Can you though?

As a car enthusiast of over two decades, I am extremely familiar with stretching our dollars in order to buy cars. People spend money on eating out, we spend it on cars. If I weren’t a car enthusiast with a penchant for switching (brand-new) rides every three years, I would have immensely more wealth in investment accounts right now.

Obviously, they don’t give out medals for having the most money going to the grave. In this life you got to spend your money on something. It’s all about balance.

What my brother is planning to do is very far off balance. He’s put in an order for a car that is three times his annual income. Fair enough: he’s been saving diligently for as big a downpayment as possible. And apparently, with “exotic” cars, there exist banking services that would finance them for far longer terms than the typical mainstream vehicle. That is how my brother plan to “afford” this supposedly incoming car.

I’m sure the man-maths are working overtime to justify this move. However, the mistake is trusting the numbers on paper are static. Just look at recent inflation: gas, insurance, and maintenance costs have increased dramatically. The monthly fixed costs seem to be going ever higher. I guess my brother can save on gas by not driving the car, but then… what the heck is the point?

Then there’s the variable costs, with life being the variable. Pinching every possible penny to afford a car means any surprises down the proverbial road - and there’s always going to be surprises - will put my brother into the negative immediately. Can he afford an unscheduled wheel and tire replacement (unfortunate encounter with a pothole, let’s say) when he can barely afford the monthly payments? The only way the math is going to work is if life goes absolutely perfect. That’s simply not possible.

I’ve told my brother all of this, of course. Hopefully it’s enough to steer him from an enormous financial albatross.

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We’re on TV!

Just keep buying?

What if we simply stopped spending? Let’s vote with our wallets.

With all the price inflation going on, the one thing consumers have control over on the supply-and-demand seesaw is our spending. Prices too high - I don’t like it - therefore I am not buying (looking at you, McDonald’s). If enough of us do that, then the proprietors will have no choice but to lower prices. At least that’s what I was taught in economics 200.

Of course, people are still happily(?) buying. That’s why we have not seen a reduction in prices. The entrepreneur wouldn’t lower them if current pricing is sustainable in terms of customer count. Any savings in production cost should be pocketed as increased profit margin. It’s not greed, it’s math. People aren’t running charities. When high prices actively hurt the bottom line, only then will they go down.

Nearly half of Americans cannot cover a $1,000 emergency, and consumer credit card debt is at record highs. That tells me that lots of people are recklessly spending money well into the red, seemingly undeterred by inflation. Please don’t give me the bullshit about folks being poor and unable to afford necessities - thereby going into debt: my parents made less than $2,000 a month for a household of four for the longest time, and yet they still managed to save money over the years.

Overspending is the problem. During the pandemic, when supply chains were impacted, new vehicle inventories were low. A classic supply and demand problem: low inventory, high transaction prices. Because the American appetite for cars is insatiable. I never got mad at dealer markups, because they exist precisely because someone out there is willing to pay. If absolutely nobody was willing to pay, then the markups wouldn’t exist.

It only takes one. And it only takes consumers continually spending for the current high prices to remain. That’s not going to be me, though. I am hugely price elastic. Printed books have increased in price, so now I begrudgingly buy the digital Kindle version.

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I choose you.

Feels great, baby!

A few days ago I received an email from Citizens Bank notifying me that I’ve paid the final payment on the loan for my iPhone. The monthly expense of roughly $60 is off the books, and now I am free to spend that money somewhere else - just kidding; maybe. Indeed the notification was a nice boost to the happiness meter: it feels great to pay off debt and no longer owe anything. I had forgotten what that feels like, because what I’ve done during my whole adult life thus far is borrow money from the bank to finance a car. Even during the brief year after I sold the Mazda MX-5 and therefore completely debt free, I was saving up in preparation to buy the 911 GT3, which obviously required much additional borrowing.

The lesson here is that while it is tremendous to not have debt, I can’t seem to hang onto that feeling because I love cars way too much. The likelihood is high that after I pay off the GT3, I’ll go spend that chunk of money on another car. It’s not like I can afford to buy a house around these parts anyways; what’s the point of working hard to earn money if you don’t spend it on something you like? For me that just so happen to be cars; I’m sure for some of you, your thing must cost significantly less, and for that I congratulate you.

That email saying I’ve paid off my phone did prompt me to take a brief look at the books for the GT3, and turns out I’ve got about an average new car transaction price’s worth of payments left to go on that car. In the grand scheme of things I consider myself lucky to owe only that much on what was a six-figure transaction a year and a half ago; while the GT3 is an extravagant purchase to the relative extreme, I made sure to not extend myself by borrowing way too much, (and thus have an unsustainably high monthly payment) and with a ridiculously long loan term. I’m right on schedule to pay the car off in five years from the original purchase date, which is exactly how I planned it.

However, with interest rates so low, I can afford to be flexible. It wouldn’t cost anything to refinance the loan, extending the term and have a lower interest rate. I would then have a lower monthly payment, freeing up some money should I need to do something with it, like move out of a house and rent a spot. Of course, none of that is necessary nor possible until this whole COVID thing subsides. Keeping debt manageable and having cash in reserves is a great position that I am fortunate to be in.

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My reason for treason.