Financial Sin: New Car
Note: This piece originally appeared on the blog of Modern Financial Planning in 2019
Recently I was listening to an episode of the Animal Spirits podcast, one of my favorite weekly listens with Michael Batnick and Ben Carlson. In this episode they were discussing a recent Wall Street Journal interview that Jason Zweig did with Charlie Munger. Charlie is Warren Buffett’s business partner with less name recognition, though equally impressive.
In the interview Charlie stated one of the reasons he has been so successful: He is very good at destroying his best loved ideas (where most people are in love with their own ideas). The podcast hosts sort of called ‘BS’ on this, as it sounds really good on paper but is difficult in practice. The podcast ended up taking a left turn towards changing their own best loved ideas regarding bagels and donuts. Staying on topic, this discussion got me thinking. What is one idea or belief I have had that I’ve “destroyed” or changed my mind on recently?
Personal finance nerds (me) sometimes get so caught up in the numbers that we overlook certain things. For example, focusing too much on the expense side of a Lyft ride and ignoring the time it saved.
When it comes to purchasing a car there is a lot of guidance out there, and it usually goes like this. Buy a used car! Don’t buy a new car! Immediate depreciation! Don’t lease a car!
After 190,000 wonderful miles we needed a new car. And as a proud member of the financial geek squad I didn’t have much of a choice, right? I NEEDED to buy a used car. I needed to make the perfect decision.
Given the height (we’re tall) in our family, and the rate of expansion (3 turning to 4), we needed (wanted) an SUV. Nothing overly fancy - we were looking at Honda Pilots, Toyota Highlanders, and such.
These cars last long (evidently) and seem to be extremely popular. Unsurprisingly, this high demand creates a pretty frothy used car market - it is not easy to find a good deal.
Fast-forwarding a bit, we were faced with the reality of saving a surprisingly “small” amount if we bought a slightly used Pilot or Highlander. In my opinion, the limited savings in this situation was not worth the mileage, additional risk, higher interest rate, and lack of warranty.
Additionally, as a business owner, my time was better spent working with clients or growing the business versus searching the ends of the earth to find the perfect deal for this exact used vehicle. Sure, it was possible to eventually find a great deal on the used market, but I was unwilling to pay the price of more patience and more effort.
We ended up buying a brand new car. And I didn’t think we would ever do that. To make sure I wasn’t losing my touch and money sense, I took my own medicine and consulted with two Financial Advisors and a CPA before I pushed go.
When I told some friends that we bought a brand new car, many had the same reaction: “What?!” “Dude! Why didn’t you buy used?!” Not shocked by the responses, but not happy either, I framed it differently by asking friends: “If a new car was $30,000, how much would you pay for a 3 year old version?” Their answers ranged from $10,000 to $20,000.” I liked those responses better, as I would have done so if those prices existed! Unfortunately, they were not even close.
It isn’t easy to change your mind on something. Not for me, and not for anyone. However, I am glad I approached this purchase the same way I work with my clients. Look at all the options, all of the pros and cons. Add in personal factors and preferences. Make a sound decision.
This experience has me searching for my next belief or best idea, financial or not, that I can flip on it’s head or “destroy” as Charlie Munger would say.
“Be wary of the person who changes their mind every 10 minutes, be more wary of the person who never changes their mind.”
Side note: The service and transparency in the Auto Sales industry makes the Financial industry look good - and that is hard to do! We were willing to drive 100 miles to work with a dealer that was friendly, honest, and provided great service - something difficult to find locally.