Tag: savings

Memphis is a car town, no doubt about it. While it’s possible to exist here without one, nobody would say it’s convenient. For many, simply maintaining reliable transportation to get to and from school and work is a challenge that must be supported by an unscrupulous network of used car dealers, predatory lenders, and insurance companies catering to the less affluent and creditworthy market.

If you’re caught in that cycle, there’s not much we can offer in a brief article to help you. But for many car owners, rethinking your relationship with cars could make a major difference in your long-term financial picture.

Cars are uniquely positioned at the intersection of transportation, identity, and status. It can turn into a cycle: When the car gets paid off (or the lease expires), a new car quickly arrives in the driveway. Car payments seem to be a permanent bill, just like rent or mortgage, taxes, insurance, and utilities. Five-year car loans are now standard and terms stretch to 72, 84, or even 96 months, so it’s no surprise that car payments never seem to go away.

But is this cycle really necessary?

One justification for a new car is that it’s too expensive to maintain an old car. While this is true toward the end of a vehicle’s life, there’s a lot of time between the end of a 36,000-mile warranty and the 100,000 to 200,000 problem-free miles most cars enjoy today. Short of catastrophic failure, most maintenance issues from reliable brands rarely cost more than $500 to $1,000 to fix. That’s in the range of one to two months of typical car payments, which means you can pay for an awful lot of maintenance before it really makes sense to buy a new car.

Another justification for an endless treadmill of new cars is safety. It’s true that cars from previous decades don’t have features like airbags, shoulder belts, and highly engineered crumple zones that have reduced traffic fatalities so dramatically in recent years. However, a lot of money is spent in the name of safety for a few years of improvements that have marginal utility at best.

Finally, some people say they have to have a certain level of car for career reasons. This might be true for real estate agents who drive clients around all day. Then again, they also are likely able to deduct their lease payment as a business expense. The vast majority of business colleagues and clients will neither notice nor care if you drive a 10-year-old Camry or a brand-new Mercedes.

I was listening to a podcast recently about marketing to affluent households. The guest talked about how they use ownership and registration data to identify households with expensive vehicles — and then exclude them from the marketing plan! The reason? In a given population (in this case, people living in high-income ZIP codes), the people who actually have money in the bank tend to be the ones who don’t spend it on depreciating assets like sports cars, boats, and recreational vehicles.

You might be thinking: “That’s great, but what are we supposed to do without cars in places like Memphis without good public transportation?” I always smile when I hear this because people who say this generally have not earnestly looked into our MATA buses, trolleys, and on-demand services like Ready! and Groove.

All that may not be for you, but along with the backup plan of commercial ride-sharing services, these services can be a real alternative to a car. I discovered a while back that an almost perfectly direct bus route connected my house to my workplace, and I still remember fondly the years of paying a couple dollars a day to read the paper rather than fighting traffic.

At the end of the day, some people simply like to have new cars, and that’s their choice. But even slight mindset shifts can pay big dividends, like a family deciding to get by with an older car or even fewer total cars.

Lots of people spend a lot of time justifying a need to buy new cars. Spend some of that energy toward justifying older, cheaper, and fewer cars in your life — you’ll likely see profound differences in your financial outcome.
Have a question or topic you’d like to see covered in this column? Contact the author at ggard@telarrayadvisors.com. Gene Gard is Co-Chief-Investment Officer at Telarray, a Memphis-based wealth management firm that helps families navigate investment, tax, estate, and retirement decisions.