The WAVE-B Free Ride Project hit a major milestone. The Almost Sports Car‘s service to my family has ended. It has 194000 miles on it and it has served it’s purpose. Now it is going to serve a college student who has no car but, needs one due to a loss of a transmission in an older car. The recap of the car is as follows:
$ 3400 cash to purchase in June 2013. This is 18 months which is 8 months past the initial plan of 10 months. The car is 21 years old so it is a little bit past it’s prime. We saved $120 per month in gas price for a total of $2160 over the previous car (Ramsey Rover) The time with the 1994 Accord wasn’t wasn’t all economically rosy. I had to replace the computer after we decided to keep it past the 10 months. This with a ball joint and some other minor parts added about $1600 to the price of the car. Most of the parts were over a period of time so the costs were not that hard to absorb economically (just emotionally). There were some upgrades like new tires that included a full size spare and rim included with the after purchase costs.
The bottom line costs of the car was a out of pocket $5000. If I subtract the gas savings of $2160 and the what I sold it for ($2500) the net cost is $340. I had a couple of offers for the car at the same price I bought it for but, decided to sell it to a college student at a discount on the term of she has to set a budget that included a $1000 emergency fund. If I had sold it for what I purchased it for I would have effectively been paid to drive the car $560 for 18 months compared to my previous vehicle.
Savings is the Key
The main determining factor for what car we purchased next was directly related to how much money we could save over the 18 month period. This is where it was critical for us to put all excess cash towards the project. There was a three pronged approach that helped us build momentum towards this goal:
- Funnel all reoccurring savings to the savings account–
The funneling of reoccurring savings is a method I used to capture any savings off services we use and not let the extra cash burn a hole in my pocket. We saved money on changing insurance ($120 per month), cell phone ($100 per month), gasoline usage in cars ($110 per month) and internet ($37.50 per month). These four changes amounts to $367.50 per month going towards the savings of a car without changing any of our lifestyle.
- Push to live off of one income even though both spouses are working-
My wife works sporadic freelance work so this one kind of naturally happened. The less hours she worked the less we were able to put aside for the project. The unpredictability of her work helps with creating the right mental attitude to live off one income. This caused us to keep on track for basic principled choices like bringing lunch to work, checking for deals on necessary purchases, drive the most efficient car to work when my wife wasn’t working, drive as much like a hypermiler as possible, etc. This prong is with the vision towards the future of using one income towards investments.
- Have the maximum taxes taken out to force another savings-
There are a lot of arguments against overpaying your taxes and getting a big refund I have heard. Stuff why like giving the government an interest free loan when you can be using your money?, you are losing an opportunity costs by not having that cash available, the government is just going to waste it, etc. Those are all good points but, my main reasons are to force to live off of less and to protect from having underpay taxes by mistake. This one is bad because you can have penalties accruing and have to pay more taxes. The bottom line is it helps keep the momentum up. What better feeling is it to have a lump sum to add towards the project goal.
Purchase Price Control
Purchasing the right car as cheap as possible is the bang for the buck factor. Knowledge of the car market and depreciation was key. Knowing that any car we purchase will lose value once you leave the bottom of the bucket tier car is a great motivator to choose correctly the age of the car. Our goal was to purchase the most reliable car in the 2-3 year to 8 year range depending on how much money we had on hand. This was helped by an April issue of Consumer Reports.
This was the starting point. The next level is the negotiating with the dealership. The best position there is to have the cash and idea of what you are willing to pay for the car. (There is a difference between what the cash you have available and what a car is worth. The car may be worth less then the cash on hand; I often have to keep myself in check. It is easy to connect the dots and value the car the same as cash on hand when it is worth less.) I knew what all dealers in the area have posted for the same model and mileage. This helps when talking to a sales associate. Being willing to walk away at any time is powerful and often let’s you get the best deal.
Predicting Operating Costs
Operating cost involves more than just fuel efficiency. Other factors add up collectively to impact your bottom line. Here is the list of those operating costs I look at:
- MPG or MPGe – fuel costs, type of gas; what is the cost per gallon
- Insurance – what type, deductible amount, premium amount, age of the car factor, etc
- Reliability – how many repairs are needed, what kind of repairs are needed, what are the costs of the replacement parts
- Cost of tire- often overlooked but the type tires needed for the vehicle is a factor of costs
- Type of engine / maintenance- gas; oil changes, electric; batteries , etc..
- Insurance premiums – age of car is major factor
- Timing belt changes – if needed how often
The Result Of All The Efforts
Here is the car as the result of the WAVE-B Free Car Project. It is a 2012 Honda Accord with 26,000 miles on it. The cost was $15,000 before registration, fees and tax. (New it would be about $25,000) The car was paid for in cash saved during the project. It does 23/34 MPG; compared to the two previous cars it is an improvement (1994 Honda Accord 20/27 MPG & 2000 Ford Windstar 15/21 MPG)
The jump from the Windstar to the 1994 Accord was a move forward on gas and maintenance costs. The move forward from the 1994 Accord to the 2012 Accord was a move forward on the gas costs but, due to higher purchase cost the 1994 would have been a cheaper option to keep with on a sheer numbers point of view. The piece of mind of driving a newer car is an intangible except for the relative predictability of maintenance compared to the older Honda. Eventually the cost of repairs would catch up with the older Honda. Ultimately the size of the car grew with the size of the kids and the size of our contentment. We control the maintenance of this car so I’m confident we will get our money’s worth.
One other factor which also helps overall is the rollover costs factor. When the Ramsey Rover was sold we received $700 for the minivan this plus the $2500 we received for the Almost Sportscar is $3100 towards the next car. In effect it is like getting a $3,100 discount on the car we did purchase. This makes a $15,000 purchase turn into a $11,900 purchase. Also the miles used on the earlier cars are not used on the newer car. This saves usage on the newer car.
The end of the beginning…..