[Editor's Note: What a year it has been for the discussion of automobile purchases on this site! Three posts already and now this one! And it isn't like it is a subject I had never written on before.
- 2012 Quit Buying Cars on Credit
- 2012 Drive a Beater, Get Rich
- 2013 May I Please Finance My Car
- 2016 How to Buy A Car
- 2016 How To Get Rich by Driving a $5,000 Car
- 2016 Our Experience Buying A Brand New Car
At any rate, between the How to Buy A Car and the How To Get Rich By Driving a $5,000 Car I received this guest post from Craig S. Daste, Jr., an attorney who happens to be married to a doc. He will be doing the “Pro” portion and I'll write the “Con,” although long-term readers obviously won't be surprised by what I write in the Con section.]
Craig S. Daste, Jr
Pros of Driving a Nice Car
In Defense of Physician Vehicle Spending by Craig S. Daste, Jr.
Personal Note
This is a bit of a counterpoint to the post titled How to Buy a Car. My wife is in her last year of residency and I feel it is important for her to have a newer, larger, reliable vehicle. We have two car notes despite the fact that we could buy with cash. I know I’m spending a few grand extra per year on vehicles which we could be putting away for retirement or otherwise, and as such we’re borrowing against our futures, but I have peace of mind knowing she won’t have any problems getting around town with her rotations and that I don’t have to worry near as much about me or her being injured in a collision. She has no time to deal with taking a car into the shop and I have no desire to try and make substantial repairs on my own to save money. Just for safety’s sake I believe it’s easily worth a premium of a few hundred dollars a month (particularly considering the cost of things like disability insurance), and she and I get to enjoy nicer vehicles in the process.
Summary
Spending money on a new or quality used vehicle offers the physician several undeniable benefits: 1) reliable transportation for an individual whose time is inherently valuable, 2) safety and protection during a daily dangerous activity, 3) lowered level of stress with less uncertainty and worry, 4) limited exposure to large, unforeseen repair bills and 5) less frequent and less expensive maintenance costs. Budgeting a little extra for quality transportation goes hand in hand with the mentality of a financially savvy physician who goes to great lengths to reduce risk by using proven methods and quality equipment for treatments, obtaining adequate malpractice and liability insurance and using various financial vehicles to insure his or her income and life.
Craig Daste with his last trade-in
Opportunity Cost
First and foremost, and most obviously for a medical professional, having a vehicle break down can lead to thousands of dollars in opportunity cost. A single breakdown per year could easily wipe out any savings by driving a beater car. A broken down vehicle can mean having to wait on a tow, riding to the dealership with the tow-truck driver, renting a car, taking a cab, etc. (and then having to do this all over again when it’s time to pick the car up from the mechanic). Missing a shift, missing a procedure, lost goodwill in having patients wait for hours more than usual in a waiting room, can cost the practitioner thousands of dollars or tens of thousands of dollars or more. And more importantly, missing a child’s baseball game or piano recital is something that a doctor will never get back.
Safety
No amount of life insurance, disability insurance, umbrella coverage or otherwise will prevent you from being killed or injured in an auto accident. Auto accidents are among the leading causes of accidental death and injury in the United States. The difference in safety between a cheap beater car and a quality new vehicle can easily be a trip to the ICU or even the coroner’s office vs walking away from the accident. The newest cars have the latest safety features from advanced airbags to superior crumple zones, and even features like cross traffic alert, lane keep assist and collision mitigation to keep you from having the accident in the first place. Larger vehicles, big sedans and large SUVs, tend to be the safest places to be on the road, and this is backed up by statistics and the laws of physics. Many luxury and semi-luxury brands offer further safety features and have models with zero fatalities as attestation to their effectiveness.
Aside from accidents, breakdowns on the road or at work can leave you in a dangerous situation, and being stranded is something a successful physician should seek to minimize as much as possible. Generally, having to pull over on the highway with traffic flying by can be a frightening experience. And more often than not, hospitals and clinics are in a bad part of town, and shifts can start and end at all times of the day and night. Finding yourself stuck in the parking garage downtown at 2:00am is problematic at best.
Stress
Wrenching on an old car might be a great hobby for a pensioner with a penchant for British sportscars, but for a practicing physician it’s one more source of stress and loose thread to tie up in a mountain of tangled strands. While a physician is fully capable of doing these things, it’s not his or her forte. Diagnosing a transmission whine or a driveline clunk doesn’t assist a patient or develop the doctor’s skills. While it’s definitely possible to spend a few grand on a reliable old car, chances are just as good that you’re purchasing someone else’s headaches. And when you have to take those headaches to the mechanic, there’s a good chance you the physician will be sized up as an easy mark with a big wallet. Instead of buying something cheap which will cost you thousands in dollars and time, consuming your happiness, and rattling and squeaking everywhere you go, spending the extra money on the front end and enjoying a safe, warrantied, reliable, comfortable and clean car is by no means an unwise decision.
Little Expense
Owning reliable car doesn’t have to be expensive. A brand new, fully warrantied large sedan like a Honda Accord or Toyota Camry can be bought for about $20,000 or leased for under $250 a month. Certified pre-owned cars can offer similar warranties and like-new quality for a fraction of the cost of buying new. Even maintenance costs are far less, since new cars offer near-zero maintenance over the initial years of ownership, often included with the purchase price. A new car comes with new everything, new filters, new battery, new tires, new seals, new rings, new belts, new bulbs, new washer fluid in the tank. For the doctor who leases, trades a car in on something new every few years or even buys something a couple years old on the same schedule, he or she will never have to research what tires to buy, shop around a timing belt service, or become an expert on replacing an automatic transmission, because he or she has sold that car long before any of those things come up.
Conclusion
A doctor would never choose to use old, unreliable equipment in the OR. So why should the equipment a physician uses to get from patient to patient be any different? Likewise, the smart investor knows the importance of protecting his or her income and insuring his or her life, so why should that investor choose to embark upon the by-far most dangerous daily activity in an old, mildewed rust bucket? Spending a little extra money on quality, reliable transportation is a sound financial investment which is easily affordable for virtually every physician.
Cons of Driving a Nice Car
Oh boy. Where to start? I guess I'll start with a few disclosures. I have driven a sub-$2,000 car. I have also driven a $60,000 car. Our most recent purchase was a brand new decked out huge land yacht known as a Toyota Sequoia. In fact, sitting in my garage right now is a 2005 Toyota Sequoia and a 2016 Toyota Sequoia. (Yes, we are trying to singlehandedly kill the planet.)
Admitting Defeat
The next thing I will do is admit defeat. Drive whatever you want. While driving nice cars will keep a middle class family from ever becoming wealthy, a high income professional family, especially one with two working high-income professionals can certainly drive whatever they want and still eventually become financially independent. A $30K or even $60K car, even one bought on credit, even two bought on credit during residency, probably isn't enough to overcome them financially if they do everything else right. If you're going to make a half million bucks every year for three decades, you're going to have to churn Lamborghinis to really screw things up with cars alone.
Don't Justify Bad Financial Decisions
That said, I think it is important to avoid justifying bad financial behavior. Just call it what it is. It is a splurge. I've got two in the garage and one in the driveway. The one in the driveway costs me over $300 to fill it's 67 gallon tank with premium at the lake. Then I pump 4400 lbs of water into it and drive it around the lake full throttle just to see how big of a wave I can make behind it. However, in the Pro section above, Mr. Daste is mostly engaging in justifying poor financial decisions, and I'm going to call him out on it.
Buying On Credit
Mr. Daste says he bought two cars on credit despite having the cash to buy them (although perhaps he is saying he has enough cash to buy a less expensive car.) He never really gives a reason for this. Perhaps he feels he is arbitraging the difference between his investment return and the cost of the credit. Let's look at what that arbitrage is really worth. Let's assume they're pretty nice cars, maybe one is a $30K car and the other is a $20K car, so $50K total. Let's say the note is at 2%. Let's say he can get 6% after-taxes and fees and totally ignore the risk. So that's 4%. 4% of $50K is $2K a year, and less in future years. That's better than a kick in the teeth, but it isn't going to change their lives by any means. Maybe they hit financial independence a month earlier if they do that their entire life.
Borrowing From Future You
Mr. Daste notes that “I’m spending a few grand extra per year on vehicles which we could be putting away for retirement or otherwise, and as such we’re borrowing against our futures.” I have borrowed from Future Me before and it turned out that Future Me didn't appreciate it. In fact, he considers me a jerk for making him live somewhere for four years that he didn't want to live and deploy across the world for long enough that his children didn't recognize him when he came home. Future Me is also upset about that whole life policy, the stupid home purchases, and that dumb mortgage refinance. I bet Future You doesn't appreciate you spending his money either.
Reliable, Inexpensive Cars
I have to laugh when I see people talk about how inexpensive cars are unreliable. Cars are ridiculously reliable. If you think cars are unreliable, go buy a boat
. When it comes to reliability, I'll take a car with 250K miles on it over a brand new boat anytime. Remember, I drove a sub $2,000 car for four years and a $4,000 car for six years, not counting the sub $3,000 car I drove for three years and the two sub $8,000 cars we drove for 6 years. Did we occasionally do some work on them? Absolutely. Was it ever something where I would have considered any of them unreliable? Not a chance. That $1,850 car needed two (used) tires, windshield wipers, and a battery over the course of four years. That's it. I was stranded a grand total of one time for about 6 minutes while waiting for someone to come along to jump it. Reliability is not a reason to buy an expensive car, especially on credit. That's just justification.
Safety is Overrated
Life is dangerous. None of us get out alive. Granted, most readers know I'm a bit of a risk taker. Driving probably isn't the most dangerous activity I do. That said, safety features are primarily a way for auto manufacturers and dealers to sell more cars. Take our fancy new $60K Sequoia. It has safety features rivaling those of a nuclear submarine. It has anti-lock brakes, a dozen airbags, trailer sway control, blind spot indicators, back-up camera, a sonar, and even a really annoying beep when we don't put our seat belts on. But the truth is that we are clinically (not just statistically) no more safe in that car than we are in the 2005 Sequoia. Think of the multiplication problem here. You have to multiply the likelihood of you being in an accident by the likelihood that this particular accident is one such that without that particular safety feature you die or are injured but with it you are just fine. It is infinitesimal! Besides, I have a feeling a lot of these features are much less reliable than we think. Consider the guy who was watching a movie a few months ago while the Tesla drove itself.…
If you really want to increase your safety, move closer to work and put down the phone. The difference those two changes will make is at least 100 times the difference that buying a fancy new car will make. Buying a car for the safety features is just justification.
Reduced Stress?
Mr. Daste's next argument is that a fancy new car reduces your stress. I assume he is tying this into the reliability argument above. But as we can see, inexpensive cars are also extremely reliable. I think the best way for me to reduce my auto-related stress is to avoid having an auto note personally. Perhaps he is referring to the stress of having to repair a car from time to time. As an emergency physician, some say I have a stressful job. I don't think it is too bad, since the sicker you are the easier you are to care for, but I can assure you that the stress of dropping a car off at the mechanic and sharing a car for a day or two (or renting a car) once every couple of years is so far down my stressor list that it can be safely ignored. Do my own wrenching? As I told me dad when I was 16, “I'm going to make enough money someday that I don't have to work on my own cars.” I don't even change my own oil any more. Maybe he is referring to the stress of not having a warranty to pay for repairs. Again, as a high income professional if the cost of an auto repair is causing a financial stress, you are screwing your financial life up severely. Let's take a really expensive repair, such as a transmission on a big SUV. That'll be $4-5K. How big is your emergency fund again? That's probably not even half of it. Buying a car for reduced stress is just justification.
A Tale of Two Sequoias
We have now owned an 11 year old car and a brand new car for about 4 months. Same model, same trim package. They have equal reliability and create equal amounts of stress. Guess which one has been in two minor fender benders? That's right, the fancy new one. Plus, I feel worse every time the kids slam the brand new doors into neighboring cars (including our other Sequoia in the garage.) Still anecdote? Of course, but it's a pretty good case control study for us!
Little Expense
Okay, I will give him this one. I agree that someone making $50K a month can throw away $250 or $500 a month without significant effect on his financial life. That's called a splurge- when you buy something you can afford because it will make you happier. But this idea that a “certified, pre-owned car” is somehow special has been pretty much debunked by Consumer Reports. Their conclusion?
“We think it’s fine to buy a noncertified car and bank any savings. Choose a reliable model and a vehicle that receives your mechanic’s approval. If you choose a CPO, be sure to read the fine print on any warranty that is offered to determine whether the vehicle has been certified by a manufacturer, dealer, or third party.”
Conclusion
If you're rich, drive whatever you want. If you're not rich, drive whatever you want. But realize that what you drive will affect the rate at which you move from non-rich to rich in significant ways, especially if you don't have a mid six figure income. If you have a mid five figure income, it will prevent you ever becoming wealthy. Don't justify what is, in essence, a splurge as a smart financial move.
PRO REBUTTAL
Dr. Dahle makes a lot of very fair points. He also misses a few. But I think in many ways we’re very similar. Without repeating myself too much…
First, those Sequoias.
This was a response to the transmission-plagued Dodge Durango that the editor has praised previously. Getting rid of that rusty Chrysler product in favor of the used Toyota Sequoia and buying the wife a new one feels like he took my advice, though obviously it was independent. Even that 2005 Sequoia would make Mr. Money Mustache cry, since a 2005 Camry would save a ton of money on purchase price and running costs. And then I think we both agree it’s justifiable to spend more money on the cars your kids ride around in.
Justification & Credit
Yeah, it is little bit of a splurge, but a car is a real product that provides a real benefit. Driving an older car to avoid the extra couple grand we spend on depreciation could easily cost the same amount in maintenance and unforeseen repairs. I wouldn’t go so far as to say it’s a smart financial move, but spending more money on a newer, bigger, more reliable vehicle provides a real additional benefit, though admittedly this justification becomes a slippery slope where you’re trading your S-Class Benz in every year. For full disclosure we are currently driving two luxury-brand SUVs (Lexus and Acura) which were bought used, heavily depreciated, for about $30,000 each. Neither was a CPO but were both under warranty at time of purchase.
As to buying on credit, I have put a little extra in retirement, but it’s primarily for us to have more liquidity. Our notes are at 1.49% and 1.79%, and any savvy physician with good credit should be able to obtain those rates or better. Right now while we’re starting our family, possibly moving across the country for a fellowship, etc., it’s very nice to have extra cash in the bank. But I must admit I’m often tempted to write the check to pay one off.
Safety
Again I’ll point to the professional’s fascination with products like life and disability insurance here. And the auto insurance statistics illustrate that there is in fact a dramatic difference on claims for personal injury, bodily injury and medical payments between larger, more expensive vehicles and smaller, cheaper ones. Agreed though, difference between a 2005 and 2016 Sequoias is probably nil.
Stress of Breakdowns and Maintenance.
At least both of us abandon the concept of wrenching to save money. I think many readers can easily handle car maintenance and even a breakdown here and there, but to many physicians (and people in general) these events are bewildering experiences which lead them to walk into a mechanic’s shop as a huge mark multiple times a year. I agree, the expense of maintenance or repairs should not be stressful for a high-income professional, but the experience of having to feel like you’re getting ripped off by a mechanic or a tire-salesman is. And finally the family and professional expense of a breakdown can be extensive.
Luck is Anecdotal
The very frugal car buyer can keep a used car going seemingly forever with supposedly little to no work. His Mitsubishi Montero has magically lasted for 18 years with no problems, and so should your Kia Sorrento. But the reality is that old cars break down and aren’t designed to last forever, and despite some people’s luck, most old car drivers will be faced with unforeseen breakdowns and annoyances. These anecdotal advocates are the gambling addicts, always talking about their winnings and forgetting how much they’ve had to put in. One might downplay how he had to get his engine rebuilt, as if a project that puts his vehicle in the shop for weeks is somehow as routine as an oil change. He also is willing to endure a lack of luxurious amenities such as air conditioning, windows that roll down, interior that doesn’t mildew or an exhaust that doesn’t sound like an air raid signal. This beater driver is unphased by a check engine light or an SRS warning flashing on the dashboard, so long as the car runs and drives. And more often than not, this guy owns or has access to other unused vehicles when his usual beater is out of service, be it a second beater, a weekend toy like a Corvette, or, more often than not, the stay-at-home wife’s car (which coincidentally is a much nicer, newer, more reliable car than the frugal buyer’s own car).
By comparison, many residents and attending physicians only have one car and they need it to run reliably every day. A new or newer car is virtually maintenance free, far less likely to have an unexpected breakdown, and provides other substantial benefits during ownership.
CON REBUTTAL
This is too long already, so I'll keep it short. I just want to point out three things.
# 1 There is a big difference between buying a fancy new Sequoia with cash when you are a multimillionaire and buying a brand new car on credit as a resident because “I just have to be able to get to the hospital and a 10 year old car is just too unreliable.”
# 2 I am not Mr. Money Mustache. Despite my love of cycling and all things financial, I am quite comfortable spending 5-8 times his annual spending and spending way more on a car and gasoline just to keep my head off the ceiling. My philosophy isn't to live like a resident forever, but to do it while you are a resident and then for a few years afterward to jumpstart your way to financial independence. After that, I recommend you enjoy “the good life” however you want to define that. I define it like this:
A life free from financial worries, a career where you make a real contribution to society, a few luxuries along the way, the ability to help others financially throughout your life, and a comfortable retirement at a time of your choosing.
# 3 The linked to chart shows that large cars do better than small cars in accidents, but there is precious little data that shows a new car is significantly safer than a 5 or even 10 year old car. You can buy a big beater just as easily as a small beater, as my old Durango demonstrates.
What do you think? Is there a reasonable justification for a resident to buy a new car on credit? Why or why not? Comment below!
Excellent discussion, however I am increasingly asking myself, “Should I even own/drive a car?” In the next 5 to 10 years, that will become a more practical and common question for all of us.
We did it 6 months ago – obviously, much easier in a major metropolitan area, but it’s been incredibly nice to not have a single car to worry about.
Beyond easier. It’s only possible in a major metropolitan area. I can only think of one place in my state where that could work, and it would severely restrict recreational opportunities. While possible, it would be a major lifestyle decrease for most.
But yea, if you’re in Boston, NYC, DC, Chicago, San Francisco etc Ubering/sharing/renting a car can be a cost-effective and convenient alternative to car ownership. But just not an option for “fly-over” states.
maybe a bit hyperbolic, but generally agree – for example, college towns are usually quite easy to do as well (guess it depends what you consider ‘major’).
I’ll also add that not having kids makes the decision quite different.
I’m a Doc in Boston – Uber Pool to and from work costs on ave 50% more than Bus + t monthly pass.
Public transport: ~$84.50 (without work subsidy) – monthly bus + T ‘link’ pass
Uber pool: ~$120: $3 per leg x 2 legs per day- to and from work x 20 days of work (M-F)
– cost obviously depends on where you live – mine is a 3 mile / ~20 min trip
Work subsidized parking $5.50 / day (pre-tax) – 10 min walk from garage
Long list of Pro/cons for each…such as
– t pass is unlimited and can be used on weekends
– uber pool can take longer in travel time
– t is crowded
-uber is more comfortable
etc etc
*I’ve done them all – favor control of driving myself and opt for subsidized parking option
My ride is a 2009 subaru impreza – fully paid off! –
drive a beater – get rich!!!
Drive a beater get rich, oh boy where to start with the Bostonian! I really admire the physicians willing to tolerate a garbage job for city living.
The thought of even having to walk 10 minutes from my car to the hospital is laughable, let alone paying 5.50 a day pre tax or not that is crazy. If love to hear about all the other perks this city job offers. I have a friend doing the same thing in Chicago.
I’m all for personal decisions and choosing what you want but if you’re on white coat investor. Have you considered moving to a smaller city? No matter your specialty you’ll be doing better for sure.
I love my small city ~300k people. I think I parked in the 3rd spot from the door to work for free and that was getting there 10 minutes later than normal. This is a 400 bed hospital so we’re not talking a doctor’s office.
This isn’t an attack, is really love to hear what you love about a huge city so much that the jobs are worth it. Maybe you make a million a year I don’t know, but I know the jobs I looked at in Boston are 1/3 of what I’m making in the mid west, and that extra buys a lot of vacations to cities.
Ssshhhh….do you really want all those city dwellers to move elsewhere? I’d prefer my metropolitan area had half as many people as it does.
Seriously though, different strokes for different folks. I could move to Texas and make more money, pay less in taxes, and buy two houses like mine for the same price. But then I’d live thousands of miles away from mountains, canyons, family etc. So it’s all about finding a balance. Financial planning can help a doc in the Bay Area improve his life just as much as a doc in a small town in Indiana.
But your point is valid-a very quick way for a doc to get ahead is to move inland where doctors are still the rich folks in town.
There’s nothing wrong with enjoying city life.
We have one car because we only have one parking spot.
I take public transportation to and from work probably 80% of the time. At 12 shifts/mo and $2.25/ride with an occasional uber when it’s late I guarantee you my personal transportation costs are <$1000k year and it never breaks down or needs repair.
I can also walk to: gym, grocery store, pet store, park, pharmacy, really everything.
$15 uber to about 30 Michelin stars as well, if you're into that (I am).
Beat that small city dwellers!
That’s actually really impressive to get your transportation costs that low. The depreciation on a luxury SUV is obviously 5 times that, not including gas and maintenance.
No car ownership is definitely the utopian/dystopian future.
I enjoy driving and consider myself a car guy, but I have to admit, if I could enjoy never having to sit in traffic ever again or even have to endure any lengthy commutes at all, I think I would happily embrace the automobile-free lifestyle 🙂
I dont know that theres some big difference in buying a car thats within ten years old, but much older than that and newer cars really do fare much better in crashes. There has been quite a bit of improvements in engineering. Again, doubt theres some amazing difference between a 2008 and 2016.
There is an interesting video/study of one of the worst cars of all time, a Bon-Aire I believe being demolished by a mid 2000s Chevy Malibu. The takeaway was nice around town collectors car, never to be driven on the highway…then I saw one on the 405 that weekend, crazy.
Otoh, the real reason to get a newer car is connectivity. Even lower cars have wifi and bluetooth now, that will be the big line in the sand. Would love wifi in t
I dunno. I bought a $20 bluetooth speaker for my 2005. Works fine.
I really meant wifi, thats the big delineation in our data hungry age with overages and the like. It may not matter to many people, especially here, but thinking more broadly about appeal.
As a reason to get a newer car, its pretty dumb, but better than any of the other posited reasons above. Im thinking resell value later on and what others would deem valuable, which if you drove it until dead wouldnt even matter.
I drove a car for 8 years with no power anything, center console didnt even turn on, and I love music so it was no fun, but totally doable. There werent any cheap blue tooth devices at the time but that wouldve been great.
Wifi in your car is really just a built in cell phone and data plan. You already have one of those in your pocket!
There are definitely other ways, can get a portable wifi device pretty cheap as well. I’d rather use my laptop but general idea is the same.
Ten years old and you’re probably OK, depending on the specific make and model. But if you look at the best selling vehicle in America, the Ford F150, just 15 years apart:
2016: https://www.youtube.com/watch?v=4wfFiT0cSsY
2001: https://www.youtube.com/watch?v=6Wb66PzljP8
The difference is pretty shocking! I believe they made that 2001 F150 until 2004.
I love that malibu v bel air test 😀
Nice post. The discussion between beater and brand new luxury yacht leaves out my prime target when shopping for a vehicle: the 3-5 year old moderately appointed one owner car. It’s past the most precipitous depreciation, has most of the modern safety and amenity features and is usually 30-50% off new model sticker. The second, third, and fourth 50k miles are usually the best deal IMO.
3-5 year old seems to be the sweet spot. If you can catch one before the initial 36/48 month warranty expires, you can rest pretty easy knowing that you’re not inheriting the first owner’s problems too, and without having to deal with 3rd party warranties.
If you aren’t in the beater camp (I’m not for my wife/kids) I 100% agree this is the way to go.
recently bought a 2013 luxury suv w/ <20k miles on it. sticker price new was 58,500. walkway cost including taxes and title was 35k.
that really blew my mind. someone (the original owner) got hosed and someone (me) got a hell of deal.
I am amazed what we do for wives and children. I totally agree that buying a car 3 to 5 years old is the way to go. I got my luxury car 3 years old and 50% off the retail price and it had only 18K miles on it.
BTW, I drive 30 minutes to work everyday because I moved so that my children had better school opportunities. I wanted a nice comfortable ride. (it is my boat on the lake). It is my splurge for myself as I wanted to provide something better for my kids. Paying 1.49% over 4 years. total of $1000 in interest over the life of the loan.
I haven’t owned a car since 2008, so I may not have any authority to say anything here, but you can bet that when we do own cars in the future they will be used fuel-efficient machines. I’m not buying a tank just to protect my family. The best way to reduce your chance of dying in an automobile? Stop spending so much time in an automobile!
In regards to the debate over paying cash versus a low interest loan, I think one of the most major points is being missed. When you are writing a very large check for a car versus a monthly payment (even if you can easily afford either) you start thinking long and hard about what your actual “needs” and “wants” are for a car. This is the main reason I pay cash for cars as it keeps me from overbuying. In addition, I generally am not too concerned about buying a car without a warranty but the newer computer controlled luxury cars make me think twice about that!
Study after study has shown this to be true. ‘Decoupling’ buying an item from paying for it causes people to spend more. Credit cards, monthly payments, 0% interest for x months – it’s all the same psychology. Of course as highly educated professionals our financial decisions couldn’t be altered by something like that, just like our clinical decisions are impervious to drug reps, right?
This is definitely true. In my case, I could have paid cash, but I wanted to hold onto my cash. But I will admit I overbought and splurged on my personal vehicle and the low-interest loan helped me do that. If my current car exploded along with my credit score and I had to buy something with cash, I’d probably have kept it pretty cheap since at this stage of the game I don’t like being without a comfortable cushion.
For my wife’s car I probably would have bought her the same thing if I had to pay cash since she is on a much tighter schedule and needs something safe, sizable and reliable. I could have spent maybe $5k less on something not quite as nice that still fit the bill.
I do wonder though about interest rates. As a child of the ’80s I’ve luckily never known what it’s like to borrow at 7, 8, 9%, much less 15 or 20% during the Carter administration. When (if) rates ever go back up to historical levels, it would become very difficult (for me at least) to justify borrowing any money on a depreciating asset like an automobile.
Totally agree with that. So many people go in with a $250 a month budget and come out with a $289 a month payment. Not make or break for doctors, but I still hate throwing money away. Full disclosure, I did buy a new car, but negotiated off the full out the door price. It’s a total luxury for me.
get off the lease treadmill buy certified used Japanese autos
I recently bought a used luxury vehicle (2010 BMW). I consider it a luxury, though I spent half of what many people I know spend on a new car. My reason for buying this car is for show, or more precisely for marketing. I’m an attorney in private practice, and I wanted to upgrade my vehicle to have me look more successful. My cost to upgrade from an older Subaru was $9k, though I’m sure it will be much more over time with higher maintenance costs.
If I were a doctor that didn’t have to do any marketing for my professional practice, then I would still be driving the Subaru – or more precisely I would have traded it for another Subaru with an automatic transmission. I had a stick and so couldn’t trade to drive my wife’s 2003 Honda Pilot when I needed a bigger rig.
My “reliable” Japanese sportscar has started falling apart at 100k miles. Up to about $8k in bills and 5 unplanned trips to the shop. I’m not at the point that I want to lease, but never never never will I buy a used car as a daily driver.
That sounds terrible. What model and year?
06 Subaru WRX. I’m not counting the usual stuff (prophylactic timing belt replacement, plugs, batteries, clutch, rotors, brakes, tires). Let’s see…there was that little fire in the catalytic converter, the power steering pump that went out (that took 2 trips to figure out), the linkage/boot replacement, a “hiccup” in the brakes, and now there is a fuel leak somewhere so it isn’t passing emissions and is therefore illegal to drive. In between times, it runs great and $1k here and there is cheaper than a new car, but at what point do you just throw in the towel? There is something to be said about the opportunity cost involved with taking the car in/tow, getting a shuttle, and picking it up. My last car, long falling apart, was literally undriveable as it came to a smoking stop in front of my house…that was an easy decision.
I had a 2006 Subaru WRX as well….it was a maintenance hog….purchased new….almost all highway miles….new turbo and some valve work at about 100k miles.
Brakes for that year were incredibly expensive….couldn’t get off label calipers so got bent over again….A/C died at about 120k miles.
Eventually gave it to my daughter….she totaled it out a couple years ago….walked away with a couple bruises….so happy to get an insurance check that was much higher than I could have sold the POS for
Doug, that makes me feel better…misery loves company.
Just got home from dropping it off to see if they can do something so it passes the smog test. Gotta say that thing is fun in the snow, which I could use right now.
Subaru’s are great cars but I wouldn’t keep one more than 100,000 miles.
Haha, sorry to laugh, but that isn’t the typical Japanese car people would think about. That car is a little more niche and as suck will be much more expensive to fix/maintain that a honda accord etc. The premium gas alone would have turned me off.
I did have a brother that loved his WRX, but once again is was always needing something.
G, I ‘m sorry to hear of your experience. Could it be a bad model year? My 2002 Subaru WRX is still going strong, no breakdowns, all amenities still working @ 209k miles with only regular maintenance.
In response to the luxury debate I just wanted to share the following:
In fall of 2013, husband (then boyfriend) purchases brand new corvette stingray just out of residency. He also has kept a beloved 1995 toyota pickup from high school. I am driving 10 year old volvo I purchased for $3K cash as I am paying off 100K in student loans. We get married and pay off vette and student loans. Finally, this is the time for a nice car for myself – I fly to Colorado to purchase specialty car with 20K miles, not new but like new, in cash. 1 week later someone ignores my green light and totals my “new” car. I forgo rental as we have a spare vehicle. Next morning, the Corvette won’t unlock. We have no idea how to even start trouble shooting the spaceship / military level electrical issues, and as the designers could not deign to mar the sleek surface with a keyhole, I drive the RELIABLE pickup (she is now of legal drinking age) 50 minutes the wrong way for my commute to drop my husband at work, then to the Chevy dealership to triage the remote start issue, then back at the end of the day to pick him up. The best two separate chevy technicians could tell me? Pop a special hole in the back of the license plate, and though it will trigger the theft alarm you can then push buttons in the trunk to open the doors. So for a week my husband appeared to be stealing a fire-engine red sports car from the parking lot every time we had to drive somewhere in public. Lovely. The Volvo and pickup have had issues, but they never quite died on either of us. Nor do they seem to attract uncontrolled motorists the way new cars do. And apparently $60K is insufficient to guarantee that you can even open your door in the morning.
BTW, the resolution to the key issue was apparently an updated toll tag, who’s new remote wavelength was actively thwarting the key’s frequency. So add to that sleek Corvette a stylish aluminum-foil sticker on the windshield behind the toll tag. Maybe a used Corvette next time.
Sorry to hear about your totaled car!
If your husband hadn’t bought a cheap Chevy that never would have happened. 😉 😉 Just kidding. Thought this was pretty funny though since it reminds me of my dear old dad who swears by Mercedes. According to him they’re very reliable, not expensive to maintain, yadda yadda yadda. But literally last time I met him for lunch, he had to roll down the window of his SL550 to grab the exterior door handle to let himself out 😀
“Craig Daste thinks fancy cars bought on credit are worth it.” WAIT, that’s not what I think, is it?? Well actually, in essence, yes it is. 😀 For doctors or other high-income professionals, within reason, of course. But I’ll go ahead and implore the readers to stop reading after Dr. Jim’s paragraph about admitting defeat. 😉
Thanks for the opportunity to do this fun guest post!
Craig
Well done, Craig. While I disagree with your position, you held your own in the debate.
Thanks!!
I love reading WCI but have always been slightly miffed of the general recurring theme that you shouldn’t spend any money on a car with that beater Dodge Durango as an example, especially when we’re talking about high-income professionals with valuable time.
After I wrote the first draft of the post I was glad to see that the WCI himself traded in that Durango on a new Toyota, so perhaps he’s softened up a bit in his old age 😀
Traded in? The Durango died. It was either buy a new engine or sell it to the junkyard. I don’t think I’ve ever traded a car in.
I still would have traded it in 😀
I don’t know if I blogged that story but I left for the lake late Sunday evening and by the time I called to check in on Monday afternoon the car was dead, had been looked at by the mechanic, and had been sold to the junkyard. I had nothing to do with it.
All this would make sense if the author was pictured in front of a Toyota Camry instead of a BMW. No one is deluded into thinking that the BMW is a more reliable car. I will put my money on the Toyota any day of the week.
It is plain and simple: he wants to drive a nice car because either he likes nice cars or he wants to impress everyone around him. Just admit it, call it a splurge that makes no reasonable financial sense, and be done with it. Attempting to rationalize it as anything else is unnecessary and sad.
Bruh, bruh, bruh, I am not advocating that you buy a BMW. In fact, I traded that car in on a Toyota 😉
That M3 was a depreciation monster, despite buying it for literally half price lightly used, not to mention something that gives you a bunch of expensive flashing lights on the dash every few months. Recommending it would be ridiculous.
The post was not to defend my particular choices, but to advocate that spending a little money on a new or new-ish quality vehicle can be a worthwhile expense for a doc or other high-income professional.
Not to be snarky, but if your wife is still a resident, she is not a high-income professional (yet).
Exactly. That’s a problem docs fall into all the time. Living like an attending as a resident.
Second that. And a beater doesn’t need to be a 20 year old, $1,000 car. Drive a 10 year old car and you will be way ahead. Shoot, even just buying the last model year will save a bunch and is usually only in the 5-6 year old range, sometimes less.
With our community income, she is 😉
And again, this post was not intended to be about the author, but about the readers in general.
WCI, easy edit for you to adjust:
“2016 How to Buy A Car” link actually directs to “2013 May I Please Finance My Car”
Thanks, will fix.
I have had my Honda Civic that I bought new since 2002. It has never broken down and I’ve never missed work due to vehicle problems. You don’t need a brand new car to have a reliable car. However I’m a hospitalist so at the bottom of the physician financial food chain. A few hundred dollars a month matters to me especially with the costs of young kids.
I find the arguments about reliability unfounded and amusing. I have driven nothing but beaters. They have never broken down and rarely needed much more than a new battery. This includes the following.
1991 Jeep Cherokee $1100 2006-2009.
-Needed a new fuel pump. I did it. Brake light wiring issue. Paid for that. Sold when moving out of the country.
1996 Honda Civic $1000 2010-2013.
-only normal maintenance and a new battery. Sold it and bought a bicycle when starting med school.
2002 Oldsmobile Alero $1300 2015-present.
-replaced a headlight bulb and tail light bulb. Only normal maintenance outside of the 5 minutes it took for each bulb. In it for the long haul.
In fact the funny thing is the cars we’ve had the most issues with were my wife’s “newer and more reliable” cars. Alternator, battery, all 4 tires because the alignment went out on a road trip, lthe whole computer had to be replaced after it failed and the car became nonfunctional. Now she drives a 2005 Toyota Sienna and it is excellent.
During this interview season, I’ve spent a lot of hours driving (approximately 65) and I can say I’ve seen as many newer cars abandoned on the interstate, hazards blinking, as I have seen beaters.
Cars are depreciating assets, simple as that. If you are doing well financially, then by all means go for it. But most people are kidding themselves into thinking they’re wealthy or just buying an emblem to convince others they are. There are way more Lexus/MBs/BMWs driving around town than there are wealthy people. I find the luxury car market to be nauseating. The worst example of keeping-up-the-Jones’s since a car is always one of our most visible possessions (as counter example, what percentage of the hundreds of people you know have ever set foot in your house?, but people at work know where you park).
My Honda Fit serves me well. I put in a new stereo myself to do hands-free calling and navigation. Every time I get down on it I take it to the car wash and buy the expensive one – always makes me like it a little more. My only interest in cars is the technology/environment angle. Sorry for sounding like such a bleeding heart, but I don’t find offhandedly mentioning “trying to singlehandedly kill the planet” funny at all because it contains a kernel of truth.
I’ll take environmentalist criticism only from those driving electric cars and cycling. Heck, you could get twice the mileage out of a Prius instead of your Fit but apparently hate the planet too much. 🙂
Now, I’m just joking, but we’re all doing our part to kill the planet. It’s like a liver though. It can take a lot and heal itself as long as you don’t push it over the edge. Maybe we’ve done that already, but I have great faith in our society’s engineers that a tech solution will save us from ourselves.
The only real solution will have to be that, just reality. Agree and have faith, but we need to put resources towards research and not these mindless for political appeal things we’ve been doing.
had a photographer for my kid bar mitzvah show up at my home in a BENZ
No way he is getting my business
Neighbors had two Benz-house foreclosed a few yrs later
BEST to be HUMBLE and not keep up with the Jones’
I went through this debate a year ago when my paid for 2008 Camry was totaled (after being rear ended 3 times in one year, talk about frustrating and lost opportunity cost). I decided to take the insurance money and 3K cash and buy a 2009 Volvo with 27K miles on it instead of a 2015 Subaru Forester for 0% financing (payment would’ve been about $200/month) or an hybrid-electric Ford Fusion. Doing all the math, I’m not sure I’ve come out ahead, as I’ve already had to replace the tires, and I think the brakes will probably need to be replaced soon and this light comes on about the anti-skid system every 4th or 5th time I drive it, because even though it was really low mileage and well-maintained, it’s still an 8 year old car, and I live in a sunny climate near the ocean where things just rot. Also, the gas mileage sucks, so that adds to the cost. I really didn’t want a loan, and I love driving the car because it feels luxurious, but a new car might have made more sense. I’ve definitely wasted too much money on frivolous cars in the past (a convertible Mini-Cooper that I had for 1 1/2 years comes to mind), and I have definitely learned so much from this blog. Just need to take all operating costs into consideration, plus how much the “happiness factor” plays into it.
A year old Subaru Forester is hardly an extravagant purchase at around $22,000, but I don’t see how the payments could possibly be only $200 / month without a significant down payment. Even a five year loan only gets you to $12,000 or about half the purchase price.
If you tracked the repair and maintenance numbers carefully, I think you’ll find the used car is almost always less expensive with more time involved for those things. People tend to forget things like the lease deposit, down payment, registration fees, taxes, add’l insurance costs, maintenance, excess mileage fees (lease) and repairs you simply wouldn’t bother making on an older vehicle. The resale value of used cars is also proportionally much higher since someone else has already paid the massive depreciation that comes with driving a new car off the dealer lot.
I burned through a clutch beating on a lovely high-end Nissan Maxima back in the day during a 3 year lease. Lots of fun at the time, but It turns out they actually wanted the car back in drivable condition which cost another couple thousand at lease end. At least that was the only fee they could find for me.
Tricia said she had a check from her totaled Camry plus cash, easily more than half the purchase price on a forester.
And yeah you’ve got to return your lease in drivable condition ;). Something to be said about the two year leases is that you should never have to replace anything at all. Generally speaking you can get away with that on a three year lease too, but on sportier cars the consumables go quick.
Not only do I consider it a badge of honor to drive a beater, I’m sure I’ve saved a bundle over the years on insurance and car payments. Bought my first brand new car right out of med school – drove it for 14 years. Routine maintenance, never a breakdown. Bought my second new car 17 years ago – still driving it. Never a breakdown. Never have to wash the beast either. I get why people buy new cars – but unless you’re keeping them a good long time, it’s a costly decision.
Jim,
You may have been winning the argument. But then you went and posted false half truths about Tesla. Have you been paid off by Toyota to bash Tesla like this? You lose!!!! ***Proud Tesla Owner….I paid cash though
How is linking to a news article Tesla bashing? Teslas are great. The problem is Lake Powell is 285 miles away and the Tesla X range while towing a boat is 100 miles. 50 if there is no charger at the lake (and there isn’t.) And that’s on the flat, which the road isn’t. Not to mention you can buy two Sequoias for the cost of a Tesla. Like any electric car, it’s fine for commuting but lousy for road trips.
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If you really want to increase your safety, move closer to work and put down the phone. The difference those two changes will make is at least 100 times the difference that buying a fancy new car will make. Buying a car for the safety features is just justification.
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Excellent point. You could have just stopped there and asked a simple question: When does the argument for new = better/safer/more efficient/less stress/higher productivity/lots and lots and lots of other things ever end?
Just swap out the word ‘car’ in the original post for another noun and it becomes an automatic approval for buying everything new with every possible feature. The author’s arguments illustrate precisely why personal finance requires very few math skills, but plenty of “stop making excuses” skills for spending money. Keeping my family safe while driving is important to me and didn’t require purchasing new vehicles. Anyone arguing otherwise is already a lost cause. Go ahead and buy whatever you like, but don’t bother explaining why it’s “safer” than my choice.
My personal fear is not my own distractions but those of the drivers around me. Putting down the phone doesn’t help the guy behind you from ruining your day.
You could say the same thing about healthy food. Before you know it, you’re justifying 3 michelin star restaurants every night. So should you just eat cat food? 😉
That fancy feast does look pretty tasty…
I love these articles about cars 🙂
I tend to take a more moderate view. I prefer new but would have accepted a CPO small to mid-sized Japanese coupe/sedan. I think this strikes a balance between reliability and frugality that I’m comfortable with. While I’m not comfortable driving a beater and personally risking it; in reading all of WCI’s articles, I do agree that using the reliability argument for a new car is probably no longer valid.
Of course, now that I am done with training and debt-free, I will admit I do like to splurge. Different things make different people happy. As stupid as it may sound to others; no matter how crummy a day I had at the office, driving away in my $70000 luxury muscle car puts a smile on my face.
One day (many years from now)… Except mine will be of the Italian variety.
Vehicle Breakdowns Hit Record High in U.S. Despite New Car Tech
“New vehicles are loaded with advanced technology designed to keep drivers and passengers safe and on the road—not in the breakdown lane. A new study by the American Automobile Association found that technology—including maintenance reminders and other safety alerts—hasn’t reduced the number of drivers stranded on the roadside. Breakdowns are actually happening more than ever.
http://fortune.com/2016/07/20/aaa-breakdown-new-tech-study/
Yeah, but if I was a high income professional a cool car would be my weakness.
I’ve had my car break down a couple times, usually its a battery thing, but it never kept me from going to work, so I think’s a silly argument. Just call an UBER and done, I can take care of the car on the weekend or another day that I’m off.
I love cars. I would love to have 6 or more different cars in my garage/driveway. I can think of a different car for different occasions:
– A daily grunt good gas millage commuter car such as a used small 4 door sedan like a Toyota/Honda or maybe small Acura/Lexus x2 his and hers
– Diesel Truck for towing. Who cares how old it is. This is a workhorse this car should last 20+years
– A nicer classy car to go out in or travel long distance or go out with kids such as an Aucra MDX, AUDI Q7, BMW X5, or maybe a large 4 door sedan
– A sports car for those fun days like a Z06 or Porsche 911 turbo
– An old classic muscle car (too many options out there)
Total expected cost for above lineup = ~$250-$300K depending on age and specifics
All that said and done, we don’t have 6 cars. My first priority is financial independence or a solid trajectory towards it. The best and easiest way to do so is to front load your retirement in the first 5-10 years of practice and then allow it to grow till you retire. Once wealthy, buying luxuries like a new car every few years or even owning multiple cars is reasonable. Like WCI said, there is a big difference spending $60k on a new car when you are a multimillionaire vs a resident or a doc fresh out of residency.
Just keeping up with the registrations, insurance and oil changes on six cars sounds like wayyy too much opportunity cost. 🙂
Perhaps the only physician-related issue worth separating out (otherwise this is applicable to any high income person) is the issues with irregular night shifts. Wife is an ER doc with a 50-mile commute (big city to rural area, live in Chicago and commute to Indiana’s more physician-friendly malpractice environment. Moving to Indiana is not a great option since kids definitely benefit from many parks in walking distance, plus my 15-minute bus ride to work and ability to get home in 10-minutes on Uber if needed for kids).
She occasionally works a night shift (worst is shift ending at 6AM, when dawn’s light actually makes you more tired than driving home at 3AM in the dark). Many docs in her group have fallen asleep while driving home and crashed.
To us, it seems like the self-driving car technology is not far enough along to justify the price. Tesla appears to have the best system, but I recognize that the technology can become a crutch and you will not be alert for the rare moment when the system fails and driver interaction is needed (such as white tractor trailer against a bright sky is “invisible” to the camera system, like in FL fatal crash). Current car is VW Passat diesel that VW has to buy back for $25,000 by the end of 2017 due to the lawsuit on emissions. We don’t intend to trade it in earlier, since it fits our needs and the buyback price is not significantly adjusted by additional mileage. But we will need a different (not necessarily new) car in 1 year.
For us, the best solution has been to sleep in a hotel near the hospital after a night shift.
Anyone else have a good solution to the issues with the rare, non-frequent night shifts (when your body is not accustomed to working nights)?
I agree an hour commute after a night shift is too far. I had a 40 minute one once and that was too long. I think 15-20 minutes is the max without figuring out a way to sleep before driving.
The night shifts and general lack of flexibility are probably the most physician-specific issues. Second, which varies city-to-city, is crime, and in my town, as well as several others I’ve visited, the hospitals are in the worst, highest-crime areas, e.g., here in New Orleans you can walk down the sidewalk next to university hospital and stand in the spot a med student was literally shot for trying to help a rape victim. Needless to say I want that car to start everytime, all the time. But I suppose in your case your wife is commuting out of the war zone and into the suburbs 🙂
We’re still several years out from truly autonomous transportation. You can buy a new car today in that price range with automatic braking, which might help with occasional distraction, but it’s not really a solution. Even Tesla’s latest tech isn’t fully autonomous.
You have to weigh if parks and your commute is more important than hers, but that’s a very personal question. At a minimum, it would seem like sleeping in a call room might be a little easier, or hiring an uber for the 50 mile commute at the same cost of the hotel.
Public transportation, cab or ride service (Uber, Lyft) might work for her. I worked a really oddball schedule at a steel mill one summer during college and often wasn’t sure whether it was AM/PM after waking up or getting off shift. Driving home with all the windows open was the cheap option for staying alive back then.
Tesla has the best marketing of their systems, but nothing more than anyone else has and at times less technologically. They are just far more willing to let you risk your life to increase their cool factor as a company. I know there are some die-hard Tesla fans here, but those are basic facts and why they lost the mobile eye contract in the first place (read the SEC filings for details).
I liked Tesla quite a bit and had an amazing time when I rented one, but they are a company that you cannot treat like a GM, etc…as they are far more risk taking than those legacy companies. Good for innovation, slightly worse for buyers.
I honestly like a safe car, so I’ve been driving my Tesla model s to work for the last 4 years. About 90 grand new after rebates, but I make 400 grand a year and have a net worth of 1.5 million so the car is 7 percent of my net worth. Have about 200 thousand miles and lost about 7% range. 75 miles each way to work, but honestly don’t mind.
Interesting new metric. My latest car cost me about 0.4% of my net worth (excluding home), and that seems like too much. About 0.1% seems right to me–I need to get richer or get a cheaper car!
Not sure that metric is so useful. Probably better to just stick with buying only what you need unless you elect to splurge on something. The metric just varies so much I don’t think it does much. For example, a resident with a negative net worth of $200K has an infinite ratio. A new attending driving a beater may have 5-50%. While a financially independent doc driving a nice car might be at 0.1%. Does that mean the resident is doing something wrong? Of course not. Not a useful metric.