By Josh Katzowitz, WCI Content Director
I’ve never been the primary driver of a new car in my life. I’ve been cruising with one hand on the steering wheel and one arm outside the window for more than 25 years, but my vehicles were always used by somebody else before they got to me. Those include a 1984 Chevy Cavalier that my grandparents gifted me when I turned 16, a used 1993 Saturn that I bought for a couple grand in college, a 2003 Toyota Camry that I purchased in 2005 and then drove for the next 13 years, and a 2010 Mazda CX-9 that's still in my driveway.
They weren’t all necessarily beaters (though I might have argued otherwise when I was 18 and the Cavalier’s air conditioning continuously broke during those hot Atlanta summers). But I’ve driven four cars for my entire life. None of them were new.
That’s why the past month has felt a little strange. In June, my wife and I bought a Tesla Model Y. No, this is not an April Fool’s joke. This is the real thing. It’s got that fantastic new-car smell. It doesn’t have dings and dents (yet). It makes me feel wealthy (and a little bit pretentious at the same time).
I realize that Tesla is a perpetual punching bag on WCI. Dr. Jim Dahle fooled much of the audience when he wrote his infamous My New Tesla joke post on April 1, 2021. As he wrote in 2019 in a post titled Why Tesla-Owning Doctors Hate Me, “When I need an expensive consumer item, or car, or individual stock, it comes to mind much more readily than a Bentley or a Porsche or a BMW. So I toss it into the post or the podcast and move on. Then Tesla owners take it as a personal assault on their lifestyle and sound off . . . Yes, you have to drive something and you have to eat something. But you don't have to drive a Tesla and you don't have to eat at a Michelin 3-star restaurant. There is no financial justification to buy this item. None at all. So admit it is a luxury and let's move on.”
OK, OK, it’s a luxury, just like it was when my wife and I splurged on our anniversary dinner last year at Michelin darling The French Laundry. Just like that extravagant meal, we don’t need the Tesla Model Y; we want it. Is it something, though, we can afford?
Here is our justification for it.
We’re Moving to Electric Vehicles
A few months ago, my family took a leisurely walk around the neighborhood, and we included our 12-year-old twins in a debate about whether we should keep the car I was driving and had paid off long ago (a 2010 Mazda CX-9 that was in decent shape) instead of purchasing the Tesla. After all, buying that new car would add a monthly loan payment for the next few years, and I’ve prided myself on driving my cars into the ground so I could defer buying a new car for as long as possible (if you know anybody else that clocked more than 200,000 miles in a Saturn SL2, like I did, I’d like to hear about it).
I was slightly on the side of keeping the Mazda, particularly since we both work from home and could conceivably keep it for another few years. My wife, a quadruple-boarded child psychiatrist, thought we should get the Tesla.
Here was her reasoning:
#1 Teslas Are Less of an Environmental Burden
We’ve been moving away from gas guzzlers. My Mazda got 18 miles per gallon in the city (where I did most of my driving) and 24 gallons on the highway, and in response to that, we purchased a Toyota Highlander Hybrid in 2018 for the better gas mileage and its lessened impact on the environment. Even if gas prices continue to drop from their high summer prices, it made sense to move fully into the electric vehicle (EV) realm with our next vehicle, especially since the cost of charging a Tesla is reportedly nearly four times cheaper per mile than it costs to make your gas car go.
According to my Tesla app, I’m already saving significantly on gas.
#2 There Would Not Be a Cheaper Time to Buy This Car
From the time my wife placed an order for the Model Y Performance in October 2021 to when we actually picked it up in June 2022, the price of the car skyrocketed by about $10,000. We were locked in to the lower price, but if we declined the car, what would happen if, in 2023 or 2024, the Mazda went kaput? The Model Y could be $20,000-$30,000 more expensive than it is now.
#3 The Safety Features Are Amazing
My Mazda had a rear-facing camera and blind-spot recognition. But it’s also 12 years old. The Tesla’s safety features (its eight cameras that provide 360 degrees of visibility, its dashcam, its Sentry mode, its collision-avoidance system, its automatic emergency braking system) are simply not in the same ballpark as the Mazda.
We Save a Bunch
First, a breakdown of how much this Model Y cost us:
When my wife ordered the car in October 2021, it cost $58,440. That was our locked-in price. Now, it costs $68,000. In essence, we bought low. Since we didn’t have a high-speed wall charger, we needed an electrician to wire up our garage. That cost about $2,400, but our city offers a rebate that will cut that price in half.
We also fully fund our 401(k)s and our solo 401(k)s, we both take part in the Backdoor Roth IRA, we fund our kids’ 529 plans, we contribute to my wife’s Health Savings Account, and we put money into brokerage accounts. We pay off our credit cards every month, and the only debt we have is our mortgage (and, um, now the Tesla).
Of course, the Tesla is a luxury item. And as Jim once wrote, “Whether you buy it because it's fun to drive, to impress your neighbors, to save the environment, or some combination of the above, you should only do so if you can afford to do it without borrowing money or impacting your important financial goals.”
Yes, we’re borrowing money to do so. But we’re comfortable that we’re still on our way to reaching our financial goals.
We Have a History of Paying Off Our Debts Quickly
OK, I don’t love the fact that we’re financing $50,000. But we got an interest rate of 2.94% for 60 months, and we’ll have $864 monthly payments for the next five years (for what it’s worth, the average monthly payment for a car in the US has crossed over $700 for the first time as new cars now average more than $47,000).
But we paid off the Highlander Hybrid about 19 months early, and we’re more than double-paying our mortgage every month ($2,200 extra every month), meaning we should own our house several years earlier than our 15-year fixed-rate mortgage is scheduled to end (potentially in 2026 or 2027).
Plus, we’re hoping we can sell the 2010 Mazda for somewhere in the $8,000 range, far above what Tesla offered as a trade-in (about $4,000). We’ll use that to take a significant bite out of our car loan note.
Could we have paid cash for the car? Yes. But since we bought I Bonds near the end of 2021 and then bought more in March 2022 and since we front-loaded our Backdoor Roth IRAs for 2022 and since we sent money to our solo 401(k)s a few months ago, well, we didn’t want to dip into our emergency savings or start liquidating brokerage accounts to buy the car in cash.
Do I love having a large loan on this car? No. Am I comfortable with it, because of our history and our likely future earnings? Yes.
It’s So Much Fun to Drive
Man, the bursts of speed this Tesla provides are fantastic. The computer screen that sits in between the driver and the passenger is a treasure trove of entertainment to those riding in the car (though I’m a little tired of my kids and wife singing Olivia Rodrigo tunes over and over on the car’s “caraoke” system). And hey, not having to spend $50 on gas a couple of times per month is cool.
I wondered what Jim Dahle’s reaction of our new Tesla would be. So, I sent him this photo on Slack, and a few hours later, he responded.
Just because we’re a doctor family, of course, doesn’t mean we should have bought the Tesla. But we thought it through. We're still meeting our financial goals. We think we made a good purchase. And that’s no joke.
What I’m Reading This Week
The Brokerage Industry vs. the Advice Industry
On a recent Bogleheads on Investing Podcast, host Rick Ferri and Michael Kitces talked about the financial advisor industry and the changes that brokerages and other companies are making. This quote from Kitces really struck me when Ferri asked him about the worst part of what’s happening right now when it comes to financial advisors.
Said Kitces, who is the head of planning strategy at Buckingham Wealth Partners:
“The worst of the bad stuff is that the whole industry has figured out that the future is advice, more holistic advice, because I can get a diversified asset allocated portfolio from a platform for 25 or 30 basis points. We ain’t winning on that. We have to find somewhere else to find value. Our regulators are very, very behind on this. There is open broad unfettered usage of titles like financial advisor by people who are literally not in the advice business. Their legal job is to represent their company to sell a product. We see it in the insurance channels. We see it in the brokerage channels. This ubiquitous adoption of financial advisor, financial consultant, and similar-sounding terms from people who are literally a salesperson. . .
The brokerage industry figured out the future is advice before the advice industry figured out how to protect their own space. The brokerage industry is so encroached in the advice space . . . that just confuses the bejesus out of the consumer landscape in ways that, frankly, the brokerage industry benefits from. That’s why they continue to do that.”
As always, if you’d rather ditch your financial advisor and create your own written financial plan, you should check out WCI’s Fire Your Financial Advisor course.
Here’s an interesting story from USA Today about how one person’s portfolio is actually making money during a time when the market is teetering on becoming a bear. And it’s the part of her portfolio she started when she was a kid and knew virtually nothing about the financial world.
As Elizabeth Buchwald wrote:
“I graduated from an undergraduate business school and I cover personal finance and investing for a living only to have the portfolio I started in middle school beat my portfolio that I’ll one day live off in retirement. But the more I think about it, I’m quite comforted that 12-year-old me is outperforming ‘grown-up' me.”
Is This a Good Idea?
Oh hey, speaking of Tesla, here’s a new way to invest with the company: buy its single-stock ETF. As reported by CNBC, asset management firm AXS Investment is launching a number of single-stock ETFs that include Tesla, NVIDIA, PayPal, and Nike and, according to AXS, are “designed for active traders, traders that are looking to make tactical trading decisions on a daily basis.”
Though single-stock ETFs have become popular in Europe, the fact that these ETFs won’t follow any type of index won’t help investors' portfolio diversification and could lead to more instability.
As the SEC said in a statement, “Because levered single-stock ETFs in particular amplify the effect of price movements of the underlying individual stocks, investors holding these funds will experience even greater volatility and risk than investors who hold the underlying stock itself.”
Money Song of the Week
Jonathan Kolon is a dentist in Utah who also owns a small bicycle business. But one of his true passions is making music. It’s how he paid for dental school in the 1990s, and it’s where he learned that one should NOT underestimate the benefits of putting a few dollars into that tip jar.
That’s exactly the subject for his folk/country/bluegrass band, Mountain Town, when it plays its song Cash Tips.
As Kolon explained to me in a recent email, “The premise is simple, and I tell young musicians that fans want to support you. Get those dollars right now where you can see 'em! And those couple hundred greenbacks you have in the tip jar (or for Mountain Town, we use an empty Old Crow plastic 1/2 gallon) at the end of a night: DO NOT SQUANDER THEM. Put 'em in the ATM the next day and invest in yourself, your band, and your future. I have to cut our wad of cash out of the plastic jug the morning after a show, and many times have thanked my lucky stars because we would have had quite the time at the bar on the Mountain Town dime if the access was easier.”
Check out Mountain Town’s tune, and as Kolon sings, remember that “Cash Tips are the best tips . . . they've always been!”
Tweet of the Week
What happens when one of the best rock vocalists of the last four decades meets with one of history’s most successful investors? Jokes happen, that’s what!
I asked Warren Buffet for an investment tip . He said give me your wallet. He took my money out folded it in half handed it back to me and said here you go you just doubled your money #hahaha #InvestmentTips pic.twitter.com/N0YDKURJfM
— Sammy Hagar (@sammyhagar) July 21, 2022
Apropos of nothing, what do you think the age difference is between Sammy Hagar and Warren Buffett? Probably a lot less than you think (only 17 years).
Is buying a Tesla (or any expensive electric vehicle) worth it? Is financing a new car a bad move? Who tells funnier jokes—Sammy Hagar or Warren Buffett? Comment below![Editor's Note: For comments, complaints, suggestions, or plaudits, email Josh Katzowitz at [email protected].]