Frugality the Right Way

My last blog post was a disaster. In an attempt to gain some breathing room I accepted my first guest post without proper vetting. An astute reader quickly realized the guest was promoting a debt consolidation service. I should have known better.

My reasoning was sound; execution needed work. Tax season is getting long in the tooth and I am exhausted from the long hours. Hoping to divert some time from writing to tax work, I allowed the enemy behind the lines. My promise to you, kind readers, is to up my game. I like the idea of guest posts, but I think it would be best if I invited bloggers I know and trust to do the writing.

That said, I have no intentions of reducing my writing output. You come here to listen to my stories and glean my words for valuable advice you can take back home.

Success is a poor educator. When things are going good—and life has been very good to me—I/we start to believe we are smarter than we really are. It takes a solid kick to the crotch to focus attention. As bad as the last post was, a lesson was to be learned you are not aware of: my traffic was rather good! For a terrible guest post I had a high level of traffic. I take that to mean people were attracted to the title: frugality. I decided I should write the guest post intended for you.

Today I am going to share some frugal habits I have. A word of caution. Don’t try to emulate what I do. Rather, use my frugal lifestyle as a starting point to reduce spending in your life without sacrificing quality. Also, many things I talk about are ideas only. For example, I am considering an auto purchase and I will share my thinking as I go through the process. It is very different from what I did only a few years ago.

Before we start I want to point out debt consolidation is not always a bad thing. Depending where you are financially, refinancing can make sense. Moving a student loan to SoFi could be a smart money move for you. If you are loaded with debt for whatever reason, consolidating debt at a lower rate might be a good move. What the guest post promoted was more along the lines of “bilk’em with fees and screw’em.” I have zero tolerance for that kind of finance.

The Frugal Accountant Comes Clean

Frugality is not a destination, it is a journey. Cutting costs also means intelligent planning. You can save a few dollars today by not changing the oil in your car or delaying medical care only to suffer serious consequences in the near future. When I prepare taxes I always consider the consequences of my actions on future tax returns. Saving a dollar today in tax only to pay two dollars next year is a thinly disguised high-interest loan. I am not interested in that kind of stupidity, ah, I mean, frugality.

Let’s talk cars first. My oldest daughter is in the market for a car and I’m thinking it might be time to retire the 2000 Honda, too. (The Honda Accord runs nice, but Wisconsin winters do a number on the body after 15 or so years. She ain’t pretty and she is starting to rust in the wrong areas causing safety issues. <sniff> I’m going to miss that girl.)

In the past I bought all my cars from the bank, as in bank repos. The days of buying a car for $4,000 under Blue Book are over without additional work. Local banks no longer sell to the public, opting to sell all repossessed vehicles at auction. They get less, but have less hassle. I considered getting a dealer license so I could bid on used vehicles at auction, thereby getting the wholesale price. The time and effort to do this for the few cars I buy has held me back. I have no interest in starting a small used car business either.

Even if banks still sold their repossessed vehicles to the public, I am starting to debate the intelligence of buying a used car. Don’t get me wrong. I still love used vehicles. A two-year-old car has shed plenty of depreciation while retaining most of the usage value. New car smell is expensive.

Buying a used car from a dealer is depressing. The prices are waaaaay over Blue Book and they do a great job of putting lipstick on pigs. It is hard for most people to know a pig with lipstick from a quality vehicle. I am one of those people. My interest in cars is limited to turning the key and expecting the darn thing to start and taking me where I want to go. I put gas in the thing and change the oil. That’s it. Enough thinking about the wasting asset in the garage.

But that wasting asset can drain serious ca-ching from your wallet if you let it. Thinking frugally about a car is best before you buy said car. I assume you only drive when necessary. Short trips around town only require a pair of shoes or a bike. No auto expenses required.

The purchase price of a vehicle is small compared to the expenses it creates over its useful life. Fuel, tires, brakes, insurance and other maintenance will add to a higher number than the original cost. (Don’t let a car salesman dazzle you with that investment bullshit, either.)

Time to listen in on some conversations inside the Accountant household. My daughter is struggling with her first car purchase. Now 22, it is time for her own set of wheels. She grew up watching her dad buy a used car from the bank once a decade for well below Blue Book. It always worked and was cheap. The for-sale-by-owner (FSBO) offerings are not encouraging either.

Watching my daughter go through the process I started thinking of new ways to game the system. I am not talking about cheating; I am talking about getting the best value for the outlay of cash.

Since the initial cost of the car is small compared to expenses over the life of the car I started thinking about these costs. In the past, new cars did not offer nearly as much advantage over used vehicles. With new models offering lower operating costs (more miles per gallon; lower maintenance costs), a new or at a least newer, vehicle might be a better way to go.

Example: If a used vehicle costs $15,000 and a new vehicle cost $30,000 (This is an example so don’t tell me cars cost different amounts. I know.) you need to think about operating costs to find the “real” cost of owning the vehicle over its expected lifetime of 10 – 20 years. In my example I assume you run the car until it is worth nothing. In reality you might get $500 to unload the beast as it nears the end of her life.

The first thing you have to remember is that the act of buying a car is when you take the biggest hit, so no buying cars on a regular basis.

In our example we will assume the used vehicle market has a variety of reliable cars in our price range that get 25 mpg. We will also assume a new car (maybe a hybrid or other high mpg ICE offering) gets 40 mpg. I normally drive several hundred thousand miles before my mode of transportation becomes less than reliable. We don’t want to buy cars any more often than necessary so mpg is an important consideration.

Assuming $3 a gallon gas, the 25 mpg car will cost $12,000 for each 100,000 miles driven. The 40 mpg car will cost $7,500 per 100,000 miles, a $4,500 reduction in fuel cost for the new car. If you run the car for 200,000 miles your fuel savings will be $9,000 over the older, used car.

Paying $15,000 extra for $9,000 in savings still doesn’t add up. A quick check around the internet will help you determine if the model you are looking at has mechanical issues. We will assume each vehicle considered has a good track record. We don’t want to get bogged down on make and model issues.

Electric vehicles don’t need an oil change. Newer cars go longer between oil changes. The cost of tires varies depending on the tire required for the vehicle. Assume 80,000 miles before tires need replacement. I’ll let you do the math in these areas. The differences make a modest difference only in most cases.

The biggie is insurance. The cost of insuring a vehicle is serious business. Depending where you live, insurance can cost more than a car payment. Because insurance varies widely based on location we will let you do your own math.

Three more issues to consider before buying your car. New vehicles frequently have manufacturer incentives. The $30,000 car might have a $6,000 rebate and 0% financing. Even if you don’t need financing you still get use of the money at 0%, which has value.

Finally, certain vehicles have federal and/or state tax incentives. The new vehicle, when manufacturer rebates and potential tax credits are added, can reduce the upfront cost of the vehicle to only slighter higher than a newer used car. You also have the manufacturer’s warranty.

To sum up the car talk, a $30,000 new vehicle with a rebate can drop the initial cost to near used car prices. Add in fuel savings and the choice to buy a new car might be the right choice. Counter-intuitive, I know. But you have to consider all costs when making a decision. Of course, you also want to consider time value of money and other issues pertinent to your situation. Vehicles are to transport you or to haul stuff. You can apply the same thought process to a truck.

More Frugal Ways to Live

I am all for lowering expenses, especially when nothing is sacrificed. I recently talked about a better way to get internet service. Where I live this is a major improvement in quality and price. Mix in the bundled services sold from many providers to get a lower internet price only adds to the total cost for services you don’t really want (think commercial-filled cable TV bundled with phone and internet). Sometimes a better deal allows you to dump unwanted services adding to your real cost. Those companies play mind games and rape your wallet in the process.

Cell phones are another growing expense in most households. People tell me they pay $80 and more per month per phone. Insane! The missus and I (and the oldest junior accountant (the youngest doesn’t have her own cell phone yet)) use Google Fi. For $20 a month we get great service and coverage. You don’t need any more than that.

Utilities always drive this accountant crazy. The truth is that after a while there is a diminishing return on additional efforts to reduce electric use. My home doesn’t have a furnace, hot water heater or air conditioner; we have a geothermal unit to handle all that. The geothermal gulps electricity when it is running. We never run the AC in the summer and keep the house 60 degrees F in the winter. In the near future I see a certain accountant running the numbers on a solar shingle roof, Powerwall and electric car. Elon Musk and his Tesla Corporation might consider me a client before long. I need to see numbers first. Eventually the initial costs will come down to where it does work. Then this accountant will swing the bat.

We prepare most of our own meals and grow much of our food. I ferment my own wine. Meat we don’t raise ourselves is purchased from the farmer, cutting out layers of middlemen.

Entertainment is the library and Netflix. Long walks with Mrs. Accountant are a hot night out. We visit with neighbors and family. Your favorite accountant enjoys a German card game called sheepshead. We play for dimes. A bad night could set me back as much as a buck and a half. Sad times in frugalville.

Last Thoughts

Frugality is a mindset. I don’t go around thinking about being frugal. I live frugally because I am naturally frugal. Waste irritates me to no end. Too much stuff drives me crazy because I have to store and work around stuff I don’t want or need.

A natural frugal nature is healthy. You can go too far with frugality, too. It’s not about living with less; it’s about living right.