[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!
The difference between depreciation with a beater car and a nicer mid range loan/lease/cash payment is likely to be a few hundred dollars a month. It’s absolutely more expensive. However I don’t see what all the fuss is about with driving the worst cars. A 3k car can get the job done and is likely nearly as safe. However, a high income professional making 300-500k per year should absolutely be able to allocate 300-500 a month in extra car costs. Pay yourself first with adequate retirement and savings rates and then who cares how you spend the rest of your money? The biggest downside I can see is the slippery slope. Online calculators suggest that I can buy a 2 million dollar house and lease a tesla and the banks would be happy to loan the money. Throw in some nice vacations and financial independence is a long ways away. However I figure a 4k a month budget with a 400k income and the rest directed to savings is likely to be very effective even if a portion of that budget includes a leased luxury car. You have to spend money on something!
Forgetting the expensive versus cheap car issue for a moment, where does leasing fit into the same argument? Typically, WCI recommends buying rather than leasing for the financial return issues, but if we are now looking more at not purchasing homes to sink all the money in those illiquid assets, why would we do it w our cars? Like a buy term and invest the difference argument. Obviously holding a car for 10-15 years is best financially but for the reasons Craig raises, I hate it (my car turns 15 next month). Does Craig’s argument hold water if we look at churning (reasonably priced) leases?
Basically, if my car dies in 18 months, is the better splurge a used fancy car purchase or a less fancy lease?
(I’m going to do a little splurge because I’m rich and I feel like it)
Thanks in advance for weighing in.
Oh, and keep in mind I’m not really a car guy. I want something nice enough to not be embarrassed but also not so nice that I’m embarrassed, if you catch my meaning.
Dave Ramsey likes to call them “fleeces” instead of “leases.” There are so many little fees and gotchas involved in a lease I think it’s generally a bad idea. Now if the employer is paying for it and you can’t take that money as extra salary instead, I think you can make a case for it. And if you’re saving enough and this is your “splurge” then fine.
Leasing a car has more moving financial parts and it’s easy to overpay so one has to be cautious and learn the ropes. That being said many manufacturers will have intermittent promotions that you can leverage with leasing as they look to pad their sales numbers. It’s not at all a stretch to have monthly lease payments that you would need to make for 10-12 years to pay for the MSRP of the car. In the meantime you are driving a new car under warranty every 2-3 years. I enjoy using the Edmunds website forums to get the dealer numbers for residual percentage, money factor (APR) and incentives then various online forums to get good sales numbers and using those to find a good lease deal. https://leasehackr.com/ has some good examples to follow for those interested in leasing. But as WCI suggests, be careful. My 57k car costs the same per month as my friend’s 30k car in terms of monthly payment. I know which one I’d rather be driving!
Except at the end of 36 months your friend still has a car.
No, both leases. I just got a good deal and he got fleeced. As I mentioned initially, at the end of a lease the comparison person who paid more every month to buy a car still has one, but again they have paid more and have more risk for depreciation hit in the case of an accident, maintenance expenses etc. I drove a 1995 Honda Accord, purchased 3 years old and drove for 14 years to 230,000 miles. Tracked all my expenses and it cost about $168 a month in total considering maintenance, repairs and the purchase-selling price. Not bad at all. However, it’s pretty easy to get a $200 a month lease, or even a really nice car for $300 a month. Sure the insurance is a bit more expensive but my main point is that this extra expense is a marginal cost of $100-200 a month and for me is worth it to drive a new model car that I really enjoy. At the end of my old car experience I had huge dents, had to manually pull up my drivers window if I ever rolled down the window to get a parking ticket or use a gate code etc and the front axel would shake at any speed over 70 mph. I’m just not interested in doing that again at this stage of my life since I don’t have to. For 1 extra shift a year I can pay for driving a new leased car rather than a 10+ year old vehicle, for 2 extra shifts a year I can pay for driving a leased nice luxury car that’s a ton of fun compared to my 10 year old Honda. Assuming I like what I do that’s a no brainer for me- but to each their own.
I do the same thing and agree with WCI, this is a splurge for me.
I like the new car smell. I like driving a new car every 2 – 3 years. I like the car being under warranty the whole time. I didn’t do it when my net worth was negative. Now that my net worth is in the 7 digit range, I do do it.
As WCI alluded to, there are a bunch of fees and gotchas associated with leasing. Car insurance alone is significantly pricier as I’ve found out. There is a deduction available for business use but still not enough to make it “worthwhile”. I think leasing probably makes more sense if the alternative is purchasing a new car every 2 – 3 years and then trading the old one in for a loss.
As I mentioned, my wife and I do this. Even then, while we are car people and enjoy the vehicles we have leased, we are kicking around the idea of buying the next time around and driving them until we get tired of them or encounter a major repair. With our mortgages soon to be gone, it would be nice to say I have zero debt and further de-leverage my financial life.
I will just leave this here: http://jalopnik.com/here-is-a-fun-cheap-daily-driver-that-could-easily-las-1789708341
Jalopnik is a great resource.
I need a cheap 4×4 8 seater that can pull a boat, get awesome mileage, and last forever. Does Jalopnik recommend one of those? 🙂
A diesel suburban covers just about all of those. We have an early 2000s model year with 175k miles. You can’t kill the thing (I’ve tried).
You can’t still get a diesel Suburban can you? I looked into getting a diesel when we bought our last Sequoia. I totally would have gone diesel if it had been an option.
I agree with the 3-5 yo 1 owner CPO “sweet spot” if possible to find, but for the Camry’s (hybrid) my wife and I like they are hard to find. There are 3 safety/convenience features above and beyond the standard widely available options that I wouldn’t get a “new” car without, and I’ll be looking in a few months:
1) blind spot monitoring
2) back up camera
3) heated seats (really nice in Cleveland!)
Especially #1 I think should be a standard feature on *all* cars. I didn’t find any used cars when I last looked several years ago, not sure if that’s because it was still relatively new or I just didn’t look hard enough.
I’ve been through this discussion in my head over the last few months. I live in the city and for the last 8 years my wife and I have been able to get away with just one car between the two of us for most of it. I was able to ride my bike or take a bus to the hospital which was a huge savings and made me feel good since I feel very strongly about fighting climate change. However, I’m getting a new job and wont have the convenience of living so close to my work any longer. So its time for a second car. I could certainly go buy a used car and pay cash and be done with it but for me I wanted to do something I could feel good about since now I’ll be driving 40 miles a day. So, I’m buying an all electric bmw i3. Its pricey but with the tax credit will only cost me 39k. Uses zero gas and costs alot less to charge then it would if it were a gas car. Plus I’m hoping repair costs will be less over the long haul (but thats to be determined). I tend to keep cars a long time. Our current car, a honda element, is 9 years old already. So for me, this new car was a splurge, but if it saves me gas money, makes me feel a little better about needing to drive for work from an environmental perspective, and I drive it for a long time, it seems worth it.
I was thinking of a used Tesla S for basically all the same reasons.
One of my attendings in residency told me “Never have the best, nor the worst car in the parking lot.” I thought that was decent advice. Of course, at the time, he was driving the 4-door Bentley that was so new only he and T.I. had it.
On the flip, my happiest mentor in residency, and the one on whom I have modeled many things drove an 18 year old manual Accord. Though the guy w the Bentley was pretty happy too, I must say!
Coupling this thread w the tax arbitrage, RMD hosing you in retirement if you over-save thread, I will probably end up getting the used Tesla, but I’m hoping to get my car to legal voting age, not just the age of consent in RI.
I actually thought it was neat when I had the worst car in the parking lot.
Nurses, unit secretaries, midlevels, etc all had nicer rides while I was stuffing mid-6 digits into investments every year.
I no longer drive a beater but it’s still nice to have a “sleeper” car that is actually much nicer/faster than what it looks like to the casual observer
Our really nice car belongs to the wife
I got made fun of for my “toy” car all the time by the nurses and my partners back when I used to drive to work.
2008 Prius w/ 20k miles on it when I bought it in 2011.
I took it for what it was, applause by them for my good decision making.
I had a bunch of convos w/ many of them about how hard it was for them to make it on $300k/year.
I see both sides of this. Im not a doctor or make big money. But a few years ago at age 45 I finally bought myself my first new car for 21K. I looked at multiple dealers then used that car buying site (Trucar) and negotiated down a bit from there. You could say it was a bit of a splurge but also I did it for many of the reasons Craig mentions above. I’ve kept my previous cars for many years, replaced engines and done repairs cheap etc. As for some of the used cars I looked at, I felt the price difference wasnt that great of a deal plus the wear already on the car (tires, brakes, and whatever else could be wrong with it). I drive a lot and I was missing some work due to increasing breakdowns. (car had 230K miles on it) But I’ll also say this: I’ve probably saved a fortune over the last 25 years with deals I got on my used cars. I was fortunate to get a hand me down car from family that I used for years. And with my connections I got a few great used car deals. One car I bought for $1500, drove it for 4 years then sold it for $500. My last car I paid 8500 and drove it for 13 years. I did some repairs myself but also found mechanics that would let me buy the parts myself then make the repair at a reasonable cost or even cheap. Keeping your car costs down early on in life can certainly be a big boost to your financial situation down the road. The more you earn the less impact it has I suppose. But I still think its an important principle to keep in mind. You dont want to hurt your ability to FI/RE due to over spending on cars either.
You don’t seem to be on both sides at all. You seem to completely agree with my main point- drive cheap cars until you’re rich, then drive whatever you want. Craig is arguing that you should buy fancy new cars before you are wealthy.
I thought of this blog tonight when I walked out of the hospital with my urology colleague, he getting into his Maserati and me into my Prius. We are both stuck in the same crappy traffic, but I I smiled. 🙂
My husband has a weakness for cars, so we did buy an Audi Q5 while we were both residents. He became an attending 6 months later (otherwise we wouldn’t have been able to cover the monthly payments close to $800). We also don’t have student loans, so have been able to get a house, the car is paid off (4 years later) and we are contributing decent amounts to retirement. The experience of driving a luxury car is worth it IMO only if you are almost done with residency. We don’t have to deal with much traffic, but I do have a 20 minute commute and enjoy having heated-leather-memory-seats, key-less entry and key-less start, navigation, bluetooth, automatic wipers, automatic lights; more worthy for us than brand/luxury clothes or apparel. I’m not ready to splurge on a Tesla, the ROI with the gas you save takes ~ 7 years.
I don’t see how almost being done with residency is a reason that it would be alright to buy a car that you can’t cover the payments and are counting on holding it together for a few months until you’re out of residency that seems like done very poor decision making, what if you got sick, or had to take time off from residency and now you have this car payment?
Furthermore the features you’re describing can be found in a 20k Passat and not a 40k base q5. Yes I know it’s not an SUV, I bet the come in Hondas too.
Lastly there is no way the ROI on a Tesla is 7 years that’s a 85k car, you can buy a lot of gas for 70k. I doubt you’ve spent 70 k on gas in your life.
Classic example of not living like a resident. Not only are you guys living like an attending while an attending, but you started 6 months early!
But no loans is huge and you’re saving for retirement so you’ll probably be all right anyway, but I certainly wouldn’t advocate for an $800 monthly payment for automatic wipers and heated seats.
And not to mention those features she touted of bluetooth and leather seats and auto wipers etc. are all very common in higher end economy cars like an Accord EX-L…which looks great and has very nice safety features as well.
NO need to spend that much for a German luxury when the same features can be had for much cheaper and likely more reliable as well.
Those features are easily found in much less expensive cars…in higher end trims of Toyotas and Accords…and are likely going to be more reliable than a typical German luxury brand (Audi, BMW, etc.).
Wow, rich man’s argument to buy fancy new cars. So, he has the money in the bank to buy the cars in cash. Thus, I take it as well that he doesn’t have any or much in the line of student loans and probably comes from a wealthy family. Additionally I doubt he’s going into a primary care field making less than $200k.
Buying a new car in Residency isn’t even an option for most with student loans, as you need to be making your interest payment which is a LOT on a Resident’s salary. If you don’t make your interest payment, it’s going to rack up and be much more difficult to pay off as an Attending. So, a new car payment along with full coverage comprehensive insurance and registration on a new car is really going to eat into your payment.
First year Attending here and we have one newish car between my wife and I. I have a 1999 Subaru which is very reliable, and I convince my Veterinarian wife to buy a 2013 AWD Juke as she had some close calls when it snowed in her 1994 Honda she had been driving for years. Yes, I fix the old cars, or have them repaired when they break, but it really doesn’t cost much.
Also, I really don’t see reliability or safety as a good argument for buying gas guzzling luxury SUVs. You could have gotten the same reliability and safety with a new economy car, but obviously your tastes lie elsewhere.
I could see you writing this to justify yourself to your friends, but writing this as a public article is irresponsible and is leading people who need to pay off their student loans in the wrong direction financially. This article only takes your financial situation into account which may be very very different than other doctor’s, I went to school with people who’s parent’s paid their tuition in cash, bought them a nice house to live in, and gave them a nice new BMW. Then, there were those of us, who already had student loans from undergrad and had to finance every thing. These situations are very different and I feel your article is lacking in perspective of different Doctor’s financial status.
I disagree totally. I am now out 18 years. I busted my hump to pay off undergrad and medical school loans which were deferred. I worked overtime. I took extra shifts. I did whatever I could to pay down those loans. Everyone is in a different situation. everyone attacks their debts and financial freedom in different ways. I refused to be owned by banks. the banking industry and society makes us believe that it is ok to be in debt. It is just modern day slavery. The CEO’s of BANKS drive their 300 foot yachts and uber luxury cars.
DONT BE A SLAVE. Work hard to pay off those loans and live like a normal person.
I have a hard time reconciling this comment with the one you just posted where you stated you bought a car on credit (1.49% over 4 years.)
As a car guy myself here’s my rebuttal to supplement WCI:
Opportunity Cost – Craig argues that a “beater car” is likely to break down more than the alternative (which he does not define…is it a BMW 5 Series? A Lexus GS? Or something even more exotic like a Range Rover/Maserati/lower end Porsche?) causing lost time and more stress due to repairs. And what is a “beater car?”
Opportunity Cost Rebuttal – German luxury brands are actually not known for their reliability, at all. (this is in response to the BMW photo posted in the blog) While they have improved dramatically compared to the 90s and the early 2000s, Audi/BMW/Mercedes-Benz all have their weaknesses. A dentist recently posted a youtube video breaking down his ownership of a 2013 Porsche 911…and admitted he had to make many trips to the dealer for warranty repairs and things going wrong. Lexus is an outlier and is legendary in their reliability. Unless you buy a Joe Backyard Mechanic Special for $1000….there are PLENTY of very economical, affordable cars that will not breakdown constantly. There are plenty of very affordable Hondas and Toyotas and even used Lexus out there that have had hundreds of thousands of miles of stress-free ownership. You don’t need to buy a luxury, “nice” car to ensure reliability. In fact, certain German brands/models may be even less reliable than cheaper brands/models. (see Audi’s carbon issue/timing chain with their engines, Mercedes with their Active Body Control suspension that are infamously expensive to repair, etc.)
Safety – Craig’s position is that quality new vehicles compared to a cheap beater is much safer. And that luxury large cars are safer such as large sedans and SUVs as well as offer more safety features.
Safety rebuttal – Again he fails to define what is a “cheap beater car” and he does not define the parameter for comparison. If you buy that Joe Backyard special $1000 car from the early 90s….yes obviously that is MUCH more dangerous than a brand new car. But I doubt that is what most residents are doing. But let’s look at this whole thing about safety. He mentions that there are 0 fatality-models which attests to the luxury’s better safety…and let’s look at the nine models that were found to have 0 fatalities:
Non-luxury/nice models:
Kia Sorento
Subaru Legacy
Toyota Highlander
Honda Odyssey
Toyota Sequoia
Luxury/nice models:
Audi A4
Lexus RX350
Mercedes-Benz GL
Volvo XC90
So out of 9 models, 5 were non-luxury/nice, and 4 were luxury/nice. This easily shows that luxury/nice cars does not have a monopoly over superior safety.
If you look at the same IIHS data, they DO show that larger cars in general and SUVs in general have lower driver death rates. But of course the key point to safety is: driver smartness/awareness (seatbelts, defensive driving) and proper vehicle maintenance and proper tires. Certain SUVs may actually cause overconfidence in drivers during wintry conditions because they mistakenly assume that a AWD/4WD will be completely superior when they fail to drive properly AND fail to use proper winter/snow tires.
In addition physics also works against SUVs and higher center of gravity vehicles as they are more likely to rollover than a car. Of course technology has improved that quite a bit but some models you need to be careful of (look up the Jeep Grand Cherokee moose test on youtube….).
Not to mention the data from the fatalities are HEAVILY confounded by other factors. We see associations between certain car types and low fatalities but we have no idea of the driver, other cirumstances, road, tires, car condition, etc. So to assume that by buying a “safer” car (which does not have to be luxury as we have already seen) purely by statistics is not a smart idea.
In this regard, you can buy a very affordable, economical Toyota/Honda with top IIHS safety rating and both brands have very extensive safety feature offerings as well.
Another issue with newer technologies…the Tesla autopilot is a great example. It can instill a false sense of overconfidence and reliance on technology to save you. That one case of the Tesla driver falling asleep (some report he was watching a movie) and the autopilot fail to detect a tractor trailer against a bright white sky…caused his death. So here we see again that common sensibility and smart driving is of paramount importance..
Stress – Craig argues that cheap cars are more likely someone else’s headaches and that a new car with a warranty is less headache. Again this is only partially true and the conditions can vary wildly. To go back to my example…do you find that Joe Backyard special or do you do your due dilligence and find many many reliable used cars? And notice here there is NO requirement to buy a luxury/nice car (which infact can be less reliable than economy brands). You can easily buy a pre-owned Toyota/Honda for much much less than a luxury brand/model.
Not to mention just because a car is warrantied does NOT mean it will be stress-free. When that expensive BMW breaks down under warranty, you still have to make appointment and drive/tow the car to the dealer and get a loaner and then hope the car is fixed quickly. So that already is stressful.
And with the TONS of online help in how to find/inspect a used car, it’s easier than ever to find reliable “beaters” if you are willing to put in the work. You can find 1-owner cars with all service records and that have been meticulously taken care of. And are going to be much cheaper than a new luxury car.
Little Expense – Craigs claims reliable car doesn’t have to be expensive.
Little Expense – This is very very true. And here he finally mentions a Honda Accord or a Toyota Camry. Of course here we can get into the debate over NEW car vs USED car or even how much used. Though the premise of the article seems to be more towards “nicer” cars (given the tone of the post and the photo of a BMW). And again certain nicer cars are actually less reliable than Toyota/Honda and can induce more stress with more trips to the dealer for warranty work.
With proper maintenance and proper driving (check out model specific forums for specific items to keep up with, and look at youtube for things NOT to do with an automatic transmission, etc.) many cars can EASILY hit 200-300k miles without major work.
Conclusion – “Spending a little extra money on quality, reliable transportation is a sound financial investment which is easily affordable for virtually every physician.”
Agreed in principle. You don’t have to spend $1000 to get a super beater…when you can likely find reliable cars for less than $10k (sometimes way less than that). There’s certainly some argument to be made for a possible pre-owned car that is 2-3 years old. And certainly not much argument to be made for an expensive luxury/”nice” car.
I’d like to mentioned Uber is still a viable option in the “fly over states.” While distances are farther, Uber rates are lower–effectively $1 per mile at interstate speeds with about $5 minimum fare. I have been carless in a traditionally car-required area for the past year (spent $3600 on Uber, which is much less than what I was spending on car: fuel/tires, insurance, maintenance, taxes, depreciation, parking, time, not liking owning a car/driving, needless consumption with harmful environmental impact, etc).
–Uber picks you up in a car that is already de-iced and heated (why waste money on a garage).
–Uber takes you to the front door of your office instead of a walking from your car and avoids paying for parking.
–You can get work done on the way (check emails, review schedule, order groceries online, etc).
–If traveling between places of work, Uber keeps a detailed list of rides for easy tax accounting.
–You get to have brief conversations with interesting people. Lots of artists drive for Uber.
I particularly enjoy…
–Ubering to work allows me to find interesting ways to get home every night. Sometimes I take Uber. If going somewhere afterwards, I usually buy an app or first round to whichever friend picks me up. I’ve turned this into a game and strengthened friendships along the way. Yes, there is a cost here, but I think the social connection is well worth it; so much so that this cost is in a different financial bin for me.
–If the weather is nice, I can walk home and effectively get paid for exercise!
It is not for everyone, but I Uber even in a place where everyone assumes you have to have a car.
Cool! Lots of different ways to skin the cat.
it’s pretty amazing how many times you have to uberX to reach the cost of driving even a moderate vehicle.
i think you’d be hard pressed to find a vehicle other than a complete piece of garbage that didn’t have carrying costs over $100/mo, often much more. Even my old Prius was about $500/mo (had a payment on it).
Got rid of it.
I live in an urban area literally saturated w/ Uber.
$500/mo is a heck of a lot of uber.
At first I assumed there is no way I could get this to work in my life. I live in the suburbs, travel to different locations every day, and have two small kids.
But I basically never drive the kids, and when I do, I’m driving my wife’s Highlander. This might discourage me from making a stop at the gym on the way home, but I can’t exactly blame my lack of exercise on travel issues.
I think that Uber would be substantially more expensive than me driving my 15-year-old car that I essentially pay for gas and $100 a month in insurance. Maintenance is probably another 50 bucks a month. ~300/ month all in. Doing some quick calculations, Uber looks like it might be more like $500-$700 per month for me.
However, it may not be much more than getting a used Tesla and is certainly cheaper than getting a new Tesla. Of course, with the car, you build a little bit of equity come resale time. Maybe this is the splurge I’m really looking for. In residency I used to say, half jokingly, that my attending car was a Prius, but with a driver. That was before Uber. Maybe this is the answer after all?
Thanks for the idea! Still going to try to milk another year or two out of my car, but when it dies, I will at least try this experiment for a month before puling the trigger on my surround sound, heated steering wheel monster.
Update: it’s a year later and beast is still kicking at 16 years old. I found that once i gave myself permission to get a Tesla I no longer wanted one (or not nearly so much anyway).
The x-factor has been my splurge on an Uber/Lyft to work 1-3 days/week. I end up spending about $1/every minute I’m no longer doing the driving myself. I use a laptop and a mobile hotspot to close charts so I end up getting about 40 min/day back to spend w my kids.
It has been AWESOME.
Interesting use of time. Well done.
Grizzle, my experience was similar to yours- once I gave myself permission to get a Tesla, it felt a little anti-climatic. The bigger rush was getting to a point in my life where I do that responsibly, and feel good about it. I had the good fortune to have my father insist that I max out my retirement accounts as an intern & “try to live on half”. While I fell short of that goal, and had some financial missteps along the way, it forced me to live like a student while in residency & to live like a resident the first several several years as an attending. I never felt deprived. I’m now 20 years out of med school, no debt, & recently cut back my clinic hours by 10%. Last week I bought my Tesla & decided to hold on to my 2002 Subaru anyway. The freedom feels good.
I’m that guy. I bought a 100k sports car my first year as an attending.
AND IT IS AWESOME.
I love driving to work. And love driving home from work even more.
I have loved cars since I was in diapers, fast forward to the long days of studying and taking call, I’d always dream about what car I’d pick out for my work commute as an attending.
I put down 30k. Paid it off four months later by picking up a few extra shifts.
Life is too short to drive a boring car.
I love this blog though.
But every 5 years I’m gonna grow my collection 🙂
If you can pay off a $70K car loan in four months, it’s hard to argue you can’t afford the car. Personally, I would have saved money for four months and just bought it cash, but even a high interest rate wouldn’t add much expense in four months.