The Broke Professional - grow your money and yourself

My Financial Kryptonite

This hood ornament only cost me $20,000!

This hood ornament only cost me $20,000!

There are so many ridiculous things people buy in this world which makes them less of a person.  There are people that buy cigarettes regularly every day.  These will burn a hole in your wallet as well as your lungs.  Then there are those who get endless subscriptions to magazines they never read, costing them money every month and destroying forests in the process.  There are also the people who sit in idling cars every day to get their daily fast food fix.  This wastes gas and makes you fat and lazy.

There are many more crazy things out there that people spend money on, but there is one object of people’s affection that is my biggest financial foe.  I call it my Financial Kryptonite.  Not because my finances are like Superman, far from it.  But because I want to stay as far away from this purchase as I can because I know the destruction it will cause, not just on my current finances but on my future as well.  And that bane of my existence is:  luxury cars.

When you spend thousands of dollars on something, you want that thing to be very useful and to (hopefully) appreciate in value.  A house, for example, is such a thing.  You and your family can live in it for years and years and have lots of lasting memories.  Many people in the world don’t have a roof over their head, so if you have one, count yourself among the fortunate.  Houses can also appreciate in value over time, hopefully turning you a profit when it comes time to sell.  This, generally, makes buying a house a good investment.

This is unfortunately not true with cars.  Cars certainly are useful.  They allow people to get to work and run errands to keep their house and lives in order.  They allow you to travel to friends houses and new locales to keep life exciting and fresh.  But what they don’t usually do is appreciate in value.  As soon as you sign the contract for a new car, it IMMEDIATELY loses value because now it’s a used car.  Every mile you drive it and each piece of wear and tear will lead to a further decrease in value.  While this doesn’t sound too appealing, cars are almost a necessity for people who don’t live in cities and don’t have access to reliable public transportation.

The luxury curse

Now, are you interested in wasting EVEN MORE of your money for something to get you from Point A to Point B?  Get a luxury car.  Luxury cars are simply slightly souped up models of your every day Toyota and Nissan, and usually only souped up on appearances.  I’m not exactly a car nut (and I’m glad because that’s an insanely expensive hobby), but from some conversations with car nuts I have found out that luxury models and their corresponding mainstream models are almost exactly the same under the hood.  What you’re paying for is strictly appearances, and boy will you pay.  Here are some ways you’ll end up paying more by going with a luxury brand over a mainstream one:

-Higher sticker price.  An Internet search found that a 2014 Toyota Camry runs for about $22,000.  A 2014 Lexus RS, which is essentially the same car except shiner and more leathery, is about $36,000.  That means you’re paying $14,000 extra for shiny!

-Higher gas prices.  Many luxury car makers say you need to use premium gasoline for their cars.  While this is debatable in some circles, a gallon of premium gas is around 40 cents higher than regular.  That comes to about $5 more per tank of gas for the privilege of driving luxury.

-Higher maintenance and repairs.  While luxury cars are almost identical to their mainstream counterparts, many luxury cars use parts that will only work in luxury cars, and those parts are usually more expensive or bought through the dealer.  In any case, you will be paying more for 4 new tires on your Acura than on your Honda.  Even regular maintenance, such as an oil change, costs more with a luxury brand.  Again, paying more for the “privilege” of driving luxury.

-Higher insurance.  Car insurance companies will factor in nearly everything to determine your premium, and that includes if you drive a luxury car or not.  Luxury cars are usually more pricier, so it stands to reason that you will pay more to have them insured.  Yet another sneaky increase in cost of ownership of a luxury car.

Conclusion

The higher sticker price should scare most people away from buying a luxury brands, but knowing how much more the cost of ownership is should send everybody running for the hills.  But it doesn’t.  And that’s because the luxury car makers are marketing geniuses.  Luxury car commercials throw around words like “elegance” and “refined” to describe their cars.  This makes people feel good and will get that dopamine flowing once you sit in one for a test drive.  They play to our emotions and desire to be pampered, which keeps people coming back.  As I’ve heard from many people who have bought luxury cars themselves, once you go luxury, you don’t go back.

Now I’m not one to find joy in shaming people’s financial decisions.  While it can be fun at times,  everybody makes mistakes and everybody has purchases that they regret, myself included.  But I will make an exception for luxury car consumers.  If you consistently buy luxury car brands, you’re in need of therapy.  Your money can be used for so much good for yourself, such as paying off debt or investing for your future.  The fact that you’re risking your family’s financial future for some pieces of leather and a temporary pang of superiority shows that you have went off the deep end.  Your Lexus is exactly the same as your neighbor’s Camry, but the difference is your neighbor can afford to drive himself and his family on vacation a few times a year while you can shuffle your car to and from work to make up the price difference.

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Personal Finance Perfection

 

I hope somebody else besides me knows who this is.

I hope somebody else besides me knows who this is.

I’ve been reading personal finance blogs for a few years now and have been writing some posts myself for about a year.  On personal finance websites you can find all sorts of guidelines and advice for almost every financial topic you can think of.  Investing, taxes, saving money on food, credit card rewards and student loans are just a few of those topics.  Reading, and implementing, these words of wisdom is enlightening and is a sure way to improve your financial life.  Most people are putting their current and future financial situation at risk, so it would be a good idea to listen to these nerdy financial bloggers whose passion is learning about money.

But how much good advice can be too much?  Reading all of this advice is great and helpful, but sometimes you can’t help but think every piece of good advice you hear is just another reminder of something you’ve been doing wrong financially.  I realize this sounds incredibly pessimistic and we shouldn’t let our past financial mistakes paralyze us, but I struggle with this myself sometimes.  There are so many different aspects of personal finance that if I’m not able to reach the zenith in each one, I feel I have fell a little short.  Here are some of the great pieces of advice most of us have come to hear about our finances:

-Max out your 401k ($17,500 is the 2014 limit)

-Max out your Roth IRA ($5,500 for 2014)

-Max out your HSA ($6,650 for 2015)

-Get full health coverage

-Get a big life insurance policy

-Get disability insurance

-Eat all of your meals at home

-Start biking to work

-Don’t turn the AC or heat on in the house

-Have at least a 20% down payment for a house

-Buy your cars with cash and make sure they’re at least 15 years old

-Ask for a raise at work every year

-Use credit cards for everything

-Get rid of your gym membership and run every day

-Don’t buy any name brand products of any kind

-Check out the local thrift store for clothes

-Keep trying to get more side income

-and many, many, MANY more!

While some of these examples are a little extreme, I’m just trying to illustrate the fact that there are so many facets of personal finance we can work on, it can become overwhelming to try to chase them all and be perfect at personal finance.  If I don’t buy my cars with cash or I enjoy eating out once in a while, does that mean I have failed as the CEO of my finances?  This is a question I did struggle with at some point, and sometimes still do.  But I’ve realized there is almost no way to reach the max in all of these areas.  For example, I love using credit cards for everything so I can get rewards and keep better track of my finances.  Yet I know people who hardly ever use credit cards yet are doing just fine financially.  Does their decision not to use credit cards mean they are trying to sabotage their financial health?

I’ve come to realize that this is EXACTLY why the subject is called personal finance.  For the same genetic and social reasons that all humans don’t grow up to be the same person, everyone’s financial tendencies end up being a little different as well.  Obviously, the general idea is to spend less and earn more, but there are so many different ways to do that.  Some people love thrift stores, others don’t care for them.  Some people love spending money on new luxury cars, but they don’t care about buying the latest gadgets.  This personal finance journey we’re on is all about finding out what we value and trying to optimize that.

So while I may not be perfect in all aspects of personal finance, I know that I’m a heck of a lot better than I was 5 years ago.  And that personal improvement is what we should all really seek.

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