Cutting Back on Expenses-From Mercedes Debt to 0 in 3 Seconds Flat
This post is dedicated to cutting back on expenses. I believe the best way to get rid of debt, get back to Even Steven and secure financial independence is to cut back on the Big 3, which are Mortgage, Transportation, and Food. If you can keep these expenses low you are on your way to saving money and becoming financially independent. I have already talked about a few different ways to cut expenses on your Mortgage, let’s see what crazy suggestions I have for transportation,
One of my biggest financial mistakes I have ever made was buying what is formerly known as the “Benzo de Lorenzo” also known as my 2005 Mercedes Benz. Let me tell you a little bit about how I made on of the worst financial decisions of my life. Basically fresh from college I was able to obtain my first job, nothing fancy or well paying just a regular job making an earning, I was thrilled, like someone asking you to the prom when you didn’t expect them to, OK I have never been asked to prom but I’m assuming that’s how it feels when you get your first job. I was lucky enough to have my same car from high school, so here I was about a year and half into my new job, promotion under my belt and my car that I have driven since shortly after receiving my driver’s license doesn’t look like it’s going to make it, fluids coming from all over the place. The estimate to fix my car, $2000. Value of my car $600. As you can see something had to happen and it was not fixing my car for that amount. What would any young college grad fresh on the scene do? Start looking for the best and newest car that I could “afford” of course……
Stop looking for what you can afford
This might be the #1 reason people including myself are in debt today. We take our salary of 1k month, spend $500 on the house, $200 on food, and think it’s OK to spend the remaining $300 on a car, that does not equal what you can afford. If you are truly about saving money, getting rid of your debt, you need to have a
small car payment, no car payment at all! I’ll get into that a little later.
I began looking for a new vehicle in the 15K-18K range, I don’t share my salary with many but since it was almost 10 years ago and fresh out of college, I was making 30K, so I began to look for a car that was more than 50% of my salary, I can’t even type this without calling myself an idiot. But that’s what I did, I started looking for shiny new cars and used high end vehicles. I found the perfect ride, a 2005 Mercedes Benz, which according to KBB.com I was getting a pretty good deal on the car. That statement now feels like an oxymoron. So I did what any good red blooded American buying an expensive car does, I loaned the money from the bank for it. At this point I was trying to create a pyramid of debt with my student loans, credit card, and now car loan debt.
Do NOT borrow money for a car
This is against 99% of what advice is out there, but I do not want you to follow the herd, we are working to get out of debt and become financially independent. We are attacking debt, we are not taking out more loans to show off at the stop light, we are not trying to impress a girl with a loud engine or expensive ride, we are here to become Even Steven, this is why we will Not borrow money for a car. I firmly believe you should not borrow money for a depreciating asset and cars rarely go up in value.
I made my bed and now had a car payment, higher insurance bill, and any time I went for regular maintenance it cost 4x as much. Who wants a luxury vehicle with debt? Don’t all raise your hands at once. Months later I actually piled on to the situation and left my job to move to Florida. Now I can say everything would have been fine if I would have just stayed at the same job and made my payments for 5 years, but that entire statement is a fallacy. This is exactly what happens when you pile on extra debt, you are putting yourself in situations where you have no choices, no options when you lose your job, move to another state, or your car breaks down. It’s almost like Newton’s 3rd Law, “For every action, there is an equal and opposite reaction”if you go into debt, leave your job, Newton smacks you upside the head and plans to take your car away with a rep o-man. Thank goodness it never got to that, I moved to Chicago starting working full-time and did everything in my power to sell that car. I was afraid on how much of a loss I would need to take despite the “great deal” I mentioned above. I saved up the $1200 or so dollars to pay off the loan(I was taking a loss) and sold the Benzo de Lorenzo. Oh what a feeling to be free to be free from a car payment, do you know how many people have car payments right now? Me either but let’s get rid of that car payment. I do not have a car payment and have not had one for 4 years, Mrs. Even Steven does not have a car payment(she is smarter than me), let’s break away from the norm do something different, let’s be free from car payments! Which brings me to my last tip about cutting expenses on your vehicle.
Your vehicles should be 10% of your Annual Income**
If you have stopped looking for what you can “afford”, decided to pay cash for your vehicle, now we need to do something different, think outside the box. Let’s do the simple math on this one, if you make $50,000/year you should have a paid for $5,000 car. If you “need” 2 vehicles and your household income is the same 50K, then those will add up to the same $5,000 total. Now I’m sure there is tons of excuses out there, but after what I went through with my vehicle I’m going to say for the good of all man kind, let’s put your vehicle at 10% of your Annual Salary. The vehicles are out there, I searched Craigslist Chicago for a car or truck under $5000 and over 10,000 results came back. Make the small sacrifice to pay cash for a car and make sure it’s only 10% of your annual income, you will thank me for it. Let’s cut back our expenses and take your vehicle from debt to $0 in 3 seconds flat.
Do you have any crazy car ideas like mine? Have you had a bad car buying experience and needed to get rid of your vehicle?
*I made payments on and off throughout the loan but it was never officially mine.
**If you are debt free and paying cash for a vehicle, this percentage loosens up a little
Featured image courtesy of www.refinedguy.com