Personal Finance

The time the girl leased a car

In my previous post, I mentioned that my sophomore basic economics teacher taught us how to buy a car without ever going into debt. Today, I want to share a little back story on how my failure to have a little patience and foresight led to the lease of a beautiful new Volkswagen Rabbit way back in my younger, single days. Basically how I forgot that wise teacher’s advice. Oh the trappings of youth!

If you want to know how to buy a car without ever going into debt, just Google it. Many a personal finance writer has more than explained the methodology, so I don’t feel the need to spell it out here. In fact, here’s a great explanation right here from Dave Ramsey. Now on to my story.

My first car was a 2001 Honda Civic which my parents purchased for me from a rental car company. They bought the car with cash following the payout of a lawsuit that dropped a heap of dollars in their laps that same year. The car had a mere 17,000 miles on it and was in perfect condition. Turns out rental car companies often take better care of their cars than private parties do. For an 18-year-old college student, it was the perfect car. In high school I shared my parents’ janky Ford Taurus, so having my own wheels presented so much independence and freedom! I loved that thing! I got the car just before Christmas that year. I drove it through college and took it with me when I moved to take a job in Waco after graduating and then when I moved to the Pacific Northwest for another job 1.5 years later. It came back to Dallas with me when I moved home in 2007. And at that point, it had 130,000 miles on it.

As an aside, yes I realize that 130,000 miles on a 6-year-old car is an outrageous sum. I blame frequent trips home from college and my job as a newspaper reporter which entailed a LOT of driving.

In 2007, my transmission gave out. The Civic required a $3,000 new transmission. My sweet mother went with me to the repair shop and once we found out how much it was going to cost, offered to pay for the repair for me. Given their financial situation at that point, the aforementioned cash having all but run out, I knew she had no business parting ways with $3,000, but she seemed really committed to her generous offer.

I just couldn’t do it. Instead, I told her it was probably time for me to get a new car. I reasoned that at age 25, I was well-positioned for such a significant purchase. It was time to step into adulthood.

I had a friend who had leased a car the previous year and had spoken highly of the idea of leasing. If you intend to drive a newer car, he said it was a good idea. This friend did not provide me with advice, but I suppose I figured what’s smart for one person is smart for everyone.

How I wish I had remembered that wise professor’s advice.

My mother and I took my car hobbling down the highway access road to the Volkswagen dealership. From the moment we stepped through the door, we were toast. We test drove several cars, and I ended up pointing to the car I wanted on the showroom floor. Yes, I was THAT person! Of course they had that exact car waiting for me at the back of the lot. I vaguely remember my mom feigning interest and encouragement, but the truth was that she didn’t agree with me buying a car and probably didn’t understand why I wouldn’t just take her up on her offer. I think she knew that I didn’t want to burden her, but she was probably more concerned with me not taking on such a huge financial responsibility. As it turned out, I didn’t qualify for the loan on my own. My mother agreed to co-sign the note with me (quite a stupid idea for anyone, and she is lucky that I was committed to paying on time each month and never missed a single payment). We handed over my paid-off Civic as a down payment (on a lease, mind you! So stupid!). I cruised out of there with a four-year lease and a mileage limit of 60,000. I was still working as a reporter. I’ll let that sink in for a moment.

Four years later, I was of course way over the mileage limit. By this point, I was married and the husband had already spent a lot of time teasing me for picking out my car on the showroom floor. The gig was up, and it was time to make a decision. We could either buy out the car or pay the ridiculous charge for the mileage overages. And I had to have some kind of wheels. This is Dallas, after all, home of the achingly inefficient mass transit commute. We decided that it made the most sense to go ahead and buy out the lease. We reasoned that at the very least, it had still only been driven by one of us. It was definitely the lesser of the two undesirable options. I drove the Volkswagen for another two years before a little hiccough between first and second gears became concerning. Upon evaluation, the cost of repairing the transmission on the Volkswagen quoted by our trusted mechanic was $5,600. We still owed $6,000 on the car. Never buy German, my friends.

At 25 years old when I leased the Volkswagen, the information I had about car-ownership was limited to my six years of experience as a car-owner coupled with my limited knowledge about how to handle money in the first place, a position of weakness to be sure. During the last two years of owning the Civic, it had occasional mechanical issues averaging about $500 per repair. I believe I had four $500 (on average) repair bills in about two years. Now, is it pleasant or desirable to shell out my bucks to repair a car? Absolutely not! But, what if I compare the cost of those four somewhat significant repairs over the course of two years to the annual cost of a car payment? The difference? My annual car payment for the lease was $3,660 or about $305 per month. The cost of owning the paid-for Civic was about $1,000 per year. In a community where it is damn near impossible to get along without a car, the auto ownership cost (aside from fuel and routine maintenance) of around $1,000 a year was obviously the much smarter choice. Even now, I wish I had just repaired the transmission on the Civic. The system had held out for more than 130,000 miles. I am confident that had I pulled the trigger on the new transmission I would still be driving that car today and I would own it free and clear in sharp contrast to the current situation of paying a monthly car note.

Several years ago, Brandon’s Chrysler Sebring gave out, and he purchased a used Nissan Xterra. The SUV now has around 135,000 miles on it. It is still going strong, though it does drive like a mature car. But, we own it, and it is reliable. Two years ago, the paid-for Xterra required a repair of around $1,000 which raised the question of when we would consider replacing it. When one of us asked the inevitable question, “Well, what happens if we have a $1,000 repair like this every year?” the other responded with the honest truth that our auto ownership costs would be that $1,000 per year plus routine maintenance and fuel.

After getting rid of the Volkswagen, we ended up purchasing a new economy car and got a relatively good deal on it, but even since that point two years ago, I have learned so much about shopping for a car, how easy it is to buy into scare tactics and what I can actually stand to drive! The auto industry would have us believe that it is foolish to drive a car once it is beyond or close to its value to repair and that we deserve better. My critical error was the mistaken belief that a $3,000 repair for a car worth maybe $5,000 at best was a foolish way to spend my bucks. Not to mention my prevailing belief at the time that what I drove mattered beyond its safety and ability to get me from point A to point B. Wouldn’t I rather have something new that will last rather than throwing away money on costly repairs every year? Didn’t I deserve to drive something nicer, well-designed and hip? I was young after all! Drive what you want!

Intrinsic in this line of thinking is a misguided notion about cars: that they are somehow supposed to be a good investment or a sound financial choice. Thou shalt not believe this stupid notion! Cars are depreciating, expensive luxurious privileges.  For me, the weekly cost of the car payment itself is about $76 or roughly 50 cents per hour. With gas, insurance and the occasional routine maintenance, the cost rises to about 75 cents per hour. Based upon my (albeit modest nonprofit) salary alone, I can tell you that my time is worth MUCH more than 75 cents per hour, so I am satisfied with paying down the note knowing that it affords me opportunities to spend valuable time elsewhere and in much more profitable ventures. However, if I compare the hourly cost of renting a condo with the hourly cost of owning my car (until it is paid off), the per-hour difference is actually rather modest when I consider the space that either payment provides. This gives me some notion of how expensive cars actually are.

I don’t believe I actually need a car – not like I need air to breathe or food and water or clothing to cover my person. In actuality, a car is a luxury that allows me to function more efficiently in my daily life. For many people and in many localities across this vast nation, a car may be worth the annual expense because the convenience and efficiency it affords allows its owner to commute to work in a timely manner, making valuable time at home, at work and at play much more accessible.

Over the next few years, I anticipate that we will need to make a major repair to Brandon’s Xterra. When that happens, it will not be pleasant to part with potentially more than $1,500 for a rebuilt transmission or engine repair. But, given that the Xterra is only nine years old at this point and given our positive experience with the reliability of the vehicle, the question of whether or not to replace it is (for me) an easy one to answer. I am comfortable continuing to drive it for several years to come knowing that in doing so, I am ultimately choosing my own freedom. Coupled with careful saving so that higher cost repairs don’t catch us completely ill-prepared, we feel that continuing on our course with an older car – one that has a track record of reliability – makes the most sense for us. And we are confident that driving an old car doesn’t say anything about us, our character or our goals or success in life. And it feels good to have that certainty.

Personal Finance

Coping with Financial Fear

In my last post, I briefly touched on our past feelings of anxiety over finances. I mentioned that family history played a role in my approach to finances, and in a past post, I mentioned that I had struggled with a fear of money and feeling like it was running my life vs. the other way around. I thought today I would expound on where that financial fear comes from in the first place.

I grew up in a home where money management wasn’t taught. My parents were constantly struggling to make ends meet. Most of their fights were about finances and work or lack of it. I vividly remember when, in the first grade, my dad lost his job. That event is my earliest memory of anything to do with finances. Over the years, my dad changed jobs approximately every two years. Sometimes, he would work somewhere for a longer stretch of time if he liked the job, but generally he would find a new job and quit or get laid off every couple of years.

Until I was in the fourth grade, my mother worked as a nurse at a Dallas hospital. She made good money and stayed at her job at the hospital for 15 years. The story goes that a marriage counselor informed her that by working, she was enabling my dad not to hold down a job, so she quit when I was 10 years old.

All through my growing up years, finances were the biggest challenge facing our family. I remember our electricity, water and phone being shut off. I remember hot check notices arriving in the mail regularly. I remember my dad getting arrested for writing hot checks. And all the while, my dad continued to try one thing after another to make money quickly. Like many in the 1980s and 1990s, my parents gave Amway a try. We owned stacks of cassette tapes of lectures from successful Amway distributors sharing their secrets to wealth and prosperity. Self-actualization was taught on the regular. My dad plastered our refrigerator with magazine clippings of expensive cars and hotels in exotic destinations. If you can dream it, you can achieve it. For me, success and financial stability were defined by the things you had. In the affluent Dallas suburb where I grew up, wealth was seemingly all around me. We knew people who lived in incredibly beautiful and extravagant homes, drove luxury vehicles which they replaced every couple years and who took regular trips to exotic destinations. These people were well off. We were not, and I knew it.

After high school, I went off to college at a small, Christian liberal arts college. As college goes, it was pricy. As private colleges go, it was reasonable. Thanks to the wisdom and foresight of members of my mother’s family, my college degree was entirely paid for. My mother inherited substantial sums of money from her brother and her parents and discretely used it to pay for college for both my sister and me. The money ran out part way through my sister’s senior year of college, and my sister had to take out a small student loan. However, neither of us are saddled with the level of student debt many people graduate with. A friend of mine graduated with a journalism degree from SMU with $100K in student loan debt. Needless to say, I recognize that it is an incredible privilege to not be burdened with student loans.

In a sophomore basic economics class I learned principals that now inform how I approach money. The class was taught like a personal finance class. We read “The Richest Man in Babylon,” a classic of finance literature. The premise of the class was based around a game in which we as students had to establish and participate in a theoretical civil society. We learned things like the 10/10/80 rule. We came to understand the nature of money. The professor taught us how to buy a car without ever taking on a loan. The class was an interesting combination of economic principals (like what makes something become money) and principals of stewardship. Over the course of the semester, I had this sense that the professor was a little off his rocker. But reflecting back on the class 10 years later, I now see the wisdom of this unassuming man. There is no doubt in my mind that he possessed significant wealth, but there was absolutely no evidence of it in his daily life – at least not in the sense that I had learned through the way I grew up. He and his wife lived in a modest house near the campus. They owned one car. He walked to work every day. Their idea of a date was a walk.

Post-college, I moved to back to Texas to work for a newspaper. I spent almost five years in journalism before making the leap to a nonprofit job. All the while, I hardly saved a thing. An investment banker I am not. My take-home pay was $425 a week at the paper. I lived well and had fun, but I lived paycheck to paycheck. I would haphazardly save 10 percent of my funds, tithe and then resolve that the rest was mine to do whatever I wanted with nary a care for planning ahead! Then something would happen to my car and because I also spent almost everything I made, I’d put the repair on my credit card resolving to pay it off. Eventually, I would just withdraw from savings and pay off the card (or pay it down) but never managed to get ahead. What’s more, I’d feel really crappy about paying for a car repair with my credit card, so I’d do what any self-respecting woman does! I went shopping or went out to lunch with a girlfriend! Anything to prove to myself that I could afford nice things. I never missed a payment, but I constantly went back to the cards for the supposed freedom they offered.

Over the years, I learned that there is a temporary high associated with making a purchase. I would feel poor (relative to my circumstances), so I quieted that feeling with a purchase to prove to myself that I wasn’t poor. It was so backward and ridiculous! The very thing that made me feel better was the thing that got me in trouble in the first place! But I would feel so much better about my financial life once I went out for drinks with friends or bought a new pair of shoes. Surely, that’s what all those pictures on the refrigerator meant. I was successful because I had nice things. It never dawned on me that having nice things means you no longer have the money that bought them. That’s why millionaires often live completely differently than one might expect. Ross Perot drives a Ford Crown Victoria! He knows this truth!

Today, I am by no means over these fears. Though I’ve given up many of those spendthrift ways, I still struggle to trust that resources will not be depleted. In some ways, my fears are in the opposite direction. I am often afraid to make purchases for fear of being stuck in that same cycle, and I have to remind myself that there’s a difference between spending heedlessly and making a calculated, objective decision. So, what should someone do when faced with the temptation to spend on unnecessary crap?

Here are four strategies that have helped me.

1. Remove temptation. Unsubscribe from the retail email blasts and halt your catalogs. If you want to get extreme with it, cancel your cable subscription or get rid of the TV all together! In our culture, we are flooded with hundreds of advertising messages a day. Let me translate that. Suppose I see 1,000 advertising messages in one day. That equates to 1,000 daily attempts to convince me to part ways with my hard-earned moolah. Over 300,000 messages in a year. You can’t stop the deluge, but why add to it? All catalogs and email blasts do is work to convince you that what you own is not sufficient and that you deserve more. Do not buy it. And while we’re at it, stay out of the mall. Anything you do legitimately need to buy can probably be purchased online which will drastically reduce your emotional involvement in the purchase and likely save you money. Also, malls are depressing.

2. Classics are made to last. When you do make a purchase, especially an article of clothing, ask yourself if  you are buying into a passing trend. Classic never goes out of style, so it makes sense to buy quality items that are made to last. I own exactly one suit and several nice blazers which I mix and match with three pairs of pants for work. My favorite is a navy wool blazer with brass buttons from J. Crew. It wasn’t cheap, but I will never buy another one. Last year’s peplum top craze? I didn’t buy in. While I may not be sporting the trendiest of textiles, there’s no question in my mind that I look put together and stylish.

3. Buy used and repair rather than replace. Brandon makes fun of me, but last year, I bought a pair of never worn black patent leather Cole Haan heels at a used clothing store for $26. They go with everything, so I wear them constantly. I recently had the sole of the front of the shoe replaced at a cobbler for $16 bringing my total spend for classic (non-outlet) Cole Haans to $42, a bargain if ever there was one. Used and a classic! Winning! I was on a thrift store kick and found a nice seemingly unused leather purse for $10. Accessories were 40 percent off that day, so the bag ended up costing just $6. A quick Google search for the brand (which I had never heard of) informed me that my purse is some fancy Italian brand that would have cost me more than $250 new. I carry it daily and get complements all the time on my $6 thrift store find, and it shows no signs of needing repair or replacement anytime soon. Winning again!

4. Question your motivation. When you feel the urge to buy, question what drives it. Are you in a particularly emotional state of mind? Are you in a hurry or under pressure? Are there any unresolved conflicts in your life impacting your immediate behavior? I try to seriously question when I find myself desirous of a new product or service, especially something I’ve heretofore gotten along just fine without. If I’m feeling stressed, I like to go for walks. If I find myself scrambling to find a particular item – such as an article of clothing for a special event – I try to pause and ask myself realistically if there is nothing else at home that will meet the need at hand. Think through why you want to buy something and whether it’s an objective decision or being driven by external factors that you need to deal with first.

Once I labeled that I spent out of a desire to prove my self-worth, I felt empowered to put a stop to it. Life has changed dramatically for me in the sense that I have a much healthier approach to finances. Not saying I’m perfect. Far from it. But thinking objectively about my history and how it informs the way I live day to day empowered me to change and to realize just how full my life is already. Now time for a walk!


Personal Finance, Spending Reports

60 Days of Spending Tracked

In June, for only the second time in our marriage, the Shmoopies have a clear and accurate picture of where all their money went. Ever since we got married, I’ve been the person in charge of paying our bills and “managing the money.” This was our M.O. from the beginning largely because I simply had more experience with paying bills and living on my own than the husband had. So, we went along month by month, year by year, thinking that because we never paid our bills late, we were “managing” well.

Periodically, we’d have a discussion about the amount we saved or why we seemed to be unable to save more, but these discussions always resulted in some amount of frustration with each other. I would get frustrated because I felt like the husband was accusing me of not managing our money, and he would get frustrated with me because he felt I was accusing him of being too spendy. Then we would get really frustrated and weird because we found ourselves bickering about money! This would bring up a whole host of issues related to our family histories (mostly mine).

A few months ago, we started to question where our money went in a more healthy way. I think the conversation began because of the possibility of buying a house. I covered that in some detail in my Home Without a House post, but it was at this time that we discovered that while we could technically afford to buy a house, we really had no clue where all of our money went each month. We reasoned that while we could buy a house and make it work with our finances somehow, we still wouldn’t feel any more secure or knowledgeable of our financial standing and stood to become even more confused about our finances since we weren’t truly keeping track of where our money goes. Add to that the inevitable expenses that come from buying a structure to live in and the complexity of the transaction itself, and we knew we would feel like we were spinning out of control, that our funds were controlling us rather than the other way around.

We decided to get hold of ourselves and figure out where all our money went. Instead of “staying within a budget,” we resolved that we wanted to default to not spending. So, for the past two months, I have carefully utilized to track every dollar we spend. I even kept track of cash we happened to receive and then spent on groceries, our new gym equipment, even a coke from a vending machine (me).

I thought it would be a royal pain in the rear to track every transaction, but much to my surprise, I actually enjoyed it. It was so freeing to know exactly where every dime went! If I wanted to buy something, I knew it had to go into Mint and be categorized, even the little stuff. I broke down the receipts a few times a week to figure how much I spent in different categories for a truly accurate picture of how much we spent on groceries, household items, personal care, eating out, etc. Rather than feeling defeated, I felt empowered. Rather than feeling bogged down by these details, I feel that I’ve mastered some great secret talent.

So, how did it all break down? I’m not going to flesh out every detail of our spending particulars because I don’t feel like it’s the business of the Internet to know how much we pay in rent, insurance, savings, giving, etc. But, I will break down a couple big ones that anyone and everyone can adjust or rein in to slow down the outflow of cash: groceries, dining out, utilities, cell phones, gas, amusement, and misc. spending.

Groceries: $426

In the past, this has been a huge spending category for us. I was inconsistent with breaking down the cost of true groceries versus just something I happened to buy at a grocery store which was thus categorized as a grocery spend even if it wasn’t. Mostly I was lazy about tracking this spending which meant that I also was lazy to rein in it. I would log in to Mint and look at the grocery category and throw up my hands in despair. In February, we spent almost $900 on groceries according to Mint. Now, bear in mind that it wasn’t until May that I began tracking every dollar that goes out, so there is little doubt in my mind that the amount we spent on actual groceries in February is actually below that $900 figure. I don’t have a long history of grocery spending to which I can compare, but in May, we spent $534 versus $426 in June. We got a little more intentional about using what we have and not throwing out food, and it paid off with a $100+ savings from last month. And, this month we had a couple more spendy dinners at home (featuring delicious and extravagant salmon burgers from Central Market!). In July, I want to see if we can get below $350 for groceries.

Dining Out: $280

We overdid it in June with dining out, or perhaps I just set my expectations too high. We spent $160 on restaurants, $90 on fast food and $12 on coffee shops. I (Katy) spent about $20 on alcohol to be shared with friends when Brandon was out of town. I didn’t drink it all by myself, but I did purchase a six-pack to share with friends who had me over for dinner and taking a co-worker out for happy hour after a particularly grueling work-day, both instances when Brandon was out of town. It’s worth noting that the majority of our dining out spending was on quality time out with others. Brandon regularly takes his cousin out for coffee and Bible study. We took each of his parents out for meals, and we each went out to lunch with co-workers a time or two. We spent only $30 on dining out with each other. The majority of the time, our dining out spending is with other people with whom we are trying to build stronger relationships. With each other, we prefer to cook and eat at home. If we dine out together, it is usually because we are out and about running errands as we did one day after church. We also do the occasional ice cream date, though both of us are getting kind of sick of ice cream and sugar. Our spending on dining out was down significantly from April ($411) and May ($414) when we ate out a lot due to my mom’s illness and constantly being at the hospital or with family. There was very little time or motivation to cook healthy meals. We were in survival mode and were also providing meals for other people. So, while I’d like to spend less in the future, I am also glad our Dining Out spending leveled off in June. In July, we will have quite a lot more in the Dining Out category since we went on vacation for a week.

Utilities: $139.44

It’s also officially hot now, which means our costs are up. Texas is ridiculous in the summertime. Today’s high is 100 degrees. We also pay a bit more for electricity because we use clean energy sources. We use Green Mountain Energy. CO2 emissions avoided: 1,414. Hooray!

Cell phones: $137.46

We are currently in a contract with Verizon ending in October. We will reevaluate our spending in this category at that time.

Gas: $244

We live in the Dallas area. We drive. A lot.

Entertainment/Amusement: $28

This includes our monthly Netflix account, a Redbox rental, three months subscription to “The Economist” and a monthly $1 fee for a Logos Bible study app.

Health/Fitness: $724

This month’s spending in this category is a little skewed. We ran out of our pro-biotic and had to stock up ($22). We had one gym membership fee ($20). And we also quit the gym and bought some workout stuff for our garage, free weights, medicine balls and mats ($670). So far, we have worked out in our garage at least three times per week and enjoyed it much more than working out at the gym. Setting up a garage gym is high dollar on the front end, but saves so much money in the long run. We decided to pull the trigger on this project after figuring out that we spent almost $500 per year on our gym memberships. We went infrequently and didn’t enjoy it. Additionally, we found it really inconvenient to go on evenings when we also had commitments such as community group or hosting a friend for dinner. Since we have begun working out at home, we have found that we’re less likely to use our evening’s activities as excuses for not working out. We plan to spend another $500 or so on a squat rack/pull-up bar combo that will give us many more exercises we can do at home. Best part? Working out is now a free activity we enjoy doing together. We will have spent the equivalent of about two years worth of gym memberships once we have the garage gym completely set up, but we enjoy this hobby and it leads to greater overall health and a happier marriage. Last night, Brandon was throwing a 12-pound medicine ball to me while I did sit-ups. Quote of the night: “How did I find a wife who lets me throw a ball at her face and yell at her to get one more dead lift?”

Total spent: $1,734.90

We just returned from a one-week vacation to the East Coast where we ate all the food, stayed in hotels and rented a car. July is going to be a doozy. We categorized our spending and then tagged all the transactions resulting from our vacation. We planned for our trip, and it was worth it! I’ll report on that stuff later in the month. For now, I’ll say that tracking our spending and looking at the categories has been incredibly eye-opening for me. After all, it’s only by tracking how much we spend that we can understand how to rein in our expenses and questioning our financial choices.