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Never Ever Say “Never Ever” (A Lesson in Rationalization)

May 5, 2007

“Being as how we don’t do debt”

Okay, scratch that line from a previous post. In my post titled New Job, New Ride I mentioned that I had bought a 1997 Dodge Intrepid via eBay because I had changed jobs and lost the company car in the process. I paid cash since “we don’t do debt.”

Our only debt for the past few years has been our house and a monthly payment to Uncle Sam over a $32K tax bill from some time ago (another story for another day). But the Trep (the eBay car) was having problems, and we had no dependable car; every time we took a trip we rented a car. The rental car issue couldn’t be claimed as an overriding factor, but it did seem that every other month we were spending a hundred bucks or so for a trip for some activity of Number One Son; not a huge amount, but over a year’s time it added to the transportation costs.

The major reason for me to begin to consider a more dependable car was the problems with the Trep and the 140 mile round trip I make at least four times weekly to work, sometimes more. Adding 3,000 miles per month to the Trep’s already 100K plus mileage total was starting to show up in repair bills. The last straw was when it went into the shop for a week due to motor/drive train mount problems to the tune of $1,000.

So I decided to look at it logically. I laid out the options: Continue to save $400/week toward a new(er) car or borrow and buy.

Option 1: If I saved to buy, say, a $12K used car, it would take thirty months — and I’d be paying cash. Cash is better, but the $400/month kept taking hits (like the $1K shop repair) and wasn’t growing at a rate that would get us there in thirty months.

Option 2: If I borrowed $12K for thirty months at 10% (used car), the payments would be $454 per month. Total would be $1,620 extra, or $54 per month.

The subjective comes with figuring the difference in maintenance cost for the thirty months. Based on the first six months of the Trep, I’d be putting $3K per year into unscheduled maintenance to keep it running. Granted, that’s unlikely, but I wouldn’t be surprised at all at $500/year, so used that number. My experience with later model cars (we were looking at one year old cars with under 25K miles) has been little unscheduled maintenance during the first three years, so I figured $200/year.

With a difference of $600 ($1,500 – $900) in unscheduled maintenance, the actual extra cost for the thirty months is $1,020, or $34 per month. Add in the occasional rental car expense that would go away, which had been averaging around $50/month, it would be cheaper to get the newer car.

Of course, I should mention risk is left out of this equation altogether: risk of losing my job seems low, but should it happen that payment still keeps coming. Something I did consider, but discounted. Also, discounted in the above is that at the end of the thirty months the cash scenario has a thirty-month-newer car than the debt scenario. But as we would have the newer car for the thirty months, I tossed this one out as well.

So we bought an ’06 Taurus with an upgrade package that included leather seats & an electric slide’y thing in the roof & 17K on the odometer for $13K (including taxes), gave the Trep to Number One Son, and–don’t tell Dave Ramsey–I’m happy with the decision.

I’m still not a fan of debt, and after a particularly hard loss on a business I had, having to start from below scratch well into middle age gives one pause on any such decision. After going through my logical/rationalization process, though, I wondered two things:

1 – Can you really rationalize any financial decision you set out to rationalize? (If so, it’s time to start rationalizing a Cherokee Six.)

2 – Not only aren’t we rich, we aren’t even in the ballpark — but we do make over twice the national average income. I wondered how many folks at our income level spend this much time and effort deciding to finance a $12K used car?

From → Ramblings

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