Driving Too Much Car: Not Millionaire Next Door
“Wealth consists not in having great possessions, but in having few wants.” — Epictetus
Last week, Jeanne Sahadi at CNNMoney.com put together her list of 7 Net-Worth Killers. She writes, “Saving and spending aren’t the only factors affecting your net worth. How you manage (or don’t manage) your assets and liabilities can make a big difference, too.
Number Three on Sahadi’s list is: Driving Too Much Car
She writes, “Certified financial planner Mari Adam has seen couples with car payments totaling $1,400 a month. Would it kill them, she wonders, to drive cars that combined would cost them closer to $800 or $900? Another planner, Chris Cooper, has suggested as a rule of thumb that you don’t spend more than 8 percent of your monthly gross income on a car payment, less if you have credit card debt.”
“Money Magazine has estimated that driving less expensive cars could yield an additional $180,000 over 30 years, assuming you invest your savings. Remember, in addition to your monthly payments, you’ll be paying for insurance, fuel, maintenance and repairs.”
The car and money topic has always been a hot debate in our house. Of course, some people live without or share as John noted in his Car Sharing post the other day… but for the majority of suburban Americans, a car is considered a necessity or at a minimum a deserved convenience. It’s interesting to me that cars have such an impact on achieving wealth.
Thomas J. Stanley and William D. Danko emphasized car choice in their book, “The Millionaire Next Door” and as Gregory Karp wrote in the Chicago Tribune to commemorate its 10th anniversary of publication late last year. He writes, “They don’t drive away wealth. The No. 1 make of car owned by millionaires in 1996 was Ford. Today, it’s Toyota, according to Stanley’s new study. Luxury brands do not top the list, and many millionaires, 37 percent in 1996, bought used cars. Stanley’s research shows high-priced cars seem to be wealth-repellant.”
“What’s interesting about spending is that everybody thinks all the millionaires in America have BMWs. Even among the highest income levels, about 60 or 70 percent have never owned a BMW,” he said. “I think BMW is a great car. I’m a car guy. But I won’t buy one because there is a relationship between wealth and how much people spend for cars. There’s no doubt about it. It’s a significant relationship.”
I drive a seven year old Volvo. I would rather be driving a Mercedes and sometimes I feel like I’m the only person in coastal California driving an older car. I look around and often feel “car shame” and an intense amount of “peer pressure” to be driving a nicer and newer car. I constantly have to remind myself that it’s paid for, fairly dependable (although we always take Jeanine’s leased Saab on any road trips) and I don’t need to be driving a $60,000 car with a $800 car payment.
But I still look around and wonder how so many people can afford to drive new cars. I guess what I don’t see is how much debt they might be carrying on their credit cards or how they’ve maxed out their home equity or maybe it just boils down to them making a heck of a lot more money than my annual income.
The reasons don’t really matter, because I need to focus on what’s going to lead to long term wealth and for me, buying a new Mercedes will only create the illusion of wealth. I don’t want the illusion. I want to BE wealthy and I have the drive to make it happen. Note to self: my “ride” shouldn’t matter at this point. I’ll try to remember that the next time I feel car shame at the valet stand!
I hate that America (in general) has this dependancy on the belief that each man woman & child *needs* their own car.
I work in a cubicle downtown and parking costs more than taking the city bus. Yet I am the only person around who does so! Why?!? One day out of the year, I may need to borrow or rent a car to go to an annual training. Otherwise, I just have to plan ahead. Why would I ever want to open up the can of worms of another car payment, another insurance payment, extras for upkeep, and rising gas costs?!?
The sad thing is, my workplace is seeking out buildings more in the “business parks”. Which would mean the end of bussing in and needing to either get a ride everyday or a car. I can’t believe the continued urban sprawl and desire to use car gas for no good reason. And this would also be the death knell for my city’s downtown with the relocation of 1200 jobs. None of the noontime pizza places, coffee shops, and delis would be able to sustain themselves if we really do go. And what’s our main reason for moving? NO PARKING available. The lamest story ever. I would think that our employer could incentivize bussing to eliminate the need for the expensive move and save major money in the long haul.
As for what the family has, we bought a new mini van last June, cash on the table (well, actually a cashier check), before my partner quit her job to become the stay at home mom. The dealer hardly knew how to handle the transaction! We moved where we knew things would be convenient- walking kids to school in the morning, picking them up in the afternoon- a hardware store, pharmacy in walking distance & a grocery store not too much further than that (could be nice woalk. Sometimes our car doesn’t get used for 3 or 4 days at a clip- but we do need it to travel to visit relatives, vacations, etc.
I drive an 11 year old Honda Civic. It is very reliable, and I figure that I’ll probably get another Civic (hybrid) in a few years. The funny thing is, my co-workers drive very expensive luxury cars, and while they like to talk about owning such-and-such brand, they also frequently talk about how their luxury cars are back in the repair shop – again. And their car payments.
I have to admit I have a different look on Vehicles than most…but then my Father owned a Car Dealership and when I was 16 I had a choice of 500 on the lot to pick from….and still wish I had that first car…sigh…
But cars a a Commodity to me not a prized possession as they are to most….and the choice when I go out with friends is you ride in the 82 Chevy truck or we take yours..
But at 50 I’ve never had a Car Payment….
People here in SoCal buy Lexuses, BMWs and Mercedeses like it’s nothing. Where does all the money come from you ask? It’s Real Estate!! People’s homes have appreciated 130-200% over the last 7-8yrs. For a lot of those people who bought in 1998 or 1999 they have locked in a serious amount of gains totalling hundreds of thousands of dollars. A large number of people have become permanently rich due to this.
A car is a small gift to themselves for the jackpot they have struck with their homes. Even if home prices go down a bit, which I think they will, many of these people who bought prior to 2000 will still be flush with cash due to staggering appreciation of their homes.