Old Car Bona Fides

Cheap Car Fanatic. Lessons learned in life? You can’t tell wealth by the things on display. Many people with low to no positive net worth drive fancy cars. But the cars are really owned by the bank or the leasing company. No matter how nice the suit or dress, the driver is just making someone else rich. They may have high cash flow, but that doesn’t mean high wealth or even positive net worth. Millionaire cars are not all high-end luxury marques. Instead, millionaire cars are often old cars.

A Million on Middle-class Income

Fans of the book The Millionaire Next Door already know that the average millionaire treats depreciable transportation assets (automobiles) differently than their paycheck-to-paycheck neighbors. Depreciable means they decline in value as you own them or use them up. See, The Millionaire Next Door, by Thomas J. Stanley and William D. Danko.

“. . .[M]ore than 80% [of U.S. millionaires] are ordinary people who have accumulated their wealth in one generation.” They do so by spending less than they earn. One way they do this is by avoiding having to look wealthy. The live in middle-class or working-class neighbors and drive average, not luxury cars. This is especially true of what Stanley calls the “Used Vehicle Prone Shopper” or UVPS. This group is most likely to have become a millionaire with average incomes less than $100,000. They do this by playing great financial defense. Spending less to get more. Deferred gratification adds up. Thomas Stanley

Millionaire Cars Can Be Cheap

Not all millionaires buy used cars. But most millionaires either buy used or buy a mainstream family brand (e.g., Ford, Chevy, Toyota) and drive the same car for years. Everyday millionaires tend to be about results, not appearances. They hide in plain sight because most millionaire cars are cars below the millionaire’s means if the millionaire prioritized cars, but they don’t. They made their millions by spending less than others, not just by making more. The difference went into savings and investments.

Dave Ramsey warns against the great middle-class trap, the monthly new car payment.

Among the financial independence movement, high-mileage cars are a badge of honor. We wear this badge with pride. And paying someone else interest to drive a depreciating car? That’s a sin.


Aging with Freedom Cheap Car Fanatic Rules

Our car rules for financial independence are:

  • Pay cash. If you can’t pay cash, you can’t afford a depreciating asset.
  • Buy used or use long or both.
    • Buy used. Let someone else eat the initial high depreciation for a new car or truck. A three-year-old used car is generally worth only 60% of its original sale price and has 80% of its 15-year, 200,000 miles, life expectancy left.
    • Buy new but use it for a long time, extracting full value. With this strategy, resale isn’t an issue because the financially independent avoid the transactional costs of frequent trades. Like Warren Buffett with stocks, it’s a buy and hold strategy.
  • Prioritize function over image. Wealth building for the average family is about willing to look and be less things-focused. Less than the next-door neighbor with the same income living paycheck-to-paycheck, deep in debt, and calculating every conspicuous consumable by monthly payments.
  • Maintain it well. Reliability does matter. But reliability is not just a function of newness but also maintenance. Regular oil changes and discipline budgeting for scheduled maintenance minimizes unscheduled or emergency repairs.
  • Self-insure for collision. Be realistic, most older automobiles are not worth insuring for collision. (Always carry liability and uninsured motorist insurance.)  If your emergency fund is properly funded, you can afford to self-insure at some point in a vehicle’s life.
  • Save on car registration. In many states, an older car is also less expensive to register (annual license plates or personal property tax fees). Car registration fees are typically based on a declining share of list price. A new car buyer pays full boat. Eventually, it’s a minimal flat fee.

Cheap Car Fanatic

So how do we apply this? We’re cheap car fanatics. Our cheap cars helped get us over the debt-free million mark.

We live in a rural state. There is little to no public transportation. We love using light rail when we travel to many of our favorite big cities. But here? You must drive to go anywhere or do anything. That means more miles than many. We have separate work and family obligations that require flexibility. My wife and I often need to be in a different place. And, so far, it means two cars. And we have a dog. So, we like cars with hatches more than trunks these days.

Cheap Car Fanatic Car One

2006 Chrysler Town & Country minivan with 213,000 miles. We bought it as a two-year-old used car in 2007 for Dan’s elderly father. We spent $16,000 cash for a vehicle that sold new for $28,000. It had 40,000 miles. Power side sliding doors and rear hatch, leather seats, and heated seats are all great options. Dad loved the heated seats on his arthritic hips. We inherited it a couple of years later.

We love the flexibility of Chrysler’s Stow’n Go seating (middle seats and rear seats both drop into the floor). Nothing else is as flexible about carrying people or cargo. It’s starting to have some niggling electrical issues with the power front seats and door locks. The water pump recently died and required replacement. But it is twelve-years-old.

Generally, it is cheap to insure, operate, and service. We bought (so far) 173,000 miles for $16,000 cash. We carry liability and uninsured motorist insurance, but no collision insurance. If an accident is our fault, we’ll eat its current value of $2,500. We plan another Chrysler minivan (now the Pacifica) when this one dies. Fuel economy with the optional 3.8-liter V6 is about 22 MPG all-in.

Cheap Car Fanatic Car Two

2008 Cadillac SRX AWD sport utility vehicle with 134,000 miles. When we moved back to the rural snowbelt it seemed prudent to have more traction when snow and ice demand. We looked for a combination of high safety ratings and long-distance comfort in a midsize unibody SUV. In our area, body-on-frame, full-size trucks and SUVs are almost de rigueur. But we want better fuel economy and a smaller footprint.

We paid $14,000 cash for a seven-year-old car that originally sold for over $42,000. That’s a third of original price with more than half of its expected service life of 15-years and 200,000 miles (or more) remaining. We now have 134,000 miles on the Cadillac.

We did have to rebuild the transmission at 125,000 miles, but the $3,000 repair wasn’t a crisis. And factoring it into the purchase price, it still feels like a bargain. The direct injected 3.6-liter V6 is more than enough power and delivers okay fuel economy for an AWD SUV at about 20 mpg all-in.

Our millionaire cars are old. But they’re paid for, since day one. They work. They’re well-maintained. When we park next to a BMW or Lexus we smile knowing we have a million even if our cheap car fanatic choices don’t look like a million bucks.


Imperfect Lessons

But we’re not perfect. We came to the save and buy cash conclusion by first making the buy-new mistake.

First car out of college was a new 1984 Mercury Topaz. We’ve had at least three more brand new cars. A pickup and a sporty looking economy hatchback and another midsize Mercury sedan. In the 1996 Dodge Ram you could see the fuel gauge sinking as the V8 sucked gas. Loved the truck, hated the loan. We couldn’t afford it long-term and we cut our losses.

By the time we bought a 2002 Mercury Cougar, we at least had a 40% down payment so we’d never be upside down on the loan. (Upside down means owing more than the now used car is worth.) The Cougar’s 2.0-liter four cylinder 5-speed manual returned 40 mpg on the highway and 34 mpg all-in. We paid $14,000 new and got 225,000 trouble-free miles before passing it down to the daughter. It required almost no maintenance beyond regularly scheduled maintenance. (One new clutch.) Best car ever!

We also leased a 2008 Mercury Milan that we turned in at the end of the lease rather than buy as we were finally on the debt-free march. Our Mercuries were very good to us. But we won’t buy new again. And we wouldn’t lease again.

Efficiency Multiplies Over Time

Our cheap economy cars saved us. Cheap to buy and cheap to operate multiplies over time. Our stable included:

  • European Mercury Capri (should have kept this one).
  • Toyota Corolla SR5 Liftback
  • Renault LeCar (R5 for European purists). Famously French reliability for others, but for us cheap and reliable.
  • Jeep Comanche (Best truck ever!)
  • Suzuki Swift, $6,000 for a one-year-old used with 6,000 miles. It went over 210,000 miles.
  • Dodge Stratus
  • Ford Focus ST

In the process, I became a fan of lightweight, fun-to-drive, tossable cars. Not that I don’t lust after a Corvette or Shelby Mustang. They’re just not practical or cheap.

We fell into the buy and use long strategy, by accident. And cheap cars were often too cheap to finance. We had to pay cash for our second cars. We’ve always maintained well. To that, we’ve now added the pay cash for every car and we actively prefer used.

Cheap Car Fanatic by Choice

Another life lesson? People accept decisions they make for themselves better than decisions that are imposed upon them.

If my boss made me drive a tiny Suzuki Swift, I’d complain about the rough ride, the lack of sound insulation, the simple radio, the manual transmission, and the lack of room.

But because I chose the Swift, I trumpeted its virtues. Superb fuel economy at 40 MPG or more on the highway, and 34 MPG in town. That manual transmission is sporty! Park it anywhere. Cheap to insure. Requires no maintenance beyond regularly scheduled service. Best car ever! (We’ve had several best cars ever!) I wouldn’t want to hit anything in it, but fortunately, we never did.

Automobile Insurance Savings

Used cars are also cheaper to insure. The average new car transaction price in 2017 is approximately $35,000. It costs much more to insure a $35,000 new car than a $15,000 used car, regardless of where you live. Similarly, old cars are cheaper to register. It all adds up.

A common mistake? Buying a car and then discovering what the insurance will cost. We always get insurance quotes before buying. It avoids nasty surprises. Even outwardly similar cars can vary significantly in insurance costs.

Cheap Car Fanatic

Now the irony. I love cars. Like a car fanatic. I read and still read car magazines – okay, car websites now. I can rattle-off my all-time favorites. Studebaker Avanti and AMC AMX. I love Corvettes, Alfa Romeos and Jaguars. I grew up with the legend of Ford’s conquest of the 24 Hours of LeMans. Every year there’s new road candy. I’ve discovered that there’s always another car to love. Rather than having to buy the latest and greatest? I keep a running tally of potential buys in four or five years. I just learned to be a cheap car fanatic.

With a depreciating asset, it pays to focus on value. And follow the Cheap Car Fanatic Rules.

Future Focus

For retirement, we plan to get down to one car, not two. And we expect to eventually rely upon Lyft or Waymo (Google or Alphabet’s self-driving car) for an on-demand, self-driving car service. In twenty years it’s possible most people won’t own a car, or if you do, your self-driving car will be earning money giving rides when you’re working or sleeping. In the future, millionaire cars will be an investment asset earning a return. We can’t wait for autonomous vehicles!

Oh, and one more cheap car fanatic rule. Who you buy from matters as much as what you buy. No car is good enough to overcome a bad dealer or buying experience. Research the seller, not just the car.

Share your millionaire “best car ever” on your journey to financial independence.