With this post we’ve reached a milestone on Health, Wealth, Power. By my count, this is post number 50. So far, readership has been going up steadily and that has been very exciting. To those of you who have been coming here for a while, I’m glad to have you along on this journey. To anyone who has started reading more recently, welcome. Today I want to highlight both some of my most viewed posts and some of my favorites that haven’t been seen as much – in many cases because I posted them before many people were reading the blog at all. Thank you to everyone for reading and here’s to the next 50 posts (and many more) to come!
A window into my raw thought process on a recent night when
I got some seemingly devastating news about my career. I wrote this almost
immediately when I got home so I would have a good record of my immediate
reaction to look back at later. I’m still in the midst of dealing with this
situation but I have a very exciting recent development that I’ll be sharing
This is one of my personal favorite posts so far. It is a
nostalgic look at the way the most difficult event of my life so far has
spawned so many wonderful changes. While I and my life will never be quite the
same as before it happened again, that is mostly a good thing.
Health and fitness is a topic that’s near and dear to my
heart. Medical science is keeping people alive longer and longer today. But
what is it worth? My argument is that we’ve long since passed the point where
quality is much more important (and elusive in many cases) than quantity. This
post is my attempt to lay out the basics for anyone who feels similarly and
wants to do something about it.
I’ve written a number of posts on this theme now – the value
of finding the positives in situations that don’t seem very positive at face
value. But this was one of the first. As someone who has put a ton of work into
thinking more positively and seen firsthand how dramatically that mentality
shift can change life in often unexpected ways, it is very important to me to
share my experiences in this area.
I wrote this post for people who struggle with depression or
have in the past. It’s not comprehensive and I’m no mental health professional,
but it’s a discussion of some tactics and information that have helped me in
the past when the weight of the world seemed to be crushing me with no sign of
relief. If it helps one person, it was worth far more than the time it took to
I’m trying to be less of a bastard in life. But I do tend to
temporarily suspend that effort when it comes to fighting back against what I
view as unethical tactics. In this post, I illustrate how I’ve been mostly
successful at keeping the shenanigans of those damn ISPs from succeeding in
robbing me blind.
Simply put, the methods I described in this post have saved
me five figures by this point in my life. One of the many benefits of living in
the richest country in the history of the world, particularly at a time when
technological advancement has been unprecedented as well, is that extremely
marginal compromises can result in enormous savings. There is an almost constant
chorus in the media about the retirement crisis in the United States. That
means that for most of us, there is no excuse for not taking advantage of
opportunities like this to get so much in return for so little.
If you had asked me to write this post ten years ago, I would have refused to do it since advising anyone to buy a new car would have been a huge disservice. Why buy new when that same car will cost a quarter less in a year and about half in four or five? However, since then, prices have skyrocketed (but so have incentives), people have largely caught on to both that trend and how generally undervalued used cars had been, and depreciation has slowed considerably as a result to the point that today, buying a new car makes sense in some, but still not all cases. But under no circumstances does it make sense to go in uninformed and let some car salesman hit a home run off of you. So let’s see what we can do about that. This is only one of many perspectives on the matter but it should at least give you a good start. The dealership model, much like that of credit cards, is set up to screw customers en masse. However, just as with credit cards, the rules of that exact same game can be turned around and exploited by a savvy customer as well. Let’s get you on your way to being one!
Much like in any sport, preparation is a huge part of
winning. Don’t ever go to a dealership without having done your homework. How
do you know if you’re ready? Before you ever step foot in a dealership, you
should know all of the following things: which make and model you want, the
differences between different model years if there are multiple new model years
available (for example, today you could buy a 2020, a 2019, or a 2018 in
certain cases) which options you want and don’t want, which packages you need
to buy or avoid in order to accomplish that, what those packages cost, the
average pricing (what people are actually paying) of any car you want, what
your current car is worth, and what the terms of your financing approval are.
Yes, that is a lot. It usually takes me a month or so, chipping away an hour or
two at a time.
There are tons of research sites available now. Edmunds.com
and KBB.com are two of the best and most venerable but countless competitors
have popped up in recent years. Most of the information you need is widely
available so the important thing isn’t so much where you choose to get yours as
that you get it somewhere and verify it somewhere else. I recommend working
through the process on multiple sites until you basically have everything
memorized. But don’t be afraid to make yourself a cheat sheet of key figures to
take with you. Your mind can do funny things in the heat of the moment.
Whatever you do, do not rely on a salesman to educate you about cars, pricing,
or especially finance. Why not? First, there is a very low barrier to entry in
the job and many of them are awful at it and incapable of doing so. By
educating yourself, you will ensure that weakness on the part of a salesman can
only get you a better deal and will cost you nothing. Second, information is
power, plain and simple. If the salesman knows more than you do about any of
the items I listed above, he has an advantage that he can capitalize on from
the word go all the way through the signing of a deal – and that’s going to
cost you thousands of dollars.
You also need to know about your end of the transaction
going in. KBB.com will give you a pretty good idea what your current car is
worth, especially if you cross reference craigslist, autotrader, etc to see
what cars like yours are actually being listed for. Pay attention to the type
of valuation you’re getting. Private party (if you sell the car yourself) is
almost certainly going to be higher than trade in. But know the difference
between these numbers because it will be important. Keep in mind that in most
states, you’re not going to pay sales tax on the trade in portion of the deal.
So weigh things out. For example, if your state charges 5% sales tax and your
car is worth $5k private party and $3800 as a trade, you would be better off by
$1010 if you sold it yourself ($3800 + 190 less tax liability = 3990, 5000 –
3990 = 1010). However, if the dealer ultimately ups his offer to $4800, and you
are confident in the $5000 figure, you are now better off trading ($4800 + 240
= 5040, 5000 – 5040 = -40). However, watch out for over allowance here. This is
when a dealer offers more than your trade is worth but then juices the hell out
of the sale price of the new car to more than make up for it. Remember, “there
is no free lunch.” And also keep in mind that selling a car usually involves
investing your time into dealing with at least some “interesting” people so you
have to decide what that is worth to you as well and factor it in.
Finally, there’s financing. Some hardliners will say you should
never finance a vehicle because it’s a depreciating asset. I would say that
technically they’re right in most cases, but that the declining pace of
depreciation and still nearly historically low interest rates have made things
a lot less definitive than they used to be. For example, I took a car loan in
2014 at a rate of 2.9%. Cash wasn’t worth that much at the time but investments
were worth a hell of a lot more. So since I was confident I would be able to
cashflow the loan for the life of the term, I feel I was making a pretty good
choice. I still recommend sticking to a 36 month term or shorter, just like I
would never advise anyone to take out a mortgage with a term over 15 years.
Why? The term becomes a limiting mechanism against both paying excessive interest
and buying more than you can afford. As long as you can cashflow the payments
at 36 months or less, you are pretty unlikely to get hurt. Are you dooming
yourself with a 60 month term on a car loan? No, but you are stretching
yourself thinner than I would prefer if you genuinely need a term that long to
afford the payments.
Whatever you do with the financing, do not make it into yet
another profit item for the dealership. Get your best approval option directly
from a lender prior to ever looking at any cars. Credit unions usually offer
the best rates. This part will involve a little more legwork but there are two
big payoffs. One, the dealership finance manager isn’t going to mark your
quoted rate up by a point (or three). And yes, if you don’t find the financing
for yourself, that is exactly what will happen. The exception would be when the
dealer or manufacturer gives you a subsidized rate. However, keep in mind that
in those cases, you can usually have either the subsidized rate or the
incentives on the car but not both and you are usually much better off taking
the incentives, which have ballooned more and more along with the pricing in
general. So you are always better off knowing what the best available
non-subsidized deal is at a minimum. Two, you will spend a lot less time in a
room with that same finance manager – and make no mistake, he is the smartest and
most ruthless guy on the payroll or they wouldn’t force almost every customer
to go through him before leaving with a new car. He is probably going to try to
push extended warranties and other bullshit whether you finance through him or
not, but if you take the financing out of his hands, you’ve taken away his best
weapon. He loves to say things like “we can give you all this additional
coverage and it will only cost you x per month” because it puts thousands of
dollars in his pocket without some people even realizing what he’s doing.
Before you walk into that office, remind yourself that the only way to walk out
without losing money is to say no repeatedly until the finance manager accepts
that you’re not a rube and gives up.
That brings me to another key point. Any time anyone tries
to talk about monthly payments, stop them in their tracks by telling them
you’ll be basing any and all decisions on the total sale price only. As a
finance guy, I can tell you that from your perspective as a customer, nothing
good can come from conversing in the language of monthly payments. If you are a
lion in an epic struggle for survival with a crocodile, this would be the part
of the program where the crocodile tries to pull you off of the river bank and
into the water, where you go from having a fighting chance to virtually none.
Don’t let it happen. Fight the enemy on your terms only. Negotiate on total
sale price only!
Now let’s get to that most fun part! What? Negotiating isn’t
fun for you? I get it. You’re a normal person and you don’t like awkward, high
pressure situations. But unless you want to donate at least a few thousand
dollars to some “no haggle” (in other words, “take the easy road and just pay
us a lot more”) dealership, this is a necessary evil. First off, shop at the
right time. There is no one best part of the year although there are several
good ones. Late summer is good because business tends to be slow and
dealerships are hungry. Different parts of fall and winter are good for a
variety of reasons. But by far the most important timing related factor is to
shop when it’s good for you. This means you have a functioning vehicle and are
under zero pressure to buy anything now. This is crucial because indifference
is your best weapon.
Only visit a
dealership if you are 100% ready and willing to drive away in the same vehicle
that got you there. I can’t stress this point enough. The heart of the
negotiation process is the power struggle. If a salesman (and by extension, the
finance manager, who you are actually negotiating with through the conduit of
the salesman) has any reason to believe you are not going to leave without
buying something, you are going to get soaked. This is not to say you can’t let
him think you’re serious about buying a car. But make sure he has no illusions
about you being unable or unwilling to walk away. Bottom line, if he gets you
to the point where you have to have his car, he wins. If you get him to the
point where he is ready to let you walk away, you win. And that is exactly the
metric I use to determine if I’ve pushed the deal to the limit.
The battle is usually going to rage for hours. Go in
mentally prepared. Like it or not, you’re in the game and if you want to win,
you have to want it more than your opponent. The salesman will use whatever his
favorite tactics are, often just lowbrow emotional manipulation, but the
structure is usually about the same; he first tries to build up the value of
the car and your desire for it. Ideally, he will succeed in making you feel
that this is not a negotiable situation and he’ll have you paying premium
prices for both the car and every bullshit add on that has ever been dreamed
up. But of course you don’t let that happen and say you want a lower price so
it goes into the negotiation phase. He goes to visit his manager, who coaches
him on his performance, talks to him about a sports team they both like, ogles
that hot new receptionist, whatever. This is a game, after all. But you can
play too. If the salesman is gone too long, you can smile as say something to
the effect of “if you’re gone that long again, I think I’ll go see what kind of
deal the guys across the street are offering while I’m waiting.” Bonus points
for a sarcastic wink at the end of it. The manager visits will usually yield a
few hundred dollars or so each on the total sale price – assuming you’ve been
smart enough to force the conversation to stay focused on it. Keep in mind that
they want to toss in other things – undercoating, extended warranties at
reduced prices, various subscription packages to all the tech bullshit the cars
are loaded with now, and anything else that costs them a fraction of what yet
another of those expensive price reductions will. Think of it like you’re
trying to dig a hole and every manager visit is another time pulling the shovel
up and dumping it. You want that shovel to be full of dirt every time or it’s
going to take you forever to get the job done.
The forever part is the dealership’s goal. The longer it
takes you to get them down on the total price, the more likely you are to just
give up and settle. Have fun with the process. Engage in whatever mental
warfare amuses you. The key is to send the message that you’re here for the
long haul and that doesn’t bother you in the slightest. If you do it right,
they may just give up and make a big cut in the hopes of convincing you it’s
their bottom line. But remember, my metric is whether the salesman will allow
me to leave. If he says something is the best he can do, thank him for the information,
tell him you will compare his numbers to some other dealerships you’re going to
be visiting (it helps if you know which competitors are nearby so you can
mention a name and make the threat more real), and act as though you’re
preparing to leave. Gauge the reaction. He may say “this offer is only good if
you sign now.” That’s bullshit. You can easily come back and renegotiate it
anytime you want – maybe even a better deal. Keep moving. He may say “let me go
talk to my manager and see if there is anything else I can do.” You’ve just
caught him lying since he already said it was the best he could do. The
negotiation phase isn’t over and you would have left money on the table if you
had believed what he said just moments ago. Or maybe, just maybe, he’ll have
nothing to say for the first time all day. If that’s the case, it means he
actually has done all he can do.
Now this doesn’t mean you immediately change your mind and
take the deal. Remember all that research you did? As part of that, you will
undoubtedly know what the average person is paying for this particular car.
Some sites even give you a range from low to high. So all this time, you will
have that in your back pocket and be well aware of whether or not what’s in
front of you is actually a good deal. So when the salesman bows his head in
apparent defeat, it’s time for you to make a decision. Are you at or near the
bottom of the range? Or below it? You should probably have a change of heart
about leaving and sign the deal. If you aren’t where you want to be, it’s
possible that this dealership is just particularly greedy and you’d get a
better deal elsewhere. You’d certainly be more effective at the negotiation
process with this one just recently under your belt.
One other fairly new phenomenon is the internet price. There
are sites where you can choose exactly the car you want down to the particular
trim, options, and even color. Use an email address you’re ok with getting
spammed at, of course, because the next step is that area dealers will spam you
with quotes. It will keep coming, and coming, and coming. But last time I tried
this, I noticed something interesting. Some of the dealers’ offers improved over
time. When I got one that looked almost too good to pass up, I went in. Of
course, I’m a crazy person, so I worked the whole negotiation process without
telling anyone I had the internet offer in my back pocket. When I got pretty
close to it and the salesman seemed unwilling to move any further, I pulled the
offer up on my phone and told him it had made me think it might be worth coming
in since it was “in the ballpark.” The salesman was pissed. But after one last
conference with his manager, he came back with a slightly better offer than the
internet one and an assurance that he would go no further. My leaving ploy
confirmed it and so did various websites.
So the internet price was pretty dynamite in that case as I
was only able to get a little bit lower through negotiating. And my final price
was almost off the chart in terms of the range of prices being paid on the
websites. But I never would have known that if I hadn’t verified it by working
to arrive at it another way. And just because that one internet price was good,
it’s no guarantee that any others are. Dealerships aren’t suddenly going to
stop wanting to make as much money as possible because the internet is here.
I’m sure they will continue to innovate.
I see by the word count that this has been a longer journey
than I had planned on. But I believe everything I’ve said has been necessary
and probably still didn’t cover absolutely everything. A successful car
negotiation often takes several hours (although I did have a very quick one
once) and although it may seem very straightforward at times, there is actually
a lot going on. I will leave you with two more general tips to keep in mind.
One, the salesman is only going to present options that benefit him. Don’t
assume they are the only ones that exist. Two, you are not in this to make
friends. The salesman and finance manager will most likely get very frustrated
if you are well prepared to get an extremely good deal and it may very well
come out in some sort of emotional response. In this narrow context, being
their friends means paying them thousands of dollars more than you have to. I
don’t know about you, but those are the kind of friends I can do without.
I don’t want anyone to get the wrong idea; I spend money, and plenty of it. But there are some key differences between how I spend that money and how most people do that allow me to live what I consider an upper middle class lifestyle for a lower middle class cost. One of these differences is that when I make a major purchase, I usually buy for the long term. I do a lot of research and I choose a high quality option I’m almost certain to love, both today and down the road. And then I take care of it so that I can keep it for a long time and it will stay in great condition. As a result, I’m able to own some very nice things while usually paying a lower overall cost than most people pay to own lower quality versions of them.
This is certainly my strategy with cars. It is not at all
uncommon for people to buy a new one every three to five years. But that is an
incredibly expensive form of vehicle ownership. For the last several years,
used car pricing has been so stubbornly strong that one can make a pretty good
case for buying new in many cases. I won’t argue with that and I’d be a
hypocrite if I did since that is the conclusion I came to when I bought my
current car – although even there I have some hacks – stay tuned. But
regardless of whether you buy new or used, it is pretty indisputable that in
general (there are certain exception situations), the longer you own your
average car, the lower your annual cost is going to be. I owned my last truck
for just over ten years and would probably still be driving it if I hadn’t
failed to save it from a tragic end at the hands of black ice. Thankfully, it
saved me in spite of this lack of consideration on my part. I walked away with
barely a scratch from an accident that would have rendered most of today’s cars
a pile of broken plastic, shattered glass, and twisted scrap metal. And in
fact, the truck was still driveable. Built Ford tough indeed. Anyway, I’ve had
my current car for almost five years now. However, and this is where it gets
exciting, my vehicles are usually in as good of shape, both visually and mechanically,
as just about anything else on the road and I almost never have any trouble
How do I manage this when so many people start having problems before their loan is even paid off? Step one is to do the research and buy a quality product. For example, if you buy a Dodge, I can’t help you; you’re almost certainly going to pay a fortune to keep it on the road and the body is going to start coming apart and rusting before the new car smell is gone. I believe phrases like “you can’t polish a turd” or “trying to put lipstick on a pig” apply well here. This post I did about the best and worst brands is a good place to start and I will likely write plenty more about the ins and outs of car buying before long since it is a process I enjoy very much.
But once you own a vehicle, it is crucial that you maintain
it properly. So today, at just over 60k miles, I spent a little over $400 on a
handful of services: a brake fluid flush, a transmission fluid change (note the
difference between the words “change” and “flush” here), new front brake pads,
and the resurfacing of my front rotors to go with those pads. Before my
minimalist, somewhat lazy new lifestyle, I would have done all of this myself
and spent around a quarter of that much on parts and fluids only. And if you
know how to work on cars or have an interest in learning, I highly recommend it
as an extremely profitable hobby. But the important thing is that you get this
stuff done, one way or another.
The day you buy your vehicle, I recommend you buy a repair
manual for it as well. Haynes and Chilton are good options and shouldn’t cost
more than $20-30, depending on the vehicle. If you spend even an hour or two
reading that manual, it will more than pay for itself in the form of knowledge
gained. And at a minimum, it will give you a comprehensive, realistic
maintenance schedule. Don’t rely on the dealer or even your owner’s manual for
this. The dealer will charge you substantially more than an independent shop
for work that is no better than what a quality independent shop will do. Please
note that I’m not talking about warranty/recall work here; that needs to go do
a dealer. As for the owner’s manual that comes with your car, well, many of
them now claim that transmission fluid is a “lifetime fluid.” Given that the
transmissions in most modern cars are extremely complicated pieces of machinery
that cost $5k or more to replace, I’m going to stick to changing the fluid at
traditional intervals, thank you very much.
What is the payoff for the $400 and change I spent today? My brake system is now working as well as the day I bought the car – potentially a matter of life and death when you live in close proximity to as many attempted murderers horrible drivers as I do. My transmission will continue shifting smoothly for some time to come and is much less likely to develop any problems – any of which would cost easily several times what it costs to do the maintenance I did today. And I can continue to drive hundreds of miles from home without worrying about whether I might wind up stranded somewhere. Simply put, any money you spend on competently performed, fairly priced preventative maintenance is going to be a good investment.
What other maintenance do I do on my cars? Oil changes are a
must. I am a big believer in Amsoil, ridiculously high price tag be damned. I
have never had a problem of any sort while using it and I am confident that if
I did, Amsoil is the kind of company that would stand behind its product. I
only use K&N performance engine air filters and cabin filters. Instead of
throwing them out, you clean/lube them and they will easily last the life of a
car. So the $80-100 investment pays for itself in five cleanings (or roughly
100k miles) at most and provides slightly better performance every day the
entire time you have the car. It is important to replace the coolant in your
car at proper intervals as well to keep the engine running optimally. If you
have a truck or an SUV, there is considerably more to be done – one of several reasons
I don’t have a truck right now.
As for keeping a car looking great year after year, my
program is pretty simple. I pay $20 a month for unlimited car washes at Mister
Car Wash, a high quality local option in Houston, and I run my car through
about once a week. These plans seem to be gaining popularity nationwide and can
make even more sense in a climate that attacks car finishes with a hellish
cocktail of snow, slush, salt, and more. But rather than opting for the more
expensive upgraded plan, which costs about double, I spend about a half hour
around once a month applying spray wax (any decent brand will do and it costs
no more than $5 for at least a few years’ worth) using basic microfiber cloths
(these are great to keep at home for other purposes as well since they are
reusable and do a better job than paper towels at all sorts of things). And
finally, I use those same microfiber cloths to apply Nu Finish, an awesome
polish product, once or twice a year. As a bonus, the waxing/polishing process
is a great way to routinely inspect every inch of your car for any potential
issues, which are almost always cheaper to address if they’re caught early. The
result? People often ask if my cars are new, even when they’re several years
They certainly look and run as if they were. But instead of
spending $5-10k a year on depreciation (yes, it is still an expense if it doesn’t
affect short term cash flow), I usually spend $1-3k and sometimes even less.
Over a lifetime, that will save me well over $100k compared to what the average
person does. And again, I still drive relatively nice cars. Right now I have
only one – a 2014 Hyundai Sonata 2.0T Limited, which offers 274 horsepower, a synthetic
leather interior, a backup camera, blind spot monitoring, heated seats, 18 inch
rims, and much more. And while it is still occasionally mistaken for being new,
it is actually better than that since Hyundai took a tragic step backwards with
the model in 2015 in both design and mechanical engineering (2 mpg city/0
highway gained in exchange for TWENTY NINE FUCKING HORSEPOWER lost to the tune
of a 1.5 second difference in 0-60 time? If that didn’t get some people fired –
or executed if it had been North Korea instead of South – it should have).
My next car is going to be a Lexus, more than likely a certain “radical” coupe that, with the aid of a few minor corrections modifications, puts out over 500 horsepower and sounds like an unstoppable monster from hell. I will probably buy one around five years old due to the way luxury cars depreciate but I will still probably keep it close to ten years and operate the same way I always have. With the combination of legendary Toyota reliability and proper maintenance working in my favor, I believe I will do just fine. If not, I will go back to buying premium versions of regular brands like I have in the past. Either way, I’m happily driving a good quality car with almost no problems and spending much less than average to do so. Everyone is obviously going to make different choices when it comes to cars. But if you take care of yours the way I take care of mine and keep it a while, you are going to get the same kind of results.
I want to do something a little different today. This is going to be a vindicating post, given another post I wrote not long ago, but there is a much more important purpose than my own vanity. I’m not just writing this stuff for the fun of it. There are real people out there getting hurt because they don’t know what they’re doing and I want to help reduce such scenarios. I get my news almost exclusively in written format and in particular, I read a lot of articles about business, finance, and economics. Yesterday I saw one that is relevant to something I think about often and I want to discuss it here.
In this astute, sobering article on CNBC, author Megan Leonhardt illustrates the regrets a healthy majority of millennial home buyers have with their purchases. She theorizes that the common thread in these regrets is the lack of financial understanding far too many people go into these transactions with and then goes into detail on some of the different varieties of disappointment that result. And of course, she’s correct. However, I’d like to take this topic a step further. History is absolutely littered with stories of uniformed marks being misled en masse into major financial transactions that aren’t in their best interests and ultimately paying the price. It’s a story as old as the barter system or the word “speculation.”
I believe this is one major example of the greatest threat
facing my generation: the menace of blindly following conventional wisdom that
developed under very different circumstances than those we live in today. In
this case, following the assurances of well meaning family members or desperate
real estate agents with everything to gain and nothing to lose, people are
buying incredibly overbuilt, overpriced houses they can’t afford in any
remotely practical definition of the word, since “renting is throwing your
money away.” When decent houses that reasonably met people’s needs were widely
available and cost one, or maybe two times a typical annual salary, I would
have been solidly in agreement. Today, the median house sells for roughly $250k
while the median household income has only recently risen to around $60k. As a
finance guy, I can tell you with the utmost confidence that the relationship
between these numbers is neither workable today, nor sustainable in the long
term, and that therefore, renting is not throwing money away, but paying more
than one would prefer in order to avoid a very likely financial catastrophe.
We are looking at a structural problem and mark my words,
something is going to give. It has to. Either the incomes of typical people
will rise or real estate prices will fall; and either change needs to be a
dramatic one if it’s going to bring the situation into a reasonable balance.
Adjusted for inflation, incomes have barely risen at all over the last few
decades. And given that the chief cause, technology/automation, is only going
to continue to progress exponentially, with the graph turning nearly completely
vertical very soon if it hasn’t done so already, I don’t see that trend
changing in any positive way. Another 2008 style housing apocalypse seems far
more likely, but I’m not even sure that would be enough to correct the
imbalance. When it happens, and I genuinely believe it will, the government
will have little choice but to step in and continue to paper over the problems
that have been festering just below the surface of the American dream narrative
for about as long as that dream has been viewed as a widely viable reality. It
has done so many times before and it will certainly do so again. But sadly, if
it is successful, it will probably only continue to propagate our current norm,
in which far too many people live on the very brink of ruin and deal with the
stress of that knowledge every minute of every day. Millions of people are (barely, in many cases)
holding wildly overvalued, impractical assets and precious few of them are sufficiently
capitalized to remain solvent when that overvaluation becomes readily apparent.
Even if you accept the values of these houses for what they
are, the amount of living space per person has ballooned to absurd proportions.
The average household of 2.5 people does not need a house anywhere close to the
2600 square foot average size of the behemoths that were built last year, nor
even half that. We’re talking about numbers that have not been observed on a
large scale at any point in human history. So we’re either looking at mass
overvaluation or the mass existence of ridiculous overproduction that would be
virtually impossible to divide up in order to “right size” it. After all, they
can’t exactly start dividing these monster houses into two or three units each.
Either way, my money is on some serious, widespread attrition.
The good news is that clearly I’m not the only one seeing
this. The article I cited above starts out talking about how millennials are
buying fewer houses than previous generations were at the same ages. Whether
it’s because they see what I see, they’re being held back by financial
constraints, or perhaps they just have an uneasy feeling they can’t quite place,
many members of my generation are making the right choice and staying on the
sidelines until further notice. What about you? If you’ve already bought
something and feel overextended, which is what many of the regrets in the
article boil down to, your options are to sell quickly while you can still get
good value out, assuming you are in a position to, or to buckle up and attempt
to hold on through whatever form the ugliness on the horizon takes when it gets
here. If you’re taken down by another mass foreclosure event, the silver lining
is that assuming you become insolvent, you will at least be free of that brick
and mortar anchor you are currently chained to and you will be in good company
as you work to rebuild your financial life. But if you haven’t bought anything
yet, be thankful. Whatever has led you to the position you’re in today, I
believe it has saved you from one hell of an ass kicking.
I would argue that another example of this unsustainable,
blind following of conventional wisdom that is no longer relevant to current
circumstances trend, is the constant pressure (often from the aspirational
grandmothers, bless their hearts) to have kids very few people can reasonably
afford. We’re talking about a quarter of a million dollars for one – likely a
low end estimate once a couple decades’ worth of inflation are factored in –
paid for by people who can barely keep their heads above water as it is in
literally the majority of cases. And how many people have just one?!? But that
is another post for another day. As a quick spoiler alert, however, if you are
not a member of a stable, long term household with a sustainable income of $70k,
or preferably considerably more, and you have not had comprehensive, realistic
discussions about how you will handle this drastic, life altering change of
circumstances, you’re making a dire error. For now, just remember this: if
something feels off, it very well might be. In spite of what your family, the
media, salespeople, or anyone else might tell you, there are very few times in
life when you will lose out by taking a little more time to make sure you’ve
done your diligence and feel comfortable before making a major decision. Do not
let someone else, who will not be paying the consequences, put you in a
position you don’t understand or are not fully, diligently prepared to take.
This is your life. Take it seriously and your results will be much easier to
You’ve probably seen some of the articles talking about
people screaming and stomping their feet because their tax refunds are smaller
this year. There have been plenty of them. Unfortunately, a lot of people
simply don’t understand how the federal tax system works and the mainstream
media, which makes its money by fanning up any potential controversy into a
firestorm, is all too happy to spread the ignorance around as usual rather than
doing the responsible thing and explaining the reality of the situation. So I
guess it falls on my shoulders to put out their fire by spraying it with facts.
This is not a political post. My goal is not to change anyone’s opinion about
the tax reform package that took effect in 2018. I just want to do my part to
combat the apparently widespread ignorance.
Let’s say you go to the store and buy a candy bar for $.75.
You pay with a $1 bill and the cashier hands you a quarter. Did you just gain
25 cents? No, you simply overpaid and got the change you had coming to you.
That is exactly what happens when you file your tax return. In the case of most
people, your employer has been withholding a portion of your pay all year. The
tax return is a reconciliation. It determines how much you were legally obligated
to pay, compares that to the amount you actually did pay, and either gives you
your “change” in the form of a refund if you paid too much, or demands that you
pay more if you paid too little. You are not gaining or losing anything except
cash flow. And if you’re getting a refund, it’s technically bad news since it
means you gave the government an interest free loan for an entire year. If you
don’t know why that is a bad thing, google “time value of money” and get ready
for the most important lesson you’ve learned in a while. Simply put, it’s how
people like me use our money to create more money. It is also how people who
don’t understand the principle fall further and further behind. Ignorance does
not exempt anyone.
In 2018, most people actually paid less in taxes than in
previous years, assuming important factors like income, dependents, etc didn’t
change. The main category of people who paid more are people who itemized previously.
Roughly 30% did so for the 2017 tax year and that number is expected to drop by
about half for 2018. This is because the standard deduction, the alternative
mechanism to itemizing, was increased at the same time as certain deductions
were limited. But the important point here is that most people paid less.
However, most payroll software (and most employers use the
same handful of payroll vendors) updated to account for the changes in 2018.
Almost everyone who was getting a tax cut got it spread out over every paycheck
– just as they would have if they had gotten a pay raise. It wasn’t a lot; for
most people, it was $500 or less over the course of the year. If you’re high
income, then it was probably more but also a proportionally small amount. A lot
of people probably didn’t even notice their paychecks were $10 or $20 higher.
Unfortunately, some of the payroll software was a little more optimistic than
it had been in previous years and as a result, many people’s 2018 refunds got
smaller. However, this simply means that instead of getting their interest free
loans back a few months into the following year, they simply never made them in
the first place or made smaller ones. In actual financial terms, that’s a gain.
So why all the howling if the majority of people are paying
less in taxes? First off, as I already mentioned, there are a lot of people who
don’t understand the situation. And it doesn’t help when the media has no
interest in doing anything but amplifying that effect. But aside from ignorance,
most people are negligent with their finances. They save little or nothing
throughout the year and as a result, their tax refunds are found money in their
eyes – and usually found money they’re mentally counting on. This is why car
dealerships, furniture stores, and tons of other businesses tend to have tax
refund themed sales around this time of year; it is the only time a lot of people
will have any money in hand. If you’re in this group, it’s time for some tough
love. You’re put yourself in a difficult position and I encourage you to take a
good, honest look at what you’re doing with your money. If you don’t know how
to do that, ask a wealthy person you know to do it for you and give you some
tips. Or email me at firstname.lastname@example.org.
Everyone has to start somewhere and I will be happy to help anyone who is
serious about improving.
There are people who legitimately paid higher taxes in 2018
but a lot of the people who are complaining about their refunds are not in this
camp. For anyone a tax refund is a big deal to, I encourage you to use this as
a wake up call. Keep reading this blog and others like it. Evaluate the way you
handle your money and make changes. Even little ones will make a big difference
if you’re in rough shape, just like how people who don’t exercise regularly
will typically get huge results from just getting started in the gym. Turn a
negative into a positive. I’m here willing to help and there are a lot of
others like me. But at the end of the day, all the information and advice in
the world won’t do an ounce of good if you aren’t honest with yourself and/or
don’t make the necessary changes. But regardless of what you do, please stop complaining,
particularly when the thing you’re complaining about actually benefited you. It’s
not a good look.
There is an awful lot of misinformation out there about investing, much of it propagated by people who stand to benefit from leading others astray. Detangling all of it will take time and while I intend to do that on this blog eventually, I want to start with a simple, basic strategy that a lot of people can follow. This strategy will outperform most of the “experts” over time and at a much lower cost than what they will charge you. As a general side note, please remember this; very few people in the media are impartial anymore. Don’t act on any financial advice that is given out publicly without evaluating who the source is and what he or she may have to gain from disseminating it.
Cash is king and that is where you should start. If you don’t
have enough on hand to deal with life when it happens to you, it is going to
cost you dearly. For example, you can’t pull money out of your 401k very easily
(or cheaply) to deal with sudden medical expenses. It is better to have enough
cash saved up before sacrificing liquidity in favor of potentially higher
returns. A lot of people will tell you to have six months to a year of expenses
on hand. I think that is a decent place to start but also that it is a little
more nuanced than that. Think about your personal situation. How many incomes
are in your household and how many total people? If there are more mouths to
feed than sources of income doing so, your cash needs are greater. Conversely,
if you have a household of two working partners and no dependents, you can
probably get by with somewhat less cash, particularly if your incomes are
relatively similar. No matter what you do, keep in mind that the basis for your
calculations should be your expenses, not your income. And if you don’t know at
least approximately what your monthly expenses are, then you need to go back
and start there.
Once you are comfortable with your cash position, you can
start investing. I recommend a 401k if your employer offers one. Of course, not
all 401k offerings are the same. A good one will include at least some level of
employer matching, at least a handful of low cost (expense ratio of no more
than .5% and preferably lower) investment options, and a reasonable vesting
schedule. Sadly, my current employer fails on that last point with a ridiculous
six years to 100%! But I digress. You can put a maximum of $19k a year into a
401k and it will lower your taxable income accordingly. But assuming your MAGI
(modified adjusted gross income) is less than $122k, you can also put up to $6k
a year into a Roth IRA.
But start by contributing at least enough to your 401k to
get the employer match. A typical one seems to be 50% of the first 6% of your
salary (in other words, 3% if you contribute 6). From there, you can determine
where to go with the excess. In general, a 401k reduces your tax liability
today while a Roth IRA reduces your tax liability in retirement. Since your tax
rate is very likely lower today than it will be years down the road, there is a
solid argument to be made for putting $6k into your Roth IRA and then going
back to finish maxing out your 401k. But I would start with some combination of
these two, again taking the phase outs based on your income under consideration
in the case of the Roth IRA.
What should you invest in with your 401k and Roth IRA money?
This is an easy one. Go for low cost index funds that mirror your objectives.
If you’re young and you have a long time until you plan to retire, you can
afford to be risky so you can go with a heavier stock to bond ratio – as high
as 100/0 even. If you’re getting older, you will likely want to move towards
the other end of the spectrum. It’s all a matter of risk tolerance but
remember, more risk typically produces more reward.
Regardless of the risk you want to take on, this next point
is the most important of all on investment choices. Do not let anyone bleed
your retirement savings year after year. Actively managed funds almost never
outperform index funds over the long term and they are much more expensive. A
fee of over .5% will eat up a ton of your money over time. If Vanguard options
are available to you, there is a good reason they are the largest mutual fund
company on earth. Their funds are the gold standard in providing low cost funds
with competitive returns. You would be hard pressed to go wrong if you’re
looking at anything of theirs.
What if you’re making less than $122k a year (roughly 90% of
people are below that level) and you are already maxing out both your 401k and
your Roth IRA or you’re making more than that and doing all you can with those
two avenues? First, pat yourself on the back because if you stay on that course
and make decent investment decisions, your retirement is more secure than that
of almost anyone you know. Now, prepare to have a little fun. With that $25k a
year going into your long term retirement funding, you can afford to get
aggressive with any excess if you want to. In my case, I do some more
conventional stuff and I’ve also started a side business investing in real
estate. In your case, the world is your oyster. This is where you may want to
talk to a professional if you aren’t sure. I work with both attorneys and a CPA
with my business. If you work with a financial advisor/planner, make sure they
are fee only. If not, they’re likely to put you in the investments that are
most profitable to them while your interests wind up more of a secondary
consideration. But you can also just stick with more conventional investment
choices like the ones I mentioned for your 401k and Roth IRA if you prefer.
I do want to stress one point, however. Unless you have a
fairly large amount available to invest, say at least mid five figures, I would
stay away from individual stocks. With less than mid five figures, you simply
don’t have enough to be able to diversify adequately. The less diversified you
are, the more you are gambling. And consider this; almost no one in the history
of mankind has picked stocks well enough to beat the market consistently over
time. Do you think you will be one of the handful of counter examples? If not,
your best bet is probably to stick to mutual funds for stock market investing.
I think this is enough for now. I kept it very basic because
with investing, as with so many things, getting started is most important. And
if people feel overwhelmed, it tends to push them in exactly the opposite
direction. As always on my posts, if you have any questions, feel free to
comment below or email me at email@example.com.
I have to be honest; I despise the word frugal. Or more accurately, I hate the way people tend to use it. The exact definition is “characterized by or reflecting economy in the use of resources.” According to that definition, I suppose I am frugal – usually. But in order to define me that way, you have to think about that definition accurately. I’ll give you an example. When I was a child in a lower middle class, single parent household, washing the dishes included washing the little plastic lunch bags so they could be reused. I would say Ziploc but I can guarantee you we had the off brand ones. I still feel my blood boiling at the number of my living, breathing moments I spent doing this. The things cost a fucking penny. I don’t care how low anyone is in life; we live in the richest country in the world and even the most hopeless person’s time would be far better spent doing almost anything else. And I will prove it. Assuming the process of washing, rinsing, and eventually putting away takes ten seconds per bag, which is almost certainly an underestimate by half or more, the person doing it is valuing his time (or having it valued for him by someone who didn’t really think it through) at six bags per minute, which ultimately extends to $3.60 per hour when processing $.01 bags. Even a twelve year old can earn more than that delivering papers or mowing lawns. I know because I did both.
What I just described isn’t frugal. It’s insane. But
hopefully now some folks I occasionally frustrate will have a slightly better
understanding of why it can be difficult for me to spend money at times, even
when it would be nothing to me. That scarcity mentality was drilled into me
very young and I fight it every day. I legitimately believe it is a form of
mental disorder. But anyway, that is an extreme example of the type of
ridiculous bullshit people associate with the word frugal. Aside from the
occasional extravagance I manage to grant myself as a man who is already on
pace to be financially independent well before 40, I do believe in using
resources efficiently. The infuriating lunch bag example above is actually the
opposite of frugal since there are is an almost infinite number of better ways
one’s time could be used.
When used correctly, frugality can make life better. One way
is that it allows you to have better quality products. For example, I own a
Vitamix blender that cost $500. After nearly six years of daily use, it still
works like it did the day I got it, which means it could blend a boot into fine
powder if I could fit one in. The thing is probably more powerful than some of
those sad, go cart looking hatchback things some people call cars these days
(seriously, why?!?). It is still under warranty for the remainder of year seven
and that is irrelevant because less than 1% of Vitamix blenders are ever repaired
under warranty. I will actually be shocked if it doesn’t last another decade.
So what did my $500 get me? It got me a blender that blends a combination of
fruits and vegetables into a very drinkable smoothie on a daily basis (and
often blends other things as well since I enjoy cooking) in an incredibly
efficient manner and will continue doing it long enough that by the time it’s
on its way to blender heaven, I will have paid significantly less than a dime
per use. There are probably only a handful of blenders on the market that can
even do what this one can a single time. Most of the ones I’ve seen take much
longer and don’t blend nearly as thoroughly. More time equals more strain on
the motor and a shorter lifespan. Plus, more time equals more investment on
your part with each use. Believe it or not, there are also blenders even more
expensive than the Vitamix. I haven’t done the math and couldn’t without making
significant assumptions that would render the exercise pointless, but I would
be very surprised if there is another blender that can match the Vitamix in a
true apples to apples, dollar to dollar comparison.
Yes, $500 is a lot to spend on a blender. But when you
evaluate it holistically rather than on a simple cash flow basis, it was a
frugal purchase. The key is to do your homework. For example, I was recently
looking to make another “best money can buy” style purchase in the form of a
coffee making apparatus. I used that word because for the kind of money that can
be spent, I think a fancier word than “maker” or “machine” is necessary. I
quickly learned that I could spend well over $1000 for a contraption that ultimately
pours hot water through ground beans. And after fairly thorough research, I
concluded that I shouldn’t. I couldn’t find a single high end option that didn’t
have mixed reviews at best, with most of the bad ones referencing durability
issues within only a few years. Apparently it is simply too difficult a task to
produce a coffee maker that can match both the quality and durability of my
blender. I ultimately ended up spending around $50 total on a solution that is
producing great quality coffee and appears that it will do so for a long time
to come – a handheld burr grinder and a French press, both in attractive stainless
steel that makes them counter worthy. Oh. And an old electric kettle that
probably cost $10 ten years ago is also part of the ensemble, although its
appearance keeps it relegated to a cupboard. Had I spent 10 or 20 times as much
on a setup that had ultimately let me down way too soon, I would have been
making a terribly un-frugal decision.
So there you have it. Frugal isn’t quite the dirty word its colloquial use would have you believing. If you do it right, you get the best possible outcome in every situation and ultimately pay less for it, even if you have to put more cash into the deal on the front end. And to save you the analysis on one purchase, go buy the 7000 pack of high quality, Ziploc lunch bags at Costco for maybe ten bucks and don’t ever think about them again. That’s all for now. I have a morning workout to get to and business deals to discuss. Have a lovely day.
Disclaimer: I am not selling anything, doing affiliate
marketing, or any other shenanigans. In no way will I make any money if anyone
follows my lead and signs up for the account I describe in this post.
I went into more details on this previously, but for a while now, I have mainly kept my cash in a combination of a credit union checking account and an online savings account. First, it would flow into the checking account from my paychecks and various other sources. I was paid 7.5% on the first $500 in the account and .2% on the rest. Each month, I would pay my bills, transfer some to investments, transfer some to my online savings account, and leave a few thousand in checking. The online savings account paid me a better rate than the .2% I would otherwise have been paid on the balance above $500 left in the checking account and of course the investments paid significantly more (at least most of the time). Today, that online savings account is paying 2.45% and if the FED would stop letting the stock market and our very stock market oriented president intimidate it, that rate would continue to go higher.
Mostly, this is a pretty awesome system. I only keep around
$10k of cash on hand (any excess usually gets invested) and of that $10k, the
first $500 makes $37.50 a year and the last $6500 makes $159.25 for an average
ROI of 2.8% which covers inflation and just a little bit extra – not bad for my
emergency/float cash. So what’s the problem? I’m getting crushed on the other
$3k I usually keep in my checking account, which makes only .2%. Previously, I
had simply lived with this and considered it a small price to pay to have
enough cash on hand to deal with any minor to moderate issues that came along.
But no mas! Introducing the SoFi Checking Account!
The SoFi Checking Account is a hybrid account with a ton to
offer. First and foremost, it pays 2.25%. Second, there are basically no fees
of any kind to have to dodge using direct deposit, minimum balances, an absurd
number of debit card transactions each month, etc. Third, and this is a big one
for some folks, there are no ATM fees – ANYWHERE. There is a little bit of
weirdness as SoFi itself is not an actual bank. So it uses partner banks to
actually store the money. But not to worry; all of them are FDIC insured, which
makes them just as secure as any other US bank.
It’s not every day that I change primary bank accounts but
today is one of them! My new setup will be as follows. I will leave $500
sitting in the existing checking account since I’m not about to give up my 7.5%
rate on that money. A minimum monthly direct deposit of $250 is required to
avoid a monthly maintenance fee so I will deposit that much and then move it
into an investment from there on a monthly basis. But the rest of the incoming
cash will be destined for this new SoFi account, meaning the $3k average
balance will earn me $73.50 per year. Subtract the paltry $6 a year that money
was making me before and I’m left with a profit of $67.50. And if the FED gets
its head out of its ass and continues its long, slow march back towards
responsible currency management, that return is likely to go up rapidly. If it
increases its funds rate to a historically normal level, this payoff would more
What did it cost me to get this money? About ten minutes.
The account setup process was actually incredibly easy and that took about
five. The other five minutes involved printing out the ol’ direct deposit
change form, filling it out, and emailing it over to our payroll lady, who is
accustomed to getting these from me on a fairly regular basis and I’m quite
sure loves me for it. For those ten beautiful minutes, I made a cool $405 an
hour! I would work that job 24/7/365 if I could. And every year this account
keeps paying out at this rate, or preferably higher, those ten minutes become retroactively
that much more valuable. Sweet!
There is no getting around it. If it has four wheels and an
engine, I love it! From a finance perspective, this can be a dangerous area.
But a little knowledge goes a long way towards solving that problem. I could
write at least one book on this subject but I think I’m going to approach it one
topic per post. In this one, I’m going to talk about which brands are best and
worst from a financial perspective. I’m not going to cover every single brand
that exists – only the more common ones that are either at the top of the heap
or the bottom. I will touch on cars and trucks here but I will not talk about
SUVs simply because I know nothing about them. Why not? I’m a finance guy and
approach everything from that perspective. So in my world, SUVs basically don’t
exist. As you will notice as this post progresses, you need to look beyond the
brand name because those get bought and sold all the time. Who actually does
the manufacturing is much more important than the logo they’re slapping on the
With cars, I have to start with Toyota/Lexus. They are simply
the best of the best. It starts with their manufacturing process. These guys
are absolutely obsessive about efficiency and quality control and it shows in
everything they produce. They have very few misses. Almost any of their cars
are very reliable, efficient, and refined, and as a result, the cost of
ownership is low. That said, they are not perfect. While they’ve gained ground
in recent years, especially with the Lexus brand, they are a little weak on the
design side, both interior and exterior. And as a former Supra owner, I am
horrified and disgusted at the way the name is being bastardized today. That
car appears to be more BMW than Toyota and bears little resemblance to the
legend it shares its name with. That said, I’m sure it will sell very well;
just not to those of us who loved the original for what it was – a beautiful,
relatively reliable, extremely modifiable, high performance machine at a
surprisingly low price.
While not quite up to Toyota’s standard, Honda/Acura is a
solid choice as well. Originally a motorcycle manufacturer, Honda is a little
more performance oriented than Toyota. Their reliability and efficiency are
also great although both are a definite step below Toyota’s. In my opinion,
their design is hideous – especially with their Acura brand – but I suppose
beauty is in the eye of the beholder. One other Asian manufacturer that
deserves a mention is Hyundai/Kia/Genesis. These cars were much maligned years
ago but they have come a long way. Today they are nearly competitive with
Toyota and Honda on reliability and efficiency. And as a bonus, because they
are still working through their reputation struggles of the past, they are very
value oriented. They tend to offer features you normally don’t see at their
price points. I would expect Hyundai’s new Genesis luxury brand to continue
that trend and offer a very competitive value relative to that of its competition.
On the truck side, things are a little simpler; get a Ford.
The F150 has been outselling the competition for a very long time and with good
reason. It is the best truck, period. There are plenty of good competitors here
– the Silverado/Sierra and the Tundra at full size and the Ridgeline, Tacoma,
and Colorado/Canyon at mid size. That is the smallest trucks go these days
unless you want a Nissan Frontier, which is the lone small, cheap truck left in
existence (sadly, the legend in this category, the Ranger, is coming back as an
F150 Light, a similar bastardization to that of the Supra). In general, I don’t
recommend Nissan as it is a middle of the pack manufacturer but in this case,
it is the only option. Trucks are very expensive so I would only advocate
buying one if you genuinely need it. But if you are going to use a truck as a truck,
a Ford is a no brainer.
Those are the best brands. Which ones should you stay away
from? If we’re talking about cars, anything American is a pass. The big three
(Ford, GM, Fiat/Chrysler) have huge legacy costs that go into every vehicle
they produce. With big, expensive vehicles like trucks, they can make it work.
With cars, it simply handicaps them too much. The best evidence of this is
their reliability. With the better Asian brands, you can usually get the
odometer to six digits without doing much more than changing oil, brakes, etc.
If you pull that off with an American car, count yourself lucky and sell it
soon because that luck won’t last forever. That trend only accelerates as the
mileage gets higher.
And please don’t be fooled by Chevy’s incredibly irritating JD
Power commercials. They are flat out bullshit. A lot of money changes hands when
it comes to using JD Power awards in marketing and they are dubious at best
anyway. In fact, some other manufacturers took Chevy to task on this recently,
pointing out some of the most blatant lies and threatening to take legal
action. While refusing to admit to anything, Chevy wisely pulled the ads in
question, tacitly revealing the reality of the situation in the process. It
shouldn’t have had to come to that but it’s a great example of how low the
standard for truth in advertising actually is. I ignore 99% of it in all forms
and I highly recommend you adopt that policy as well if you haven’t already.
Aside from American branded cars, I don’t recommend anything
German because of reliability issues and overall high cost of ownership. They
manufacture everything with very tight tolerances and the result is that while
the quality of the better brands (BMW and Mercedes Benz) is very high at first,
it goes downhill quickly from there and maintenance/repairs are not cheap.
Volkswagen (including Audi, Porsche, and some other brands under the same
ownership) is on the automatic pass list. I don’t recommend anything British
(or formerly British brands like Jaguar) as their reliability is atrocious,
particularly when it comes to electrical issues. And finally, while
Fiat/Chrysler vehicles (Dodge, Jeep, Alfa Romeo, Maserati, and a handful of
other brands are included under this banner) are usually cheaper than their
competition, there is a good reason for that. They are simply some of the worst
vehicles on the road. Efficiency and build quality are usually poor while
reliability is worse. This was the case long before Fiat got involved and it
hasn’t changed. And let’s not forget that the Ram logo is literally a vagina.
You can’t make this stuff up.
To sum this all up, if you’re looking for a car, you want
Toyota/Lexus, Honda/Acura, or Hyundai/Kia/Genesis. If you’re actually going to
use a truck, stick with Ford. If I didn’t mention a particular brand or group
of brands (ie German cars), that means it is somewhere in the middle – not among
the worst but not among the best either. And who wants to pay good money for
something average? Obviously you still want to research individual models but
in general, if you stick to the best brands I’ve listed here AND take care of whatever
you buy, you are very likely to come out ahead.
While combing through a friend’s finances with him in search
of savings opportunities recently, we struck gold with his car insurance. He is
going to save hundreds of dollars over the next year as a result of making one
minor change and at this point in his life, that will go a long way for him. In
the process, I realized that car insurance is probably a large potential
savings opportunity for a lot of people and I was inspired to write a post on
the basics. Please note that I am no insurance expert and none of this, or
anything in any other post for that matter, is intended as legal advice. But I
do know a fair bit and I may be able to help point you in a direction that will
save you some cash.
The first thing I tell anyone about insurance in general is
that in many cases, loyalty counts for nothing. In my experience, the only
reward for staying with a company long term is a consistent premium increase.
This doesn’t necessarily apply to all companies but it also doesn’t cost you
anything to get a few quotes to make sure your existing company is still
competitive. I recommend doing so every couple of years or so. Companies seem
to make fairly regular changes to the way they rate drivers, vehicles, etc, and
the only way to find out about them is to shop around and see who is offering
you the best deal today. Don’t assume that anything will be consistent from
person to person or even from year to year for the same person. Numerous
variables go into what premium is charged. Some agents seem to be very willing
to shop around for you as a new customer but very reluctant to do so when you
are already on the books. This has to do with their business model. However, just
as with almost any other service, if you are less valuable as an existing
customer than you were as a new one, become a new one again – for someone else.
Another important thing to look at with car insurance is
your coverage itself. Liability coverage is required in most states now and is
required by common sense and basic human decency everywhere. Sometimes the
legal minimums are lower but I recommend at least 100/300 for bodily injury and
100 for property damage – and 200/400/200 wouldn’t be overkill either.
Remember, if you run out of insurance coverage, you’re on the hook from that
point on. And things can get expensive very quickly whether you’re paying to repair
cars or people so skimping on this to save a few bucks on premiums could be a
very painful decision in the long run. Liability coverage also benefits you in
the form of uninsured/underinsured motorist coverage. There are simply far too
many irresponsible people out there and as usual, people who make one bad
decision, such as not having car insurance, tend to make others as well. In my
relatively young life, I’ve already been rear ended by not one, but two
uninsured drivers while stopped behind lines of cars at stoplights. It doesn’t
get any more “not at fault” than that. In both cases, I was very glad to be
covered by my own insurance company even though the drivers who hit me hadn’t
had the decency to get coverage of their own.
So where can you save money on coverage? In the physical
damage section. For this part, you need to consider both the car you’re driving
and your financial situation. First of all, if your car is worth less than
$5000, you may want to consider passing on collision coverage altogether. Of
course, this means if you are in an at fault accident, you have to pay to repair
the damage to your car. But most accidents are minor ones that involve little
more than replacing a bumper, which is usually around $1000. Plus, if your car
is worth that little, chances are you’re not going to repair minor damage
anyway. So by not having the collision coverage, you’re really betting that you
either won’t get in an at fault accident or that if you do, it will be a minor
one. I like those odds. That said, if you don’t have a reasonable emergency
fund of at least $5000, you may want to think twice about this.
Please note that if there is a lien on your car (in other
words, if you have yet to pay it off), you cannot do this because it will put
your loan in default status. You probably don’t want a visit from the friendly
repo man anytime soon – even if your lender is likely to call and threaten you
for a while before they go to that extreme.
If you want to follow a more minor version of the no
collision coverage strategy that doesn’t put an auto loan in default, you can
raise the deductible. Going from $500 to $1000 usually makes a decent
difference in the premium. I have never seen going higher than $1000 do much of
anything so I leave it there. This should pretty well confirm what I said above
about most accidents amounting to a $1000 bumper replacement; insurance
companies literally bet on it with their pricing.
Aside from coverage changes, there are a few other more traditional methods of lowering your car insurance premium. You can pay for six months at a time or annually if your insurance company offers that option. This usually saves you a little and offers the bonuses of both a head start on any credit cards you may be churning and locking in the premium for the full term you’re paying for. For example, I will only do a full year here in Houston since premiums are rising very quickly as insurers work to recoup their Harvey related losses. You can also get a discount for getting your car insurance from the same company as your homeowners/renters policy. You can talk to your agent to make sure you’re getting all the discounts you may be eligible for (good student, membership in certain associations, completed safety classes, etc). In the case of many insurers, you can also get a discount for letting them use a gps to monitor your driving habits. However, as a safe driver, but one who also likes to get where I’m going in a timely fashion, I’m always going to pass on that offer.
This obviously isn’t exhaustive of every possibility but
hopefully it will give you an idea or two to try out. Good luck and safe
travels out there!