Best and Worst Money Moves

This is a meme (I think I'm learning what that word means) started by Jim at Blueprint for Financial Freedom.  Let's start with the worst, so that we can finish on a positive note.

My Worst Money Move

Man, I wish it were that simple.  One single worst?  I think it might be easier to make a top ten list.  Actually, I think I will do that.  But let's make it top three, and I'll elaborate on #1.

3.  Got a large tee-shirt with my school logo in exchange for signing a credit card application.  Still have the card.  Thank goodness I don't still have the debt that came in the months to follow.  Don't know what happened to the shirt.

2.  Didn't open an IRA when I was working part time at the bank during college.  Yes, I needed books and beer money.  But imagine if I took $2000, or even a smaller amount and opened my first IRA at 18 years old.  Oops, maybe not beer money.

1.  Bought a used convertible BMW when I was 25.

Here's the good part of this list.  None of it is permanent.  All of these things happened at least a few years ago, and actually other than #1, more than a decade ago (jeez, now I feel old).  But back to the BMW.

It wasn't the car itself.  Sweet ride, pretty good price.  But I didn't take into account all of the other ways that this car would cost me money.  Here's the little backstory on the purchase.

I had been driving an older Honda Accord, when the morning after a night out, I walked out of my friend's apartment and looked around.  I turned to him, and slowly said, "Dude.... where's my car?"  He was the designated driver, so I was truthfully asking.  Well, long story short, the car was stolen.  I had been trying to save some money so that I could buy a nice car in a few years when this old Honda gave out. Suddenly, I was faced with a decision.  I could either get another reliable used car, or I could accelerate my plans to get a nice car.  I was 25 and single.  Guess what I chose.

Here's how I reasoned it.  I could buy a newish Honda for about $20k, or I could buy this sweet five year old black BMW convertible with tan leather interior, 52,000 miles, and overall seemed to be in good condition.  Of course, I know jack about cars, so that "good condition" part is just an eyeball test.  The five year old BMW?  $20k.  So, I'm not spending any more money right?  Wrong.  (did you read my Boglehead's Chapter review?  If so, you'll remember my main point, we make decision emotionally, and justify them rationally.)

Soon after buying the car, I found that I was spending more money in a number of ways. 

• My gas budget went up.  Not only did the car not get as good gas mileage as the Honda (what does?), but it required the plus or the premium.
• Maintenance.  First, it's a BMW, so everything is expensive to service and fix.  Second, it's a five year old car, so naturally, it requires more fixing and servicing.
• Insurance.  BMW?  check.  Convertible?  check.  Yea, that'll be like double what you used to pay for insurance.
• Wear and Tear from added miles.  When I drove the Honda, no one cared about riding in my car.  Suddenly, everyone wanted to take my car when we went anywhere.
• Car life.  Six years later, the loan is paid off, and I'm saving up so I can pay cash for my next car.  Another two years, I tell myself.  The BMW had other plans.  I had put a lot of miles on it, and had been in an accident, after which it was never the same.  Two years earlier than I had planned on buying a new car, the ol' Beamer had become unreliable, and very expensive to keep running.  I had to buy a new car.

Okay, enough of that.

My Best Money Move

I answered this during my PF blogger spotlight interview with Jim.  So, instead of reinventing the wheel, I'm going to repost what I said to him back then.  It's still as true as ever.

My best money move eve was asking my Fiancee out on our first date. And no, it was not a financial decision. And no, she is not rich, or expecting a big inheritance. She centered my life. I was being a little bit crazy with money and my priorities. I was spending too much on things that were too unimportant. Dating her brought more clarity to the way I was behaving and helped me to see what was truly important. Us. Our future. Funny how much easier it is to reign in the spending when you start wading through the emotional crap and start seeing the big picture.

Comments

[D]

BMW, Black & Tan Interior. So worth it. I love BMW's. Never had one and still want one.

I love your best thing. I think if people review their lives honestly, they will see it is the people that change our worlds. Money is just added to the fun.

[Tim]

Oh geez, had to go for the Beemer. :) Good job getting things on track. My Mom nagging me kept me from buying a car like that...instead I got a less-cool Ford ZX2. I guess the good thing is it's paid off.

[RJ]

BMWs are great cars. Sure things will go wrong with them and I'm sure Honda's run for a long time, but if you do some reading and learn how to fix a few things yourself you can save a lot of money.

I don't consider myself someone who knows much about cars, but since I've had my '95 M3 and my current 2001 330 Ci, I have changed the brake pads and rotors, replaced the fuel filter, installed an air intake, changed the oil (it's so easy), replaced control arms and bushings and I'm about to replace the O2 sensors and spark plugs.

Everything in your life can't be about saving money. I save A LOT of money being single and I don't waste it on going out and on alcohol, but I do buy myself some toys. The BMW cars being some of the toys, which will run forever like a Honda if you take care of them.

My car currently has 126K miles on it and I plan on driving it until it will no longer run, and it's paid off.

[lamoneyguy]

RJ, this is a great point. I'm not saying that you shouldn't ever buy luxury goods, whether that's a plasma TV, a stay at the Ritz, or a BMW. By all means, if these are things you value and can afford, you should buy them. The BMW was my worst money move because I was not financially prepared for the added expenses of a luxury car. Even if you do much of the repair yourself, a convertible BMW is more expensive to maintain than a used Honda.

Also, because I had to buy 5 years old in order to afford it, I had to replace it sooner than would have been the case with a newer Honda.

[Single Ma]

I've always wanted a beamer. Your story is making me think twice now.

Your best money move is very sweet. You're a lucky man!

[RJ]

I will agree that BMWs, Mercedes and the like are more expensive cars per say, but I believe that if you take care of them they will last just as long or longer than 'most' cars.

If you are comparing a BMW to a Honda as far as expenses, then you could probably assume a Honda would be cheaper overall. It's a mass produced car so the costs of parts and labor are cheaper.

I just wanted to touch back on the point of saving money. Some people call me frugal, but yet I have owned 3 BMWs. I make money on the side selling items through different distribution chains and through individuals I have met through my side business. Maybe that gives me some extra money to do with what I please, but I also save 20% or more of my pay and will hopefully max out my 401k. If things go as planned I'll be switching to a solo-401k (more info @ single-k.com) and then I will be much more of my salary and contributing close to $30K in the solo-401k.

I restrict myself to savings quite a bit, but when I want something I buy it.. I also utilize 0% credit card offers, which I used on my second BMW. I ended up paying about $25 in interest on the car as I was able to use the 0% credit card offer to pay off the car loan and then flip the 0% after 12 months until the car was paid off.

I do agree that a Honda is probably 90% of the time a cheaper car, but learning a few techniques and applying them successfully will bring you closer to the same price point years down the road, besides the fact that you will be driving a BMW which is a great car to drive. I'm on my 3rd one and my next one will be a used M3. =) One day! haha not anytime soon.

[Nigel Swaby]

I have to agree with you that buying an expensive car at that time in your life is a horrible move. I found myself in the same situation when I was your age. I had just been promoted to a retail management position. I had a 90 Nissan Sentra that was half-way paid off, lower miles and great on gas. I had the choice of buying a house, or buying a new car. Stupid me, I chose the car.

It was a 94 Pontiac Trans Am. Black. Fast! I had always wanted a BMW, but for some odd reason picked this car. Between the new payment, gas, insurance etc, this car cost more per month than a house. By the time I sold the car, I had put in more than 40k. If I had bought a house, my net worth would be over 200k.

Live and learn I guess. I've invested in real estate and last year bought my first BMW - for cash.