Delray Beach, FL
Notes From My Journal: A reminder of why, after all these years, I continue to write about what I’ve learned
Every so often I get a message like this on LinkedIn…
I hope this message finds you well. It has been over 4 years since I initially reached out to you, speaking of dreams and ambitions. This message is just another one of gratitude for you initially lending an ear and giving me honest feedback. With the way I have saved and invested, I am in a position where I will be able to step away from full-time work by spring of next year to pursue some of those dreams. Best wishes to you and yours. Maybe if I’m in your neck of Florida sometime, we can have a round on me.
Today’s Word: magisterial (adjective)
Magisterial (maj-uh-STEER-ee-ul) means authoritative, dignified and masterful. Example from The Sound and the Fury by William Faulkner: “The second man was huge, of a light coffee color, imposing in a frock coat and white tie. His head was magisterial and profound. His neck rolled above his collar in rich folds.”
Scientists recently discovered a 12-mile-wide underground, saltwater lake near the southern polar ice cap of Mars. It is a harsh environment, but could potentially support life. Microorganisms that have adapted to such conditions have been found in similar subglacial lakes on Earth.
From My “Work-in-Progress” Basket
The “Living Rich” Way to Buy a Car – the Car You REALLY Want, not the Only One You Think You Can Afford*
You think it might be time to buy a new car. The thought begins tentatively and then sprouts roots. You do some research. You talk to some friends. The more you think about it, the better you like the idea. Pretty soon you are itching to do it… and you find yourself in a showroom.
A “sales associate” approaches. A friendly guy, he asks what you are looking for. If you don’t know, he asks about your driving needs. He may ask where you live, the size of your family, etc.
If he sees that you have a fondness for a particular model, he gets more animated. But if you change your mind, he doesn’t push you. He’s ready to sell you the car you want to buy.
There is one car on the floor – the most expensive one there – that retails for more than $100,000. “That’s a car for millionaires,” you think. “It’s not for me.” You don’t want to endure the pain of envy, so you avoid looking at it. Instead, you look at sedans in the $25,000-$40,000 range.
Eventually, with the salesman’s “help,” you settle for a sensible $30,000 sedan – one very much like the sensible sedan you’ve been driving.
You negotiate the lease, and end up with a monthly payment that is slightly higher than what you were prepared for. But okay. You are committed emotionally to having the car. So you sign the papers, feeling a little bit bad.
The salesman shows you the ropes – how to adjust the side mirrors, use the navigation system and Bluetooth. He cranks the sound system. It’s pretty exciting. You leave an hour later, happy, with that new-car aroma in your nose.
A few weeks later, the new-car smell is gone. After a month or two, there is a little scratch on the passenger door. It is still a nice car, and you still like it. But it’s no longer a new car. It is used.
Four or five years later, you trade it in for a new one and repeat the process. You never stop to calculate the total cost of your car-owning protocol. So you don’t realize that for the same money you have been spending on your so-so $30,000 sedans, you could have been driving that amazing $100,000 machine.
Let’s talk about my NSX…
I bought my NSX in 1991, a year after it first came out. At the time, it was the state-of-the-art sports car, technologically superior to Porches, Lamborghinis – you name it. And this was no surprise to anyone that had been following Honda. The company had invested years and hundreds of millions of dollars in its design. No, there was not another sports car in the world that could equal it in terms of performance, quality, and reliability.
I paid $70,000 for it. That’s a lot of money – more money than you probably believe you can afford. But the fact is, my NSX is the cheapest car I’ve ever owned.
Why? Because when I bought it, I followed the four basic principles for “living rich without spending rich”: Buy quality. Buy durability. Buy classic. And avoid fads.
My “living rich” buying strategy in a nutshell
When it comes to buying a car… I can’t tell you exactly which one to buy. But I can tell you that if you want to drive a world-class car without paying more than you would for an ordinary car, there are four main things to consider:
- The price you pay for the car
The best way to save money on any car is to buy it slightly used.
Here’s the thing…
The instant you drive a new car off the lot, it loses value. The market value of, for example, a brand-new $20,000 car instantly drops to only $17,800 when you drive it home from the dealer. By the third of fourth year, that same car will have lost 50% of its value. And after five years, it’s worth only about 37% of its original cost.
To me, the “sweet spot” is when the car has depreciated by about 20%-50% but is still in great condition. With most cars, this means 3-5 years old with 50,000 or fewer miles on it.
The second-best way to save money on a car is to pay cash for it. New cars sometimes come with great financing packages. The cost of the loan is cheap, but you are still paying too much for the car. And when you buy a used car, the financing can be expensive. A $25,000 loan financed at 6.9% for two years will end up costing you almost $3,500 in interest charges.
- The price you can sell it for
As I said, all cars depreciate a great deal in the first few years. But luxury cars tend to depreciate less. In other words, they hold their value better.
This is not true of all luxury cars, but it is true for most of the best of them, especially the “classics.” My NSX, for example, lost about half of its value after four years, but then did not depreciate at all. In fact, according to Bloomberg.com, “values of the NSX have more than doubled since 2013, when you could buy a mint condition 1991 NSX for $42,700.” That has made it a better investment than the Dow!
- The cost of use
As I’ve explained in other essays, calculating what it costs to have things is a bit complicated. Whether you’re looking at a car, a boat, or a house, you can’t simply consider the purchase price versus what you’ll get when you sell. To get a useful metric, you have to total up everything involved in possessing it throughout the years. I call this number the “cost of use.” For a car, it includes such important factors as fuel efficiency, the cost of maintenance, and the cost of insurance.
And the cost of using my NSX over these 28 years has been very low. It has the fuel efficiency of a mid-range car and the maintenance cost of any other Honda. (Hondas have a longstanding history of making cars that are inexpensive to maintain. Most Japanese cars provide this benefit. Exotic cars like the Rolls Royce or Ferrari? Not so much.) And – get this – after 20 years, my insurance on the car dropped to “antique” levels: less than $400 a year.
- The length of time you will own the car
To make my strategy work for you, you have to buy the best models of the most durable brands. You must buy them when they are 2-5 years old… and you must then keep them for 10-20 years.
You may be thinking: “Oh, I would never want to own a car that long. It would soon be out of date.”
But this won’t happen if you are smart and buy the best cars from the best car manufacturers. Cars that are classically beautiful, designed for comfort, capable of high performance, and built to last.
The NSX that I bought when it first came out is cooler now than it was then. The new sports cars may be a bit faster. And they may have some options that my car doesn’t have. But you can’t drive a car faster than my NSX legally (except on a racetrack). And those extra options? The “cool factor” of having a vintage NSX outranks them by a mile.
As I said, I paid $70,000 for my NSX. If I were to sell it today, 28 years later, I could probably get $60,000 to $75,000 for it. (See “Check It Out…” below.) That’s not getting back my investment when you count the cost of money. But it’s way better than you’d get from most cars.
All told, my cost of owning it has been about $260 a month – far less than it would have cost me to drive those $30,000 sedans.
*This essay was adapted from my book Living Rich: How to Live as Well as a Billionaire on a Middle-Class Budget.
Check It Out…