Saturday, May 18, 2013

I Just Bought A Time Machine

I just purchased a time machine. It's not my first, but is my nicest. Hopefully I'll keep this one for a while!

According to this source, the average driver here in the U.S. spends $9,641 (and that's using $2.25 per gallon fuel figures) per year for the privilege of driving a vehicle. You can think about this a few different ways.

To afford this type of expense on an on-going basis, one would need $241,000 in capital using the 4% Safe Withdrawal Rate ($9641/0.04). I typically use my average portfolio yield instead for a more accurate picture of how much I'll need in investments to sustain an expense without selling assets and get the larger figure of $275,000 needed based on my portfolio yield of approximately 3.5%.

Do I want to save an extra $275,000 so that I can tote myself around in a big metal box? Not really. There's a lot of things I can do with that kind of capital. Think about that money in terms of years. It took me three years to go from $5,000 to $100,000, and that was with a very aggressive savings and investment plan. Taking even that kind of progress and extrapolating that out it would take me about 8.8 years to save up the kind of capital necessary to simply own a vehicle and then pay for the fuel, maintenance, depreciation, repairs, insurance, taxes and other miscellaneous expenses it would come with at an average rate.

8.8 years? Check this out. I just fast-forwarded my early retirement by about...8.8 years.

I very recently bought a 2009 Honda Metropolitan 49cc scooter. My brand new time machine!

100 mpg baby!

Okay, so this isn't my first scooter. And actually this is an upgrade over my 16 year-old scooter which I recently sold to raise the capital to make room in my stable for the Honda. But that's not the point of this post.

The point is to start thinking about how much your car is really costing you. Maybe you need a time machine too. They come in many flavors. Your feet can be a time machine. Try walking around. A bicycle can be a time machine. Not only do these examples shave years off your journey to financial independence, but it also pays you dividends in the form of better health. Even a cheap car can be a time machine if used correctly. Spend $2k or so for a car, drop the insurance down to the minimum and limit your driving to longer trips you can't accomplish by bike/walking only and you'll be well under the figure that AAA quoted above.

I paid $1,300 for my time machine. Certainly more than the $700 I paid for my last time machine (the 16 year-old one linked to above), but this bad boy gets a true 100 mpg (a lot more than the 55 mpg I was getting with the old 2-stroke) and it's just a dream to own and ride. It's really the scooter I always wanted, but they're hard to find as they don't come up for sale often. I jumped on this one within three days of the post on Craigslist. I found a co-worker who wanted to buy my scoot and in the same day sold my old scooter and bought the Honda. 

But let's get back to that $1,300. I saved myself the need to have about $275,000 in capital at a 3.5% yield to fund an average of $9,641 in annual expenses for a car, right? It gets even better from there. By not spending $9,641 over the next 9 years (my target early retirement date) I'll have an extra $141,000 in my pocket (using a 7% compound rate using thiscalculator). So that means I'll actually be saving myself about $416,000 by staying away from a car at an average expense rate. Huh? That's crazy, right? It is crazy. Math can be pretty crazy and eye-opening when you actually sit down and calculate out big expenses like a car.

Say, you don't spend that much on a car? The average is crazy? Well, I'm not so sure about that. I had a 2006 Pontiac G6 before I started this journey to financial independence. This was no fancy car and I mainly drove it to and from work which was only about 8 miles away and I even got a big break on maintenance and repairs because I work at a car dealership. It had a 4-cylinder engine that sipped gas. I had comprehensive and collision car insurance on it, but because of my excellent driving record and great credit rating I had fairly low rates. How much was this thing costing me? About $450 per month, or $5,400 per year. Don't believe me? Try looking up some of my old budgets when I still owned a car, like this one from March of 2011 where I spent $511 on car expenses. And this is coming from someone who lived very close to work and got great deals on maintenance. Contrast these figures with someone with a big SUV who lives 30 miles or so away from work, and doesn't get a big break on repairs. You can see where the expenses creep up in a hurry!

Finally, I want to just come out and tell all my loyal readers that my plan now is to never own a car again. For real. I mean never. Working in the auto industry I see first-hand just how much of a cash drain they are. But when I actually sit down and do the math even my jaded eyes are bulging out of my skull. I'm going to continue building my life in the future around not owning a car if at all possible. I actually quite like not worrying about parking any more, or filling up a big gas tank at $50 a pop, or sending in a $90 check to the insurance company, or buying a set of tires for $900. Oh and I'll never get a speeding ticket riding around on a little scooter. I'll also never have to worry about sitting in rush hour traffic on the highway either.

So, that's my time machine. I believe it's not only going to save me hundreds of thousands of dollars, but it'll also shave years off my journey to early retirement. Imagine someone came to you at 50 years old and said they could give you a time machine that allowed you to retire 10 years earlier. How much would you pay for a time machine like that?

How about you? Plan on buying a time machine any time soon?

Thanks for reading.

This article was written by Dividend Mantra. If you enjoyed this article, please subscribe to my feed [RSS]

1 comment:

  1. Seriously Smart Financially - very tough on your love life. I've considered this but where would my wife sit in the rain?...


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