Why do people waste so much money on cars?
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2013 Jan 25, 12:10am 59,162 views 312 comments
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Thedaytoday
2013 Jan 25, 4:15pm
I dont see $2 gas. I see more likelihood of $2 for natural gas than petrol.
It's possible.
Thedaytoday
2013 Jan 25, 4:26pm
investing $245 over 15 years or 180 trades in the stock market would be stupid and wouldn't get shit from a to b
Investing $23k would be greater over 15 years.
and I get from a to b
See I have $23k to invest, while you pay cash and drive off the lot with a brand new car!
fuel costs are the same as tax deductions in this game, you never know what is gonna change
Ok so you are paying $245/ month for 15 years.
and i pay full 27k + sales tax (2430) + repairs $300 per year on average ( initial years are less ..etc)
lets say the average fuel cost goes up by inflation ( long term fuel cost always track inflation ). So it offsets your monthly lease payment increase due to inflation.
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I dont think fuel tracks inflation. I remember paying $.85/gallon in 1996 for gas in Georgia. I now pay $3.65/gallon in CA. That's an increase of 8.5%/yr. Inflation is more like 2-3%. Also, yes, you are right in that we have very low interest rates. My scenario assumes low inflation. I will say I am paying less per month now in my $27K car than I was in 1989 in a $15K car. Some of that is residual difference.
You are calculating opportunity cost incorrectly. For the whole $29K, fine. For the lease, the 6% ROI is on the $245/month, not the entire amount. I forgot how to calculate, but it isnt as much as 6% annually on $29K compounded.
Thedaytoday
2013 Jan 25, 4:36pm
That's an increase of 8.5%/yr
shit wages didn't come close to going up that fast!
I tell you if they dare index wage inflation to gas prices things would change in Washington. FAST!
Things would be much fairer.
for the $245/month
use this caculator :
http://www.moneychimp.com/calculator/compound_interest_calculator.htm
put current principal = 0
annual addition = $245 * 12 = 2940
put interest at 6% and years to grow as 15 years
you will get the results.
Thanks. I got $28K.
Thedaytoday
2013 Jan 25, 4:38pm
You dont include the principal/lease payment.
mate i have told him, it feels like 1000x over!
Thanks for the graph, but it ignores peak oil, China, and India consuming more too. Oil demand is surging worldwide, and it will accelerate over the next 15 years.
To get opportunity cost, you are calculating what you would make in interest/return if you put the money elsewhere. You dont include the principal/lease payment.
thats not principal . thats what you will be paying per month after all is said and done. you yourself came with that number.
thats the money due to depreciation you had to cover from your pocket !
I spoke too soon. Didn't read your suggestion carefully.
Still, it is $28K vs $40K at 6% ROI for the entire salesprice and taxes.
$72K-$44K of payments ($245 x 12 months x 15 yrs)=$28K. Im just calculating interest lost. $72K total leasing vs $86K buying outright
Thedaytoday
2013 Jan 25, 4:56pm
Thanks for the graph, but it ignores peak oil, China, and India consuming more too. Oil demand is surging worldwide, and it will accelerate over the next 15 years.
True. But it's not certain what cars will run on by then. A mix of different fuels would be better. 55mpg will help and who knows we may find a solution.
Thedaytoday
2013 Jan 25, 4:58pm
for the $245/month
use this caculator :
http://www.moneychimp.com/calculator/compound_interest_calculator.htm
put current principal = 0
annual addition = $245 * 12 = 2940
put interest at 6% and years to grow as 15 years
you will get the results.
regarding fuel costs... don't just look at 10 years .
is this uk , us or worldwide?
BayArea
2013 Jan 26, 2:36pm
Personally I'd never buy a Subaru. You are still wasting a lot of money on gas for the 4WD gas mileage penalty. Plus Subaru still makes cars where the engine explodes if the timing belt breaks (almost nobody else does that). That last part probably is irrelevant if you only keep it 3 years though.
Thedaytoday is right about the residual value on these things, people wildly overpay for used Subarus.
Can you elaborate on the engine issue?
Peter, an "interference" engine is one that if the timing belt snaps, the pistons continue to go up and down in their bores while the cam stops activating the valves. That means that the piston contacts the open valves leading to complete destruction of the engine.
I can't comment on whether of not Subaru is the only car manufacturer that still makes interference engines. But snapped timing belts are rare.
unstoppable
2013 Jan 26, 11:36pm
Interference engines are quite common and not a problem, with timing belts lasting 100k miles these days. I think subarus are dumb because they have horizontally opposed engines which all seem to have leaking head gaskets after 10 years. Subarus are also butt ugly, I think hippys feel so guilty about owning a car they buy ugly ones as some sort of twisted form of penance. Impreza wagon it's 1994 calling, it wants it's everything back.
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As someone who lives in the Bay Area, its clear that many people here just love their Bimmers, sports cars, and large luxury SUVs. What's more, it seems many are terribly concerned about having whatever happens to be the newest model.
On each and every day of the week I am surrounded on the freeways by cars that cost 60k,80k, or even 100k+. So much so that many might as well be Camrys and Accords. Oh- another 7 series? Yawn. There's another 50 I'll see on the way home. No, granted these are unquestionably nice cars. But then again, to me its a big waste of money.
I drive two beater Toyotas, one that I've actually had since high school. Both went past 250,000 miles years ago. Neither have any problems. I've always taken good care of them give them a nice wax job every few months, change the oil every 3,000 miles and keep them looking nice. Doesn't matter to me that they're almost 20 years old now. They still run, drive, and look like perfectly fine cars. I make a pretty good income and could quite easily go purchase the luxury car of my choice if I so chose. Its not that I can't afford a 90k car, but more that I'd rather not spend almost 100k on something that's going to depreciate massively as it ages.
If you think about it from a purely financial perspective, let's say that the average luxury car buyer buys the latest-greatest car every 6-7 years. Let's say the average price is around 60k. That equals close to 120k every decade or several million over the course of a lifetime. Had that money been invested in a 401k or stocks, that same person could have literally retired decades sooner.
Lastly, if your car goes 0-60 in 4 seconds and has a top speed of 200MPH, well who cares? The US has speed limits and thus you can't actually really use the car for what it was designed to do. Sort of like buying a blender and only ever being able to use the slowest setting.