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Announcer (00:00):
You’re tuned in to the Investing for Beginners podcast. Finally, step by step premium investment guidance for beginners, led by Andrew Sather and Dave Ahern. To decode industry jargon, silence crippling confusion, and help you overcome emotions by looking at the numbers, your path to financial freedom starts now.
Dave (00:36):
All right folks, welcome to Investing for Beginners podcast. This is episode 140 tonight. Andrew and I are going to take a little bit of a detour on that. Talk about something he would not talk about. But before we’re going to talk a little bit about cars. We’re going to talk about car maintenance and the compounding interest that you can get from car maintenance. So Andrew had some great ideas that he wanted to share with you guys cause he’s, he’s had some car problems recently, and this has sparked an interest in this. And so he, and I thought we could riff on that a little bit. So, Andrew, I’m going to go ahead and turn over the keys to you, and we’re going to go from there.
Andrew (01:09):
Very nice. Yeah, toss over. I, I think, you know, I thought about this topic before we got on and I know it’s not the most exciting of topics because either car isn’t interesting to you or you think you make a lot of money. Like you could also be in a position where it’s like, well, I like cars so much that you know, I’m going to spend as much money on them as I want. Or you could be like the third situation where it’s like, I have so much money that car expenses aren’t a lot to me. And so like Mr. Wonderful and Shark Tank, you can’t relate. So you know, whether you fall in either of those three categories, I want to challenge some commonly accepted ideas about cars and car payments and car maintenance because for the middle class, outside of housing costs or rent costs, your car costs are going to be pretty high up there.
Andrew (02:20):
You start throwing gas into the equation. Now you’re talking about, you know, not, and not an insignificant amount. So when you start to break it down, and we’ve talked all over and over and over and over again about how you can take small amounts of money and by using compound interest and investing that over the years and, and letting those dividends come in and reinvesting those you can make small amounts of money turn into big amounts. And so, you know, if you’re somebody who, let’s say you’re, you have a lot of wealth and, and some of these car expenses don’t mean anything to you. While maybe that difference in compound interest, you know, let’s say you’re thinking about buying a Tesla now, and instead you downgrade; hopefully, you’re inspired by the episode. Maybe you downgrade to like a middle-sized luxury vehicle instead of like a higher-end Tesla. Then maybe in 20 years, you’re buying a Lambo instead of the next base model. Tesla. So, you know, you can think of it that way. You can think about if you feel like you have no money to invest, and you’ve never really examined where your car costs are coming from and how much those are affecting your budget. And you think about how
Andrew (03:51):
These small amounts, you know, maybe you’re struggling with finding $150 a month to invest every month and not realizing how much money you’re leaving on the table with some of these car costs. Maybe that can be a big driver for you as well. So I have some numbers. I have a spreadsheet, so I’ll, I’ll dig into that in a little bit too. But I want to stress that I think cars are similar, the personal-finance and that nobody goes around telling you about cars and, and, and the costs of them unless you kind of poke around and find some people who are interested in it. And so just like personal finance, nobody is teaching us. And so a lot of the times you have to learn by getting robbed essentially. And I’m hoping by talking about some
Dave (04:48):
Those times when I’ve been robbed and then maybe some other people can avoid it. So I would like to share a story of something that happened to me with a car that I learned a lesson from. So quite a few years ago, I was lucky enough to have a BMW X five. So one of those kinds of SUV type X BMWs I’d bought it used from a friend of mine and it was a great car, but I had one problem. I kept burning out the battery in the car. It seemed like about every year, year and a half, I had to buy a new battery. And the fact that it’s associated with the BMW, it’s not just like, you know, running over to your local store and buying a battery and slapping it in there. It’s a lot more complicated and a heck of a lot more expensive.
Dave (05:38):
So about every year to year and a half, I was punking down $1,000 to 1500 bucks to buy a new battery. A friend of mine had told me about a mechanic that worked on BMWs that he highly recommended. So I kept taking it to the guy, and he kept saying, you know, he’d run it through his little machine, and he finds out that the battery was dead. Well, yeah, I already know that. And he would come up with a couple of things that he thought were causing the problem and we would throw some money at those to try to see if it would fix it. And then, sure enough, a year and a half later, still the same issue, another year and a half go by, the same issue. So now, you know, at this point I’ve dropped, what is that 4,500 to $5,000 into this car for batteries, nothing else, no tires, no major things, just batteries, three batteries. And I was getting frustrated and getting angry, and you know, kind of like the kidding me.
Dave (06:31):
And so the fourth time it happened I took it back to the guy, and he started giving me all the stuff, and you know, we’ll replace it, blah, blah, blah, blah, blah. And I said, you know, not to be that guy, but this is my fourth time here for the same issue. I’m starting to feel like that we’re not getting where we need to go with this. And he started arguing with me about it, and I said, you know what, I, I’m; actually, I’m going to, I’m going to call the tow truck, and I’m going to have him take it someplace else. I’m done here. And he got pretty angry with me. And anyway, I ended up taking it to a BMW dealer. I thought you know what? I’m just going to take her to the source. I went to the source; they figured out what the problem was.
Dave (07:14):
There was a short in a fan in the front of the car that was causing a drain on the battery, and it costs me $250 to replace it. And to say, I was angry. I was beyond, you know, angry because I wasted how much time because it’s not like, you know, you could jump the car. I had to pay for a tow to get it to the place. And it was just, you know, it was a complete major pain in a bud, and he was, he was, you know, maybe not deliberately, you know, I like to think that he wasn’t deliberately trying to screw me, but he certainly was taking advantage of the situation. The fact that I knew nothing about cars and that he was a referral from somebody that I knew and trusted, and he was taken advantage of it. And he wasn’t fixing the problem he thought he was, but he, maybe a was lying to me a little bit and telling me more than he knew or he just too stuffy was using to fix it was not as effective as the BMW dealership.
Dave (08:15):
So, you know, I learned to, you know, after that I, I got rid of the car not too long after that. So I learned from that experience to ask questions and to do some research and not just take it on faith that what they were telling me was the absolute correct answer. And I tried. I’ve tried hard now since I’ve done all that. Even when I go get oil changes, I ask, you know, questions, you know about the filter. How often should I change the filter? Do I need to change this oil every 3000 miles? Can I go 4,500 or 5,000 miles? How much more would it be for me to go a little farther with just things like that so that I can try to eke out a little more money?
Dave (09:03):
Wanting to do for my lifestyle and be the vehicle I have to keep it up and maintain it, but also to not, you know, throw $5,000 at a $250 problem. The those kinds of things are what, you know, unfortunately, there, there’s a lot of great mechanics out there, and I’m not trying to disparage the, that, that industry by any stretch of imagination, but unfortunately there are some people out there that are shady and that will take advantage of things if they can. And that’s something that you have to watch out for.
Andrew (09:39):
Yeah, I have, I have one that popped into my mind when you were talking about that. I think what you did to take it to a second-place and, and have him check it out, I think looking back with hindsight, it seems like common sense, you know, but when you’re in the situation that’s like, well I don’t know much and, and that sounds like a good solution, and it seemed like it work afterward, so sure. Here’s 1500 for a new battery. Right, right. So I had a situation years ago back in California with a vehicle with AC issues. And so I, this is an example of actually doing the research. So I went in, I started to try to become an expert in the AC system. So I learned a lot of things about ACS that I just never really cared to learn.
Andrew (10:33):
And I don’t think it’s valuable to me now, but I like the fact that it’s like a closed system. And so basically, I don’t know; you replace one and S something. See, I already forgot. I’m sure if I relearned the second time, I could figure it out. But it’s like a closed system blanking on the word on the term. But kind of like when you replace one thing, you have to make sure everything is good, and so there’s a chance if you replaced one that you have to replace a lot of it, and then you have to have a certain amount of Freon in the system, and then if there’s a leak somewhere you know, that can cause issues too. So I was like, I bought the gauges that were like 50 bucks or 100 bucks, and I was measuring the high pressure and the low pressure and trying to figure out what was going on.
Andrew (11:24):
Eventually, the mechanic recommended replacing the compressor, which was like $2,000. And then kind of similar to your story where it was like, okay, well the issue is not fixed. So here I am again. And I can’t remember exactly what happened, but I think he recommended I spend more money after I already paid him to fix my AC issue. So that pissed me off. I went to a second mechanic, that second mechanic told me, Hey, your first mechanic never replaced your AC compressor that they charge you two grand for. I can see right here; it’s an OEM model. So I took it back to him and then he was like flat out denying it, you know, so I had to threaten with somebody with the California thing that ensures that they have a license or something like that.
Andrew (12:16):
And so finally, after really pulling some teeth, he ended up replacing it and just being like obnoxious about it, you know, like texting me pictures of every little update, just passive-aggressively, and everything. So that was a situation where I guess luckily I didn’t have to pay another two grand to get the problem fixed, but it was a very painful process. And not to say that I did it perfectly when, when confronted with the situation again, but I had something recently where I had an issue, and it’s like the car is making noise and it’s like, yeah, I understand. People say you got to take it in. So I’ll find, I guess I’ll, I’ll, I’ll take it in. Right. And I hate taking my car in to get that looked at, cause I know what that’s going to entail. You know, and sure enough, a quote for $1,000 of, of repairs for this, that, and the other thing.
Andrew (13:14):
And learning from my experience before, in my mind, it’s, it makes sense together. A second opinion, you know, what’s that going to cost you? Maybe an extra day to pay for a rental car or a couple extra Uber’s or lifts if you’re doing that together around while your car is in the shop. But when I got the second quote recently, it was for $300 instead of $1,000. So you know, like to your point, Dave, I don’t think like fixing cars isn’t that simple. And, and depending on what your skill level is a mechanic could be somebody who just like fixes parts and then charges you for it and then hopes that fixes the problem versus somebody who diagnosis and, and, and kind of understands where the issue is and then tries to minimize your costs. But I think when you’re dealing with repairs and car repairs, especially depending on which car brand you’re choosing. So the spreadsheet I was talking about earlier, it lists the differences in maintenance costs depending on what brand you have. And so they had, this was all data from a website called your mechanic, I think it’s your mechanic.com. So they have just a ton of data from people who’ve gotten work done for many years. And so the top five most expensive car brands was BMW. BMW is number one, by the way. Over ten years, $17,000. The next closest
Andrew (14:52):
Car was Mercedes-Benz at $12,000. So, that was the cost to maintain it for ten years. And so Mercedes-Benz, Cadillac, Volvo, and Audi. So if you’re one of that car maker you own one of those and either you don’t like going to the dealer or you know, you go to the mechanic, and you’re not sure if you’re, if you’re paying fair costs or not. And I think it’s worth it as a general tip to get a second opinion even when it’s inconvenient because it could save you a lot of more time and more money over the long term.
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Dave (15:45):
Absolutely. And I think, by the way, I feel for you with both of those stories, it’s a, it’s horrible, it’s a horrible experience to go through. I think everybody out there could relate to some of the core issues that you and I have talked about. I’m sure there are people out there with far, far worse than, than what we’ve had to experience. And it’s, it’s unfortunate, it’s a, it’s a horrible thing to go through, but I think the, you know, doing your due diligence and having a second opinion, I guess somebody explained to me once that it’s a little bit like when you go to the doctor, if you hear really bad news, you’re more than likely going to go to another doctor to get the second opinion in the hopes of that opinion will be more favorable to you than the first opinion.
Dave (16:33):
And I think doing the same thing with your car is not a bad idea just to, like you said, who, you know, possibly save yourself quite a bit of money. And I think that’s something that most of us probably, I know I certainly did was accept, you know, this is what I can get, and this is what I have to do. And, you know, just going with it from there. Okay. I feel I feel dumb, just like just calling that like a great insight. But I don’t know, like when I, when I finally figured it out and had somebody else tell me to a similar story, and that’s the way they deal with it now it’s like, okay, well yeah, actually let’s put it that way. Yeah, no, I agree. I like them; I like the chart that you were talking about the different costs associated with the maintenance of the vehicles.
Dave (17:30):
And I think that’s something that is probably a very good tip to have that kind of data because when we go out shopping for cars, that’s one thing we’d never really think about. I know I’d never have to be honest with you. I’ve never thought about how much it is going to cost me to fix this car. A lot of times doesn’t hit you off; for example, the BMW, you know, the car is expensive, but you don’t think about it until you have to get an oil change, and it’s $250. You’re like, ah, how much for an oil change? Oh boy, I hope this thing doesn’t break cause that’s going to hurt. You know, so
Andrew (18:08):
It’s, it’s that kind of stuff that I don’t think that we as just general non-car people, like I will fall into that camp. Don’t think about, and there are some other things about cars that I think that are not talked about
Dave (18:24):
As far as opportunities to save money beyond car maintenance. Do you want to dive into those a little bit?
Andrew (18:30):
Yeah. So I’m glad you brought that up cause I want to talk about that next. Okay. And I’m curious like what your opinions are on car payments too, because, so this data I have, there’s; also, they have, this is my favorite piece of data points, by the way. They have the total maintenance costs shut up. They have total maintenance costs per 25,000 miles. So the rule of thumb is always like, well, you buy a new car, you’re not going to have to pay them to keep it maintained. And then as you buy older vehicles, they’re more and more costly to maintain. I always, so my very first car was a late model. I don’t even know if that’s the right term. It was old. So it was a 1997 Mustang GT. I bought it for like five grand and drove it for quite a while.
Andrew (19:29):
So I’m like, I guess no stranger to driving an older vehicle. And I think, I think I’ll, a lot of times it’s very easy, even if your personal finance Klein’s to be the type of person who’s responsible with money and budgets and all of those things, I think it’s very easy to justify buying a car because you’re so sick of paying for maintenance costs. And I think this is probably the best insight out of everything. But you know, taking the car, the mechanic, taking the car to the dealer and getting it fixed and, and having that repair bill is a very, very highly emotional process. And it can make it feel like you’re throwing money away. And so it’s like, well, why don’t I buy a new car and that’s going to fix all my problems? Well, this spreadsheet lays it out nicely.
Andrew (20:18):
How? Yes, it is cheaper to have new car maintenance wise, but it’s maybe not as cheaper as you would think. So they break it down, and they talk about every 25,000 miles. So for me, I think it’s really easy for me to think 1000 miles per month is about what we drive as, as average people. So like a brand new car, you’re looking at like let’s say 50 bucks a month in maintenance and then after you put two years on it, you’re talking about like 90 bucks and then it goes 125. And then pretty much after the 75,000-mile mark, which I thought about this, and then that started to make sense. This is, this is about when a lot of like the extended warranties where they call them an extended drive train and all like these five-year warranties at a lot of the dealerships offer.
Andrew (21:19):
That’s about when they expire. And this is when you see the big jump in maintenance costs. So to review, it’s like 58 50 bucks a month, a hundred bucks a month, a couple of years later, you’re 125 bucks a month, and then you get past 75,000 miles, and you’re looking at about one 60 a month and then add another two years, one 71 8,200. So it increases obviously as the car gets older. But if you listen to those numbers, again, it’s not huge. So I, I bought what I thought was a financially smart decision because it was a truck that was two years old. So, you know, you buy a brand new vehicle, and it’s like full-price MSRP, you drive it off a lot. People say it loses 10 to 20%, right when you drive off the lot, right? So if you buy a car that’s one year or two years old and you’re, you’ve, a lot of the depreciation has been eaten up, so you’re getting a good discount compared to MSRP.
Andrew (22:22):
And it’s a pretty new car because you’ve had it, it’s only been around for a year or two. So it was a $26,000 truck, and it was like $425 a month. So in my mind, it’s a good decision because maintenance costs add up. But if you compare, you know, based on this spreadsheet, if you’re driving like a really old vehicle and then you’re going to upgrade to a new vehicle, you’re maybe saving a hundred bucks, 150 bucks a month. And then so when you compare that to what a lot of car payments are for like a decent newer car, right? We’re not talking about going crazy with like a blacked-out a Ford Raptor, you know, for an $80,000 truck or whatever. I’m just talking about a standard based model, nice. Truck. So when, when you think about it, and I challenge you, if you don’t believe me, start here, we go with the spreadsheet again, start making a spreadsheet with your repair costs and look at it over a year.
Andrew (23:37):
Two years, three year period. Like I looked at my vehicle where it is now, and I like, I’m at the mechanic all the time. It just seems like this thing breaks left after, right? It’s like next everything I turned around, and it feels like I’m replacing the whole vehicle. I took a spreadsheet with the last three years of that data, and I added it all up, and it turned out I was painless in maintenance than what this data from your mechanic was. And when you compare that difference with, you know, the potential car payments that are out there, you can save yourself a lot by holding onto a vehicle. You can save money by keeping it well maintained. So I had an issue that I swept under the rug for, I would say about a year. And it turns out it was burning like 50 every gallon of gas.
Andrew (24:37):
I was losing about 50 miles a mileage, so every, every week or two weeks or whatever, that’s adding up over time. So that’s another way you can kind of think of it. But these are a lot of the things that I never really consider. And then still until I started being the nerd and, and, and tracking it in the spreadsheet and then doing some research to see, okay, like what should I expect to pay. And so if you go back to some of the episodes that they have and I have talked about where we talk about setting a budget and then having a sinking fund where a part of the year budget is basically like a savings account so you can save for a new car, or you can save for car maintenance. And so these repairs come what, like every three to six months and so you have money that you’ve accumulated.
Andrew (25:28):
So now that can go towards that. And then just doing it that way and then tracking what your real costs are. It takes a lot of the emotions out of forking that over. And a lot of times, not to say all the time, obviously I’ve had a lemon, and I understand that not every car is going to be perfect. But a lot of times, holding onto the vehicle probably is better financially. And if you’re turning around and investing in the stock market and getting that compound interest kicked in with, with your extra savings, that can be a very exciting choice to have. So I think it’s something we can all at least consider and be aware of. And, and whether that crashed your decision making or not, I think it’s, it’s helpful to know. Oh, it’s very helpful to know that
Dave (26:19):
The chart is fascinating and the comments about the, you know, the sinking fund and having money planned for those kinds of things. I agree. You it, it helps take away the shock. One of the things that I realized when I got my first car was I’m going to have to pay for things to get fixed. And it was, it was a little bit of a rude, I’m not going to lie nobody talked to me about that before, about the fact that the tires that you have in the car will go bad at some point and you’re going to, you’re going to have to replace them. I mean, you know, this is dumb. I didn’t know. And I learned that the hard way. But then I started realizing that Hey, you know, every so many mile I’m going to have to replace these tires and start trying to save money for that.
Dave (27:08):
Just setting aside every month, I would set aside a little extra for, from my quote-unquote car payment. I would add extra to it, and then I would set aside some of it. And that way when the tires, when it came time to replace the tires, it wasn’t quite as much of a like how much for how many you know, so you don’t have to have that kind of a conversation cause that’s, that’s never a fun place to be. Or if you, you know, if you aren’t setting it aside, then you have the added fun of throwing it on your credit card and then paying that off over the next six months and then it ends up costing you, you know, anywhere from one to two and a half times more than what you paid for the tires in the first place. So you know those, those are all things that can help you save money in the long run.
Dave (27:55):
As you know, if you, if you don’t plan to fail, you know, if you don’t plan, you plan to fail and you need to be prepared for some of those things. And I love that chart. The chart is awesome. Is there any way we could share that with people? Yeah, I mean, I could share it with you, and you can put it on the show notes. Okay. That’d be awesome. Yeah, that’d be great.
Dave (28:16):
All right, folks, well, that is going to wrap up our conversation for this evening. I hope you enjoyed our conversation about cars. That’s something different for us, especially since Andrew and I are not car people, but I thought Andrew had some great points in that chart. He will share with me so that I could share with everybody, and I think that would be a valuable resource for everybody to take a look at and give you a better idea of how to help yourself with cars.
Dave (28:40):
So if you guys are enjoying the show, please do us a favor and subscribe so you can hear more of them in the future. And if you like what we’re doing, we would love a five-star review. The more five-star reviews we can get, the higher the ranking we can go in, the more people we can help because they can find the show. So without any further ado, I’m going to go ahead and sign us off. You guys go out there and invest with a margin of safety. Emphasis on the safety. Have a great week, and we’ll talk to you next week.
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