All generalizations are false, including this one.
–Mark Twain
As you may recall from my last post, I noted that among the three largest items in a household budget: 1) housing cost was a kind of investment; 2) spending on healthy food could function as a sort of income and health insurance policy, and 3) high transport costs could erode your wealth.
However, some readers don’t think the transportation category is always a good place to save money. And a lot of you readers want a more complete explanation for my reasoning–at least about transportation costs.
So, I agree: it IS time to elaborate a bit. That is the reason for this current post.
To clarify, I believe in inexpensive, safe, and reliable transportation, not just cheap transportation. Therefore, we drive reliable, safe, and affordable vehicles.
The reason we focus on that is that transportation can be expensive and trade-offs are inevitable. The average new car costs over $45,000. That cost alone is over half of an American family’s average family income. Depreciation could easily be $6,000 per year. Then add on the cost of insurance, maintenance, and other expenses.
So, finding reliability and safety at a reasonable price is key.
MINIMIZING TRANSPORT COSTS: WHY RICH PEOPLE GO CHEAP
A group of extremely wealthy people does not spend much money on vehicles when they could easily afford to do so. These include a few who have been the world’s richest person at one time or another. Yet, they have never abandoned the strategies that helped them become wealthy in the first place.
For instance, Jeff Bezos of Amazon drives a Honda Accord. Mark Zuckerberg of Facebook drives a Honda Fit. Steve Ballmer of Microsoft, one of its founders, drove a Ford Fusion. And this is a group worth nearly a collective $400 billion at this writing.
WARREN BUFFETT’S CAR
Why do super-rich people scrimp when they don’t have to? Well, let’s use an early experience of Warren Buffett to illustrate the point. For those of you who have not followed his history, Buffett was at one time also the world’s richest person. So his logic about transportation expenses is instructive.
Now, not everyone agreed with him about his transportation choices, especially early in his career. In fact, many investors in his hometown of Omaha, Nebraska, did not trust Buffett’s claims about his investment returns. The distrust was partly because of Warren’s unconventional car choice of the time. It was a very modest and somewhat battered VW Beetle.
His detractors did not believe the financial wisdom of someone who drove a car like that. After all, the vehicle did not project success—in fact, the just the opposite. But Warren just kept driving it. Not only did he dislike the cost of purchasing a new car, but to his way of thinking, it would have been terribly expensive. For years Buffett averaged more than a 20% annual return on his investments. With those kinds of returns, he figured that the actual cost of sinking money into a new, more expensive car instead of investing the savings was potentially in the millions. He wanted to invest in himself instead of a vehicle.
But finally, his wife convinced him to buy something better.
Of course, he never fully absorbed the point, later considering buying inexpensive cars that had hail damage, for instance.
For different reasons, Elon Musk never had to face this issue.
WHAT WORKS: IT IS RELIABILITY THAT COUNTS
So, you may be asking, what should you prioritize?
There are many things to consider. One factor is reliability. My spouse and I will only buy any car with a good track record for reliability.
The average cost per year for maintenance and repairs per year is about $800. When the expense becomes significantly more than that, we usually feel it is time for a change.
I try to avoid knowing my mechanic on a first-name basis.
SAFETY MATTERS JUST AS MUCH
Safety is also a primary concern. However, an inexpensive car does not have to skimp on safety features.
As I mentioned in a previous post, we have a seventeen-year-old car. We will eventually replace it, not because it won’t run for many more years. It is a safe car–at least by seventeen-year-old standards. But, we want an even safer one now that we are both older.
When our car was manufactured, it came with front airbags. Now front and side airbags are standard on most vehicles. Rear camera? Forget it. Blind-spot monitoring? No. Anti-lock brakes? No.
It does come with a very nice CD player. And the radio gets FM.
You get the point. It would be nice to have a car with more modern safety features, and we will replace it for that reason.
There are a lot of sources for general information about automobile safety and reliability. For instance, see here.
AND WHAT ABOUT ALL THOSE OTHER ALTERNATIVES?
There are a lot of ways to save on transportation costs besides telecommuting. Here are only a few:
• Live near where you work, and walk
• Ride your bike (weather and distance permitting),
• Use public transportation or join a carpool
• Use Uber and Lyft and ditch a vehicle altogether.
For instance, one celebrity worth $400 million got rid of his car completely. But, of course, your circumstances could be different.
WHAT ABOUT THE FUTURE?
If there was ever a time to rethink what you spend on transportation, this is it. Change is coming.
Once the pandemic is over, twenty percent of workers don’t EVER want to come back to the office. It turns out that working remotely is very popular.
While I doubt that a one hundred percent remote work standard will ever be the norm, permanent halftime work from home for many workers would not surprise me. If that turns out to be accurate, it will have significant implications for the automotive industry, the economy, and household transportation costs.
It might mean you may be replacing your vehicle half as often. Maybe having a seventeen-year-old car will become the norm.
And self-driving cars will eventually change the kind of choices we make too.
When the technology is perfected, that may mean that personal vehicle use could decline. For instance, a couple with staggered schedules might be able to use one car to drive to work, drop off one spouse, and then drive itself back to your house to repeat the process.
I look forward to those changes.
WHAT ABOUT WHEN YOU ARE KEEPING UP WITH THE COMPANY CULTURE?
So, suppose you decide to buy an inexpensive, safe and reliable vehicle.
You have got one more thing to think about: the boss. Let me explain with a cautionary tale.
I once bought a safe, high mileage small economy car. It was perfect for my needs as I had a long commute.
One day two of my superiors saw the new vehicle parked in my parking space. Unfortunately, it turned out the car did not reflect our ever-upward arc of organizational culture–and the cult of expensive car buying. That down-market car became an excellent source of jokes.
I took abuse for weeks. You see, I probably would have gotten away with it the car if it was an anonymous drab vehicle. But it was a bright color and noticeable. So drab and anonymous would have been better ;).
Eventually, they moved on to other subjects.
Of course, there is a postscript to all of this. Both of my bosses were very successful. But neither retired at age 50.
Disclaimer: consult with a financial professional before taking any steps outlined here. Not all advice may be suitable for your circumstances or investment style.
Image: Randy Laybourne Unsplash
RETURNING THE FAVOR
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