Cash is a great way to "feel" the actual amount of an expense. But sometimes hiding behind plastic is a good thing.
Bloody hell, cars cost a pretty penny.
There are so many numbers involved in buying a car. Cost, options, the much-hated freight, taxes, registration, insurance, residuals, APRs, PCPs, FQ9s. The list goes on. And it's so easy to get lost in them that you don't really know what you're paying. Well, that's not accurate. You might know, you just won't feel it.
I was fortunate (read: cheap) enough to be able to buy my last car in cash, some 6 years ago. It was only as much as I found in my couch, but that was my budget. And today, I'm again fortunate enough that I can pay in cash.
(And not having had a car for the past 4.5 years, I've been able to stuff a few more bills into my couch.)
Yet the idea of walking into a dealership and throwing down a cheque for $25,000? Scares the living crap out of me. It's scary in a way that monthly payments never were. I've bought $25,000+ cars before, but always on credit. The monthly payments? I'd talk about them as if they're foreign wars. Detached. Unafraid.
Credit Cards don't taste the same without Mint
Credit cards are amazing financial tools. Anyone who tells you credit cards are evil needs a good slap. My last two months of university? Thank you, Visa. Don't want to pay a monthly fee for your bank account? Think plastic. "Do you want the stupidly expensive insurance with your rental car?" "No thanks, my good buddy MasterCard got 'dat."
Still. Credit cards are evil.
Please don't slap me. They can be evil because they hide the feeling of how much something costs. Instead, they replace it with the much-worse-but-less-frequent feeling of getting your monthly bill. Credit cards are the motorcycles of the financial world. Amazing, but one slip up and they're picking your eyeballs up off the pavement.
(Tip: if you use a credit card and only look at a statement once a month, they've won.)
I don't know why or how to explain it, but paying with credit of any sort feels different. Paying with a bank card feels more immediate. Cash, even more so.
Buying a Macbook with a credit card: bing, bang, whatever.
Buying a MacBook with a debit card: gotta make sure there's enough money in there for all my other expenses and ouch that was a lot of money removed for a computer.
Buying a MacBook with a stack of cash: AHHH! I think I just had a heart attack! (Also: I wonder if they thought I was a drug dealer.)
You get my point.
I'm not going to say only pay for things with cash. You can, but I personally don't. I don't want to feel guilty when I buy new toys. But if you're going to skirt the purchase pain, you need to study your expenses closely all the time. All the time. You should have budgets and review them every week to see how you're doing. And again every month. And again before you buy anything out of the ordinary.
For this you can use Mint. Or Excel. Or a Stanley Tucci impersonator who's really good at remembering and regurgitating numbers.
[caption id="attachment_491" align="alignnone" width="660"] "You went to Starbucks _again_?"[/caption]
Back to the car example.
If you buy a shiny new car for $25,000 today, then sell it in 4 years for half of that, it works out to a monthly cost of $260.
Of the new cars I've owned, all of which have been around the $25,000 mark, I've never paid that little as a monthly payment. It's effectively like a lease with a 50% residual (quite normal) and 0% interest (very rare.)
It's a "better" deal than most leases.
To do that you have to go through the experience of handing over $25,000 in cash. And probably cry a little. In comparison, signing a piece of paper with a much higher monthly payment of $400 doesn't feel that bad, even though it'll work out to more in the end.
So having saved up for a car not only saves you the interest on a finance deal, but also encourages you to buy a cheaper car because you see the immediacy of the cost.
Money in general, it seems, is as much emotional as mathematical.
Sometimes it's good to not feel the expense
I order my groceries online. But for a reason you probably wouldn't expect. See, in the store, I'm never going to buy a $10-15 cut of meat. It hurts me to pay so much for a piece of dead cow when you can buy a can of dead beans for $1. But online I'm more likely to buy the expensive meat. Or more vegetables. Or things I haven't tried before. You have to don't pick it out, pick it up, think about it, carry it home or pay for it in person. You just ... press a button and your pickles arrive the next day.
There are so many fewer opt-out points. I call it the Amazon Prime effect, Amazon Prime being another motorcycle-like tool.
So I'm less price conscious when I don't feel the cost and it has let me experience a whole new range of foods. This is a good thing, and of course I still stay well within my food budget so it's not reckless.
This works for me because I'm not very good at spending for joy. If you're the opposite way, you can use the same principle in reverse.
Back yourself into a spending corner
Even given what I wrote last week, I probably would never have gotten a car because I'm, you know, cheap. I would have opted out at some point probably. BUT! Then last week there was an indoor parking space for rent in my building. (A rare event in a small building like mine.)
So I rented it. Without having a car.
I had intended to park my new car on the street because it's cheaper and was really the only option. The street parking thought was stressing me out enough to have been a good opt-out point. But now I have a parking space! I don't have a car to go in it, but now that I'm paying for a space, how can I not get one?
This is how I force my hand and get over my own neuroses so I get to do the things I actually want to do. Like driving. I love driving.
As I've said before, we're very able to program ourselves. And it's good to know yourself so well that you understand the bugs and have developed clever workarounds.
I'm happy to be at that point with myself because, well, whomever programmed me initially must have been an intern.
The $25,000 cheque
In the last 4.5 years, I've saved between $18-28,000 by not owning a car, even after you consider all the rentals and car sharing and public transport and Ubers I've taken. (Yes, I did the actual math with years of my real transaction data exported from my bank accounts. The range of 18-28 depends on the value of car I would have hypothetically had.)
And yet, I wonder what I've given up by not having had a car. How many weekends did I not go exploring because I didn't get off my ass and rent a car? How many times have I said, "well, it's cheaper to sit here watching movies all day so I'll do that."
Crazier: how would it have impacted my relationships? My sobriety?
I'll never know. But I do feel like I've stayed too much in one spot. Like I've missed out on things to save money. And that, more than anything, is why I rented that parking space to force myself to get a car to force myself to do ... things. Anything. Even if it's just driving around aimlessly at 2am. Who knows, maybe this whole experiment will be a failure and I'll think, "why the fuck do I have a car now?? I don't need this."
They say the happiest days of owning a boat are the day you buy it and the day you sell it.
Cost-wise, the list of cars I'm looking at goes from about $12,000 up to $30,000. It's a nice mix of new and used with some I've always wanted to own and others that seem completely ridiculous. Fast hatchbacks, slow wagons, dirty jeeps - I could land anywhere.
But I'm not sure it matters how much I spend. It's not about the money. Which, is only something I'm comfortable saying because I understand where my money goes so well.
Thanks Stan-Lee Touchee.