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July 15, 2017 | Doing Math Before We Buy a Vehicle

Danielle Park

Portfolio Manager and President of Venable Park Investment Counsel (www.venablepark.com) Ms Park is a financial analyst, attorney, finance author and regular guest on North American media. She is also the author of the best-selling myth-busting book “Juggling Dynamite: An insider’s wisdom on money management, markets and wealth that lasts,” and a popular daily financial blog: www.jugglingdynamite.com

This clip offers a couple of sound points when considering the purchase of a personal vehicle [and investments for that matter]–to wit:  “Don’t let a salesperson tell you what a good purchase is,” and if you can’t afford to pay off the vehicle within 3 to 4 years max, you cannot afford to buy it.  Here is a direct video link.

Most of all though, it is important to consider that individual vehicle ownership (‘IO’) is on its way out.  On demand transport as a service is expected to provide 95% of passenger miles within the next 14 years (and this assumes 20-25% of rural users may not be able to adopt by then).  See all the details in the report Rethinking Transportation 2020-2030.

This means new vehicle sales are likely to drop by 70% by 2030 and the supply of superfluous used cars will push their resale values toward zero.  Owners may have to pay to get rid of them and recycle the parts.

Today even paid-for vehicles cost their individual owners an average of $9,000 a year in owner/operator expenses (fuel, insurance, maintenance, parking, licensing and repairs) while the vehicles are used just 4% of the time (sitting idle 96%).  In most cases, this makes for a very expensive waste of precious capital and keeps us from directing cash flow to other more productive pursuits like debt-reduction and saving.

Cost-effective transport on demand is already available in most places through services like Uber and Lyft. If you have not tried it yet you should download the app to your phone and try it without delay.  Not to mention trains, buses, taxis, bicycles (!) and periodic short-term rentals where needed.  The cost savings over individual ownership are huge and much needed to help restore financial viability and efficient allocation of finite resources.

Bottom line:  before buying a vehicle today, it is more critical than ever to do some math.

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July 15th, 2017

Posted In: Juggling Dynamite

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