it evaporates at a million miles, you don’t need anything close to a brand new car to get around.
Honda Pilot. A ridiculous truck from a great car company. 4500 pounds, 250 horsepower, 31 thousand dollars, all so you can carry usually-one-person on a paved road at 23 MPG.. 4 MPG worse than my work truck (a borrowed 1984 Nissan pickup) gets.
$319/month. What!? Are we renting the truck here? We don’t buy things by thinking about how much they are “per month”.

And that brings us back to being on topic for today’s post. There are several ways to think about a purchase. We can list them here in order of increasing intelligence.

I just want it and I don’t know how much it costs – put it on my credit card and I’ll deal with it later.
$319 per month? I think I could afford that because I’m already paying $299/month on my current car and that’s only 20 bucks more.
$31,000 is the price of the Honda Pilot? I do have $32,000 in the bank so I guess I’ll buy it.
$31,000 list price, plus $2400 sales tax, $1600 registration equals about $35 grand. If I buy a 2002 Honda Odyssey for $6000, which is the same vehicle in a more practical minivan body, I save $29,000. Over a ten year period, that money will compound at 7%, saving me a total of $57 THOUSAND DOLLARS!

Wow, is a 2011 Honda Pilot really worth $57,000 more than a 2002 Honda Odyssey?

As a future young millionaire, you need to start thinking about all of your purchases as LONG-TERM events, not short-term ones. That means each decision should be carried forward in your mind for at least 10 years, rather than just until your next paycheck. Here are a few more fun examples.

A deserving couple eating out at a restaurant twice a week, with wine, dessert, and coffee ($75), versus once a week with just a nice meal ($40): A difference of $110/week, compounded at 7% for ten years is $82,756. Would you rather have a luxuriously soft flabby physique from 1040 restaurant meals, or a leaner one and $82,756 in the bank?
A Starbucks habit of picking up a regular coffee and biscotti on the way to work each workday. $4/day = $20/week = $15,040 in coffee over just ten years!!
A new pair of shoes, or a few necessities from target, or a professional haircut.. once a month, for a total of $100. $17300 of handbags and closet organizers and hair clippings in ten years!

Now that you are amazed by the numbers, here is the simple formula for you to apply yourself.

to calculate a weekly expense compounded over ten years, multiply the price by 752
for a monthly expense, multiply by 173

You can fiddle around with the “future value calculator” at calculatorsoup.com for other interest rates and payment amounts.

See? Everything costs a thousand times more than the price tag you see, Now you don’t want something just because your next paycheck will cover it. You want those big sums in bold above much more, right?

Good. We have now cured your case of Short-Termitis.

Previous Post: What Does “Early Retirement” Mean Anyway? Next Post: Getting Started #4 – If you Try Sometimes, you Just Might Find, you Get What You Need

Want More?

Kristine April 18, 2011, 11:06 pm

I am finding your comments on cars particularly interesting seeing as we are shopping for one. And we were thinking of a CRV. We were originally planning on buying a used car outright. But then we noticed that in south FL at least, it seems impossible to get a good used car! Now, we are not people who need the best cars ever. Our family car is a 1997 Honda Civic that despite my husband having learned to do most of the maintenance on is slowly falling apart around me. We tried looking at used cars and they seem to cost almost as much as buying new. And you might think you get a better deal with a private seller versus a dealership, but we found that a lot of the “sellers” on craigslist were in fact used car dealerships. It’s been very frustrating to the point that although both of our cars (the other is a 2001 Nissan Frontier) are paid off, we are seriously considering incurring a car payment to get a safer slightly larger family car to at least get the warranties that come with it while still having money in the bank. Plus, we intend to keep that car well maintained for a least 10 years. So I was curious as to whether Mr. Money Mustache had any advice in this situation?

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Kristine April 18, 2011, 11:10 pm

PS I am not trying to incur the wrath of MMM because we are really wondering what to do. We really do need a better car, but at the same time we are trying to build up a 6 month savings buffer so my FIL is pushing us to buy new and keep our money in the bank.

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- MMM April 19, 2011, 9:06 am
  
  Hi Kristine, Thanks for that perfect question! And congratulations on keeping your 1997 Civic going this long – you are already way ahead of many of us. Your story is perfect, because many people go down the exact same path leading to a new car. It’s even more perfect because the CRV is the best-selling SUV in the country right now, so many people end up in just the same place.
  
  The car industry makes it very easy and convenient to buy a new car, and by comparison it takes much more legwork to really score in the used car market. I happen to be a car-head, so I actually find it fun to shop for great deals on used cars. But most people don’t have this affliction. So with that in mind, I decided to make that exact situation the topic of today’s post. I’ll post it later today.
  
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  - Thomas October 11, 2011, 4:54 am
    
    Hi mate, very informative blog you got here! About buying latest brand new car vs older (probably used) car, ain’t the first one better in the long term? E.g. it’s newer so it: 1. more energy efficient 2. less maintenance 3. higher price when sold. in essence, lower cost and higher resell value. At least that’s what people in here think. Please advice.
    
    Reply
    - Entity325 February 18, 2012, 12:32 pm
      
      I can’t believe you people have left this poor guy hanging for 4 months! On to the response.
      
      Those people are stupid and probably can’t do math. A new car loses most of its value within the first 2 years, so NEVER buy a car that’s less than 2 years old. As MMM says in another one of his postings, “It’s stupid to spend ALL of your money on a car, let alone MORE THAN ALL of it!” The reason for this is that a car is NOT an asset. It depreciates over time(at least, over the first 60 years), so you should only buy enough car to get you to where you need a car to get to.(MMM also heavily espouses the benefits of bicycling, but I’m sadly not that Mustacian.)
      
      If you own a given car for 7 years or more, the depreciation of a new one vs. one that already has a decade on its back is going to offset any energy savings you may enjoy, offset any reduced maintenance fees, and… let’s get honest, you probably aren’t going to sell it anyway.
      
      If you get rid of a car after owning it for less than 7 years, it had BETTER BE because you wrapped the thing around a tree and can’t drive it anymore. Otherwise you’re throwing more money away on a stupid expense.
      
      I currently drive a 1989 Oldsmobile Royale. It cost me $400(plus a bit of maintenance), I’ve had it for about a year now, and it’s already out-valued anything I could have bought new over that time. It has at least another 3 or 4 years on it.
      
      Reply
      - Al_Martinsen November 19, 2019, 2:12 pm
        
        At least here in Europe, when you buy a new car with, let’s say, 5 years warranty, you HAVE TO take your car to the official brand once a year for maintenance. If you go to a 3rd party you’r warranty will be void. And the official services are WAY higher than any 3rd party one, because it’s also another way to charge you even more.
        
        Let other people do that for you and buy a car without that slavery contract in place ;). I did the stupid mistake of buying a new car several years ago and I’ll never do that again.
        
        Reply
  - Brennan Bohmer February 18, 2017, 7:57 am
    
    Hello sir, I have a side question… something I’ve had in the back of my mind since I heard your podcast with Tim, that’s actually why I dove into your blog writings. I am wondering what you think would happen to index funds in the future if the majority of people in the poor/middle and upper middle class started living your teachings? Would new industries emerge and individual companies within these funds correct them selves or would the decrease in value?
    
    Reply
Kristine April 19, 2011, 10:20 pm

Thanks! I read the post to my husband. I am still digesting the info and thinking about how to respond. You kind of incited my husband who did in fact spend a day with his cousin (who buys, fixes up cars, and sells them on Craigslist) attempting to weed out private owners versus dealerships and they ran into a LOT of shady garbage including rebuilds (which I understand are bad) and dealers trying to trick people into thinking they are owners by taking pictures of cars in front of random houses. I got a rant about the difficulties of dealing with Craiglist. So while he is not opposed to getting a used car, perhaps Craigslist is not a wonderful way to go about it down here. The cars you suggested still seem a little small to us when we factor in things like 2 large car seats and wanting the ability to be able to drive somewhere on a family vacation and be able to bring luggage. We aren’t in a big rush to buy a car, but before summer would be nice since the Honda has a thermostat issue with the A/C and it kinda feels like child abuse to drive the kids around in the summer with one that blows only hot air. So we are not impulse buying anything.

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- Yvonne May 22, 2013, 10:17 am
  
  I am just getting here and reading old posts, but I want to add to this one. We also considered our love of road trips in considering whether to get another vehicle….. our current one has 202,000 miles and still going strong. However, it is not something I would trust on a long road trip. We did the math. We come out WAY cheaper keeping our old trusty and just renting something newer and bigger for a road trip. Especially with most rentals not charging for mileage, it makes it way cheaper to pay extra for a couple of weeks two or three times a year than it does to pay extra EVERY MONTH (not just for the car; extra insurance costs, etc.)
  
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  - Mr. Money Mustache May 22, 2013, 10:54 am
    
    Great strategy Yvonne – own the basic transportation, and rent the peace of mind that comes with brand-newness – only when you really need it.
    
    Reply
  - Mark Hayden November 5, 2014, 9:01 am
    
    Awesome We love road trips too… The Toyota Tacoma
    Has 395,00o miles on her and she just drove from Cali
    To Denver now heading to Durango, Sedona, and Zion
    Keeping the old one rolling still makes sense!!
    
    Reply
Kristine April 19, 2011, 11:01 pm

I’m reading about the Honda Fit and I think I’m open to the idea. Perhaps it is not as small as I am thinking.

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MMM April 20, 2011, 10:34 am

Nice! I definitely agree with your comments about comfort and convenience. I have found that getting a great deal on Craigslist takes a few weeks of review, rather than just a few days. And it’s not just the Miami area that has funny characters selling cars – Denver is just the same. But the biggest goal of the MMM blog is to get people to look past the emotional barriers – the perceived inconvenience of working harder to shop for a car or bring less luggage on a trip – and weigh it logically against the benefits of having an AMAZING life of not having to worry about money, and soon not even having to work!? I think you have just inspired another post on trying to weigh factors like these using numbers!

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ConsciouslyFrugal May 2, 2011, 12:15 pm

Howdy! Found your blog via Brown Girl in the Lane and find it quite entertaining. Ah, to read about finance and not be bored out of my effing mind. Sweet!

Anyhoo, I would just like to add: Folks actually have to *invest* money saved on expenses to make that shit real. We’re always talking about what saved money means in terms of long-term investments, but if you just piss it away on something else (which is what most people do, naturally), none of that fabulous math will ever be realized.

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- MMM May 2, 2011, 3:50 pm
  
  Hey, thanks a lot CF, it makes me very happy to hear that! I have always felt that reading and writing about money should feel more like scratching a turntable and mixing in some beats rather than doing tests from the back of an old school textbook. Money is very fun stuff to play and work with, not boring at all.
  
  You’re right – you can’t just save money on cars and then spend it on pedicures. According to the stats, most people have some really bad debts outstanding (credit card, car, student), so I’m trying to get people to start by paying those off, which has a guaranteed compounding effect in itself. Once they are clear of that, I have an earlier post called “what am I supposed to do with all this money” that can work as an introduction to investing. Then we will get a bit fancier in the future for those looking to really optimize their investment gains for different situations.
  
  ‘Stash
  
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JN Urbanski May 12, 2011, 7:11 am

I just had to comment on this post. Yes, people really do think the way you described in your third paragraph! It’s astonishing! I think they think they’ll be working until they’re dead anyway, so they might as well just figure the cost by month. A friend recently bought ten year old Volvo for $10K and he financed it and was pleased with his APR. I asked him how much he would be paying over the life of the loan and he figured it out at $17K and was shocked to the core. Anyhow..

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Acorn May 25, 2011, 10:20 am

This blog is terrific and your writing clear and concise, thank you very much for taking the time to educate us novices.
I have a dumb question, but when compounding, are you compounding monthly/yearly? How do you decide?

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- MMM May 25, 2011, 9:07 pm
  
  Hi again Acorn, thanks for reading!
  
  For my examples, I use monthly compounding. So it’s as if someone put a series of monthly payments into an interest-bearing account, and the interest got added each month. I do that since it is similar to how most people save money – putting some away every paycheck or every month. If you compound annually instead, you get a slightly lower return, but it isn’t an enormous difference.
  
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YYC Guy June 5, 2011, 4:22 pm

The best way to buy a car is to save money and investing until the amount needed to buy the vehicle is reached. This way the deal is really in our favour; at the same time, you can make money out of the interest. Now you will say shit..who has money to save, invest and live ? Not anyone but that is the target. Save in TFSA, and invest in something. Every extra penny received as interest is not taxable so there, another reason to save money. Our days vehicles are built well, they last 10 years. So sacrifice four out of five Timmy’s, bring lunch from home, bike in the summer to work (its good for you), or walk (also good for you), buy good food and eat less (really eating more feels better sometimes but it does not add up in the pocket but a bit above the pocket …on the belly). Anyhow…just a thought, probably not everyone has this option but I consider it ideal for a mid class citizen.

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repairman October 1, 2011, 7:30 am

Have you considered the cost of repairs in your calculations? A new car is going to run for a few years with little to none maintenance cost where as a 2002 car is likely going to need repairs more often. Also, are you expecting the 2002 car to still be running in 10 more years, if not, have you considered the cost of purchasing more replacement vehicles? I also value my time, so it costs me something to spend my days tracking down the perfect used car — time I’d rather spend doing something else.

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- Gerard October 11, 2012, 7:51 am
  
  It’s an empirical question, though. If it takes you ten hours you’d rather spend doing something else, and you come out $5000 ahead on car costs, you’ve paid yourself $500 an hour for the inconvenience.
  
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Melissa October 3, 2011, 10:52 am

Hi MMM!!!

I just stumbled across your site from a yahoo article on a couple who retired at age 43….a commenter put your name “MMM” on the comments!

I just wanted to say that I absolutely love your blog and advice on how to perceive money…you give fantastic examples on how to live smartly. I am sending your site out right now :)

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Recovering Consumerist October 15, 2011, 10:16 am

Mathematically challenged Arteeest here. If you’d be so kind, please hip me to the compounding formula used to arrive at $115k.

See, I looked up all these fancy monthly compunding calcs, entered $440/mo contributions at 7% annually for 10 years. $76157.32 was the result.

I’m quite sure I borked part of this life-saving equation, so help me obi-wan, you’re my only hope!

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- MMM October 15, 2011, 11:34 am
  
  Thanks Arteest. You caught me in a typo! I fixed several parts of the article to get the numbers right, and added a link to the calculator I used. Note that in the restaurant example you used, I calculated $110 per week instead of $440 per month, since there are a bit more than 4 weeks in a month.
  
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  - Recovering Consumerist October 16, 2011, 9:09 am
    
    Ahh. I see the math now. Thanks mucho for dropping some killer knowledge on this recovering consumerist.
    
    (And may i say…Wholly shit! Catching a typo is a first for me and can now cross that off the bucket list, so I thank you doubly for that!)
    
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Jeremy October 17, 2011, 3:28 pm

I’m struggling to understand how the Future Value Calculator works and how your figures of 173 and 752 work. I’d love to have a simple multiplier to carry around with me, but I’d like to know what it means so I can adjust for paying debt vs investing.

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- Jeremy October 19, 2011, 5:40 pm
  
  Never mind, I figured it out.
  
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RJ April 19, 2012, 7:17 am

Great blog.

I guess your theory works well in first world countries. A lot us can’t make much by saving on coffee (costs around $0.23).
A fresh college graduate makes around $400 a month, if lucky. Unlucky ones like me make around $250.

Many of us do try to get by with what’s only truly necessary, with an occasional splurge once in a while.

Boy, would I LOVE to retire at 30 :)

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- CL October 25, 2012, 11:00 am
  
  You’re right that you can’t save 20 per week on coffee in a place where coffee costs 23 cents. But again it’s all about the saving rate. Also, I don’t trust the regulation of securities in most Third world countries, which might be a good reason to move. You can make your own choices abut the opportunities you want to take. MMM is not from a third world country yet he moved for new opportunities. I lived in Ecuador for a bit and there’s a reason that a lot of people have left.
  
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George January 24, 2013, 12:52 pm

I have not had a car payment in 9 years since I realized what a waste of $ car payments are. First step is drive what ever you can pay cash for, even if its only $1000. Drive it as long as possible while saving money for a better car (ie $5000). Sell the first car for scrap ($450) + $5000= a $5450 car. Save 12 mths for your next car. Sell the $5450 and combine the cash with the money saved and buy your next car. Within 3-4 years youre driving a nice car with no payments.

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Tom May 28, 2013, 6:50 am

You’ve earned yourself another regular reader this morning (starting from the top). This article resonates nicely. I just bought my first car for cash, bought another engine for it on eBay with a quarter of the mileage, got a mate to put it in and ended up with a lovely ’98 VW Polo with 50k miles on it, taxed, MOT’d and on the road for about £650. Result!

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- Wookey January 30, 2017, 11:36 am
  
  Buying separate body-with-broken-engine and engine-with-broken-body is one of the most cost-effective ways of getting a really nice vehicle. But unless you can do your own spannering, much of the gain will go to whoever does the transfer work. It is important to get ones that match up exactly though for an easy life. There are a lot of little differences between years and models that will make it a pain if you do this with different variants of a vehicle. (I put a turbo engine into a non-turbo body and a surprising number of things are different).
  
  I’m absolutely onboard with the mustachian way, having never paid credoit for a car in my life. My cars have cost £400, £25, £950, £300, £4000 so far and have lasted 4, 9, 15, 1 and 18 years respectively so far.
  
  I am now looking at spending _much_ more money next time and maybe even a new car (van), because I think the planet would like me to buy an electric one, and no-one yet makes an electric camper with useful range, so I’ll likely to have to choose something basically brand new once it exists, or think of some entirely different scheme. However having been (accidentally) mustachian for many years, I _could_ spend 100 grand cash on a car if need be. I just don’t think any are worth that much.
  
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KylewitTheBenjamins July 26, 2013, 6:23 am

Not to question MMM but I think the math is a little clunky here. Buying a 9 year old truck with probably over 100K miles on it – how much will it cost to fix that thing when everything breaks on it, as it will, over time? You will need to account for the time it takes you to fix it (finding the part online / going to the store / plus installing it) and the price of tools. I have an old Nissan and Honda and I swear these old hoopties steal money from my wallet. I have replaced a fuel pump, water pump, the brakes, the timing belt, tires and more in the past year. Old cars keep poor people poor.

Kia and Hyndai offer 10 year bumper to bumper warranties. Wouldn’t a 2 year old Kia make more sense if the warranty is transferable to the new owner? You would get the benefit of a newer car, an awesome warranty, and the savings of the other guy having driven it off of the lot.

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- Todd Carnes February 5, 2014, 2:09 pm
  
  Sorry to hear that Kyle, but I have to disagree with you somewhat.
  
  While it’s true you have to be careful when buying used cars, when done right, it’s not something that “keeps poor people poor”.
  
  I have a 2001 Buick Ultra that I paid $4000 USD cash for 3 years ago. Other than regular expenses for things like oil changes, occasional new tires, etc. I’ve never had problem with it. Since you have those exact same expenses with a brand new car, it’s a LOT cheaper to buy the used car.
  
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  - Scott September 22, 2014, 12:07 pm
    
    I own the same car, and besides the reliability (those 3.8s are known for being unkillable) despite 203,000 miles, it’s about as antimustachian as it gets. Huge heavy luxobarge sedan, supercharged, premium fuel, and in mine I regularly get 16 MPG, maybe 20 if I really push it. I’m willing to chance replacing it with something less reliable just to get rid of it, since the fuel mileage is killing me. I feel this car is the one thing really holding me back from saving more.
    
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- Wookey January 30, 2017, 11:47 am
  
  Repairs do cost time/money, and you should account for them carefully. I’ve always done my own spannering and it’s eaten up a quite a lot of weekends over the years, but then I did a complete campervan conversion and a couple of engine swaps over the years. On average maintenance and repairs has come out to about £200/yr over 30 years quite consistently. Only once did I have to resort to a garage to get something fixed in that time (which cost £900). I have good figures for 30 years and should add it all up sometime just to see how much a I spent. Quick estimate is about £1300/yr, or £40000 total for what used to be 15,000 miles/yr when I started but is now only about 4000 miles/yr (nearly all holidays). (fuel, purchase, insurance, maintenance, tax, tests).
  
  You _can_ get yourself into trouble with old cars, but if you have a bit of competence then they are _waay_ cheaper.
  
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Farnam Street July 28, 2013, 10:02 am

I like this. One thing I do is the 10% rule. Would I rather spend $600 on a new TV or get $60 a year for life?

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Ariel October 10, 2013, 12:18 pm

What is your advice for those of us who already made the stupid decision of buying a new car? After reading some of your posts and honestly not long after we got it I thought it was a bad decision. Now we have new car and new payments for many years to come… is there any way to save? Or do we just have to grin and bear it till the car is paid off? Thanks!

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- Mr. Money Mustache October 10, 2013, 10:37 pm
  
  This is a funny question that seems to come up a lot. YOU SELL THE CAR, of course! Exactly the same as if you had a brand-new car without a loan.
  
  Put it on Craigslist, pay off the loan, then save up and buy a car you can afford with cash in your wallet – if you even need a car at all at this early stage in your financial life.
  
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  - missj August 14, 2014, 11:36 pm
    
    Ok, I’m going to take a different line than you on this MMM. I’ve agreed with you on everything else except this.
    
    So, yes sell the new car if you’re truly driving a luxury car that you cannot afford, take the cash and buy a cheaper used car, and use the savings to pay down other debts or invest. Definitely agree with you on that part.
    
    But what if, instead of buying a new luxury car, you actually bought the brand new Kia Rio instead of the 2 year old Kia Rio? Now what? You’re 3 months into the loan and wishing you had bought the used Kia, but what’s done is done. You paid $13,700 and you have $13,000 remaining on the loan at let’s say 2.9% interest. If you try to turn around and sell it in almost new condition with only 3,000 miles the fair market price would be $12,300. So you’ll have to come up with $700 just to sell your car. OK fine.
    
    But now what, you still want a Kia, right? Well A 2 year old Kia Rio with low miles goes for about $11,200. So you go to your emergency fund and withdraw $12,000 in cash. You pay $700 to sell your car, you pay $11,200 to pay cash for a used Kia and you pay something like $100 to transfer the title into your name. There you go. There went your $12,000. Now you’ve freed yourself from that debt but you’re driving around the 2 year older version of the same car. You’ve basically just spent a couple of days of your time to “trade” cars with somebody else except you got the older car with higher miles.
    
    I think, in a case like this you just take that $12,000 out of your emergency fund and pay down the loan. Pay it off if you can, but if you only had exactly $12,000 to spend then just carry the $1,000 balance at 2.9% for a couple of months until you CAN pay it off. The damage was already done when you drove it off the lot, equity was lost that can never be recouped. WOOPS! chalk that one up to lesson learned Since nobody can regain the equity lost when you drove it off the lot, but SOMEBODY is going to enjoy the perks of driving a new car around, that somebody may as well be you.
    
    Not to mention you at least know the history of the car. There is some risk when buying the 2 year old car that it has been mistreated or abused in some way, it might have had a minor accident not reported on CarFax, the previous owner may have been quite lax on maintenance, or driven the hell out of the thing, or grinded the gears or whatever….
    
    just my 2 cents (which compounded at 7% interested would be $3.44 after 10 years but we’ll just call that my gift to you!)
    
    ;-)
    
    Reply
    - Mr. Money Mustache September 22, 2014, 12:50 pm
      
      I think you got me there with that particular example Miss J, since a Kia Rio is one of the better new car choices out there due to the efficiency and low price. Most people who write to me with this question have just bought a luxury car at $20k or above.. or even worse, a luxury TRUCK!
      
      I’d still suggest that financial beginners don’t get even a $12,000 car (mine is a 2005, it was $9k when I bought it six years ago – no notable maintenance expenses so far). But we are splitting hairs as we get to the bottom of the automotive price range. So, good job!
      
      Reply
      - Wookey January 30, 2017, 11:54 am
        
        I bought a remarkably good small car for £25 once (I just wanted the headlights, but it lasted 8 years). I don’t call $12000, or even $9000, the bottom of the car range! There is a problem that very cheap cars can be expensive to run – do your research. This one was somewhat unreliable, but only once did my wife actually have to phone a mate to get the car going again.
        
        Like MMM I would emphasise that using a bike makes your motoring much cheaper. People who _need_ a working car every day have to pay more either for up-front reliability or repairs-in-a-hurry. People who can bike instead if the car is sulking have the time to do things cost-effectively.
        
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Glass Mustache Mike December 6, 2013, 7:26 pm

Hi MM,

Starting to read your blog from beginning to end and I am loving it!

I was sitting here reading through this article smiling to myself thinking, “Psh, what kind of idiot would justify a $31,000 Honda Pilot purchase like that? I’m right there with you Mr. MM! So many idiots out th- $15,000 FOR COFFEE OVER 10 YEARS?! GOD DAMN IT!”

Thanks for a great blog!

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medeforest February 27, 2014, 10:34 pm

I love the new car vs. old car dilemma. I bought a ’98 Camry LX new and it now has 221K miles on it! I pay affordable mechanics to do all the work it needs.

I calculate the 5-year moving average of the cost per mile:

(change_in_value_kbb + tags + gas + insurance + repair)/(total miles driven)

The car is holding at $0.26 per mile. The newer ’08 Camry is at $0.44 per mile. The college student’s Volvo is at $0.74 per mile. The last car is driven least, so the fixed annual costs play a larger factor. I feel inspired to shed a car.

My 4Runner’s life ended at 196K miles and was costing $0.34 per mile.

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Zorn March 24, 2014, 10:11 pm

I recently discovered this blog (via a link from lesswrong.org, if I remember rightly; it’s a weird place but there’s some good stuff in there too) and have read a fair proportion of the articles and fired up my (free!) spreadsheet to do a bit of playing around with the numbers.

I’ve always been fairly frugal and haven’t really increased outgoings as my salary rose, but I am inspired to see if I can cut out a little bit more fat without significantly lowering my quality of life. I don’t know if I want to be totally hardcore – I should probably say badass :-) – but this blog has convinced me that every little helps.

I’d been hearing so much doom and gloom about the possibility of retirement from colleagues and the media that I had kind of given up hope of retiring at any reasonable age. It actually had occurred to me independently that I could retire on a low-ish income fairly early, but every time I mentioned this to anyone, the response was “but that would be a miserable way to live”. I think the key insight for me is that by reducing your living expenses while you’re working, you prove that you can live a perfectly nice life on that amount of money so there’s no problem doing the same once you retire.

Anyway, something I haven’t seen elsewhere on the blog – apologies if I missed it – is an alternate way of looking at small weekly savings. I don’t dispute the validity of the “multiply by 752” rule, but the big number than comes out doesn’t really *mean* anything to me. (I guess the idea is that it’s big and therefore significant, but comparing it with the even bigger sums you need to retire with, it still looks small to my mind. ) I wondered instead “if I save an extra £5/week, how many days earlier can I retire?” [I’m British.] I don’t know if there is a simple rule to figure this out in general, but based on running some what-if calculations with my personal (and somewhat quirky) spreadsheets and based on my own approximate financial position, I reckon every £5/week I save means I can retire (very) approximately one month earlier. If I got that right – would be nice to hear if anyone else has done the same calculation, not that I expect many to read this comment on an old post – that’s quite an incentive.

I should close by saying “Thanks a lot!” for the thought provoking blog; it hasn’t changed my life yet, but I think it might. :-)

Reply
- Martha de Forest March 25, 2014, 11:50 am
  
  Hi Zorn. You said you like spreadsheets, me too. Here is a great graph to use to visualize your progress toward Financial Independence:
  
  Left axis: Currency. Plot your 12-month moving average for spending. That smoothes out the lumps for things like property taxes.
  Right axis: Percent Funded to Retirement. Calculation = (All your assets – All your debt) * (Rate of return on investments / 12 months) / Monthly spending
  Horizontal axis: Time
  
  This is very inspiring because you see how a 1% decrease in spending is easy compared to saving for 1% increase in spending. There is a positive feedback system built in because merely decreasing spending causes retirement funding to automatically increase with no additional saving. YET, by decreasing spending, you also increase saving.
  
  After a couple of months, you may become quite competitive with your numbers.
  
  Reply
AnthonyFrance June 4, 2014, 7:55 am

Speaking of saving money on cars, as MMM often says, a bike is a great solution.
Yes, we are talking about cars here, but stay with me.

I do a lot of sports, but I do not like having to get up earlier, shower when I get to work every day if I use a bike. 2 years ago, I found the solution.

I sold my second car for 5000€ (writing from France here), bought myself a 1100€ electric bicycle and a 650€ bike trailer, as I have two young children who were 3 & 1 years old at the time.

Of course, as MMM says, it’s all about location concerning where you live. I chose to have a smallish house with a small piece of land but near to town. And therefore I have completely replaced my second car with this ebike+trailer. And it saves me more than 300€/month, if you factor in loss of value, insurance, etc.
I go to work, get there with NO sweat, in the evening I stop by the house to hook up the trailer then ride off to get my kids. It is quicker than having a car, so I save lots of time as well as money. And rain? Well, a few drops of rain never hurt anyone. To me, the occasional shower is a mild annoyance, whereas the price of gas all year round is a pain in the a#* – a problem to which I am no longer subjected to!

There you have it – I gave myself a 300€ (400$) pay rise just by losing the second car. My only car is a 2005 Prius, perfectly reliable and giving me over 48MPG (US gallons). And when you buy them used, they are very cheap with regard to the number of options & reliability of the car (no timing belt, no starter motor, no alternator, engine never has a cold start since the electric motor “covers” for it until the engine is warm).

But an ebike is a must, if you want the freedom without the sweat (whilst making a moderate effort). The cheapest & most eco-friendly car is the car you don’t buy!

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John August 31, 2014, 11:09 pm

I did not read all the comments, but I’ve been reading a lot on your site over the last week (and plan to continue). I’m trying to explain some of these ideas to my 10 year old daughter. The one thing you are not calling out is that it get say $15K from coffee, is not just buying it once. You would have to actually put $4 away every day (and probably invest it as well), to amass that amount right? That is a hard concept to put in action. I probably just makes more sense to try and put as much of each paycheck away that you can (which if course you do say). Anyway, thanks. This is all very interesting and has my wheels turning not just for myself (feels depressingly too late), but for my daughter (who has time if I can get her to adopt these mindsets).

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Angelika Coffman November 30, 2014, 4:58 pm

I was wanting to buy a house in a flood zone and stumbled upon your blog a couple days ago.
Couldn’t stop reading. I am 52 years young and I wish I had this information 30 years ago.
As John says, very depressing to me too.
My husband and I (I am German) bought a brand new BMW in 1991. It was $19,000 back than.
We paid $10,000 down with the money my grand-mother gave me for our wedding, I made
$300/month payments, and had it paid off in a little more than 3 years. I haven’t had a car-
payment since. My beamer will reach 200,000 miles next week and it’s still running strong.
I feel this was a good investment, but is certainly not the norm. When my BMW finally “dies”,
I will buy a small used car that gets great gas milage. Why do you need a fancy car anyway?
You just drive to work, groceries…. etc…. No need – save your money. You’ll be glad you have
the money when you can retire – hopefully soon :)

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Jon September 9, 2015, 8:27 am

I like these quick rules of thumb you’ve given and they will certainly help me make better choices.

Is there a nice rule-of-thumb for one time expenses? Ex: If I save $100 on this flight, I’ll be ahead $xx a decade from now?

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- Scott September 9, 2015, 1:56 pm
  
  Yes– double it. The rule of 70 states that in order to estimate the number of years for a variable to double, take the number 70 and divide it by the growth rate of the variable. So if we assume 7% returns, 70/7=10 years for it to double.
  
  Reply
Clay August 7, 2017, 12:48 am

Mr Money Mustache,

I just started reading the blog and there is a lot of good stuff on here. Just out of curiosity are these calculations based of of the future value of money or the present value. In other words, when you say you saved $57,000, have you already discounted your savings back to present value using the WACC.

Thanks,

Clay

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Syberania August 16, 2017, 4:41 pm

This sounds great in an ideal world and in principle I am for buying used cars and keeping them for as long as you can to minimise the effects on the environment. But as far as used cars are concerned not everyone is as lucky as some of the commentators here. All of my first few cars were second hand because it was all I could afford at the time. Even though I was careful most of them still gave me nothing but problems – constantly breaking down and needing costly repairs. So in response to Todd Carnes – these cars did keep a poor person poor. It’s fine if you have some knowledge of cars and know how to do your own “spannering” (or know someone else who can help you) but otherwise it really can be a minefield.

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Steve P. June 10, 2018, 11:38 pm

Awesome! I just saved $6920 over the next 10 years by buying a used at of clippers (with attachments) for $15 used and had my wife cut my hair!

My mustache is growing! Thanks MMM!

Steve P.

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Aaron June 11, 2018, 12:39 pm

Love the enthusiasm and the action to save! For hygiene-related products like hair clippers, and considering they’ll be used for longer -term savings, couldn’t it have made sense to buy a new pair in this case? Haha

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Chris March 19, 2019, 12:30 pm

My last 2 cars were bought new and I will continue to do so. I don’t know enough about cars to fix them myself. I don’t know if the used car I’m looking at has issues or not. I would rather pay extra for the full length of a bumper to bumper warranty and a new car than have to take my chances on yet another used car that I will have to put a car payment’s worth of repairs into as often as not anyway. (And yes, I am speaking from experience. Whoever said “Old cars keep poor people poor was right on the money in my experience.)

However, once I buy that new car I will drive it until it’s dead. My last car had 15 years and over 150,000 miles before the monthly repair bills became car payment level. My current car is a 2012 and will last longer because I take public transportation to work now and only drive it on road trips, weekends, and trips to the store. No car payment, free street parking.

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