Archives for July 2017

Choice Hotels Free Elite Status Match

My Money Blog has partnered with CardRatings and may receive a commission from card issuers. Some or all of the card offers that appear on this site are from advertisers and may impact how and where card products appear on the site. MyMoneyBlog.com does not include all card companies or all available card offers. All opinions expressed are the author’s alone.

choicehotelslogoChoice Hotels is also offering a public free status match to Gold or Platinum Elite status from another hotel program. Potential perks include point bonuses on qualifying stays, longer booking windows for reward nights, and a free welcome gift.

If you status match between July-December, you’ll get up to Elite Platinum level for the rest of this current year and the following year. If you status match from January-June, it only runs for the current year.

Simply email Status_Match@choicehotels.com with the following information:

  • Full Name
  • Choice Privileges Member Number
  • Proof of Elite status in other hotel program:
    Screenshot or copy of your other program’s loyalty card (with expiration date)
    Or, screenshot or copy of other program’s current statement or account status page

Choice Hotels include the following brands:

  • Comfort Inn
  • Comfort Suites
  • Quality Inn
  • Sleep Inn
  • Clarion
  • Cambria hotels & suites
  • MainStay Suites
  • Suburban
  • Econo Lodge
  • Rodeway Inn

Here are other status match programs:

My Money Blog has partnered with CardRatings and may receive a commission from card issuers. Some or all of the card offers that appear on this site are from advertisers and may impact how and where card products appear on the site. MyMoneyBlog.com does not include all card companies or all available card offers. All opinions expressed are the author’s alone, and has not been provided nor approved by any of the companies mentioned.

MyMoneyBlog.com is also a member of the Amazon Associate Program, and if you click through to Amazon and make a purchase, I may earn a small commission. Thank you for your support.


Pretirement App: Interactive Countdown Clock to Financial Freedom

My Money Blog has partnered with CardRatings and may receive a commission from card issuers. Some or all of the card offers that appear on this site are from advertisers and may impact how and where card products appear on the site. MyMoneyBlog.com does not include all card companies or all available card offers. All opinions expressed are the author’s alone.

pretireapp

What would you do if you knew that skipping that morning $4 coffee/muffin combo every day would get you 8 months closer to financial freedom? What if I told you that buying that $40k car instead of the $25k one would only extend your working years by 3 months? That’s the entire purpose of the Pretirement app (Apple iOS/Android):

A financial independence app that instantly converts spending or savings decisions into days, weeks, or years of your life.

After you supply some initial numbers and assumptions, it will provide a countdown timer to your financial freedom date. You can then input a specific change to your current saving/spending routine, and it will show you the impact to that date. Found via Reuters.

pretire2

There are no fancy Monte Carlo simulations, but the underlying math appears correct and the overall design is pleasing in a minimalist way.

What the app shows you is that long-term habits matter more than temporary changes. If you make permanent saving change like dropping the morning $4 breakfast stop, you can put more money towards your nest egg and your required nest egg is smaller. If you just do a one-time saving of $100 or even $1,000, it really doesn’t make much of a dent. You need to be able to repeat the savings over and over. It’s similar to weight loss: Diets don’t work.

Hopefully, people can use this information as activation energy to change their habits for the better. (Ironically, activation energy is explained using coffee…) The developer Danny Murphy himself has started cooking more and eating out less after going through this exercise. It took us lot of initial effort to learn how to cook efficiently, but after developing a set of “go-to meals” and a pre-plan method it has become much easier.

If you are truly serious about early retirement, my advice would be to look for things that you can change permanently and/or automate so you can repeat it without requiring constant willpower. This usually means a larger, upfront effort. Up your 401(k) contribution by 1% every year. Relocate to a cheaper city. Move to cheaper housing. Search for a better job. Once you set yourself up on the right path, go ahead and enjoy your prioritized expenses – be it high-quality coffee or fun cars.

My Money Blog has partnered with CardRatings and may receive a commission from card issuers. Some or all of the card offers that appear on this site are from advertisers and may impact how and where card products appear on the site. MyMoneyBlog.com does not include all card companies or all available card offers. All opinions expressed are the author’s alone, and has not been provided nor approved by any of the companies mentioned.

MyMoneyBlog.com is also a member of the Amazon Associate Program, and if you click through to Amazon and make a purchase, I may earn a small commission. Thank you for your support.


How Badly Underfunded is Your State’s Retirement Pension Fund? (Infographic)

My Money Blog has partnered with CardRatings and may receive a commission from card issuers. Some or all of the card offers that appear on this site are from advertisers and may impact how and where card products appear on the site. MyMoneyBlog.com does not include all card companies or all available card offers. All opinions expressed are the author’s alone.

The state of Illinois narrowly avoided having their S&P credit rating dropped to “Junk” status, but their current rating is already the lowest ever for any state. Their pension promises now total over $200 billion, but they are a bit short… $120 billion short. That’s only 40 cents saved for every $1 owed. Unfortunately, your state might not be doing that much better. Here is a Bloomberg graphic America’s Pension Bomb which shows the funding ratio for every state available:

pensionmap

This reminds me of a car wreck in slow-motion. Politicians get to make financial promises that can last 30-50 years, but they are only interested in being elected for the next 2-4 years. How will it end? Will states accept the pain now to fix things and get back on track? Or will they just keep kicking the can down the road until faced with huge tax hikes or maybe even a federal bailout?

If you are a municipal bond investor, Vanguard says not to worry: Despite Illinois’s financial troubles, muni market looks strong. Well, it’s good to see that Illinois is only about 1% of their national, investment-grade muni bond funds. I’m not worried about a crisis in the next few years either, but I also don’t see any evidence that things are getting better. I was planning to diversify my muni bond holdings anyway as my income drops in early retirement. Perhaps it’s time to speed up that timetable.

My Money Blog has partnered with CardRatings and may receive a commission from card issuers. Some or all of the card offers that appear on this site are from advertisers and may impact how and where card products appear on the site. MyMoneyBlog.com does not include all card companies or all available card offers. All opinions expressed are the author’s alone, and has not been provided nor approved by any of the companies mentioned.

MyMoneyBlog.com is also a member of the Amazon Associate Program, and if you click through to Amazon and make a purchase, I may earn a small commission. Thank you for your support.


Amazon Prime Day 2017: List of Deals Still Available

My Money Blog has partnered with CardRatings and may receive a commission from card issuers. Some or all of the card offers that appear on this site are from advertisers and may impact how and where card products appear on the site. MyMoneyBlog.com does not include all card companies or all available card offers. All opinions expressed are the author’s alone.

primeday2017Updated. Amazon Prime Day is now over, but some offers are still available. I’ve removed the ones that I notice are expired. Hopefully you picked up some credits and savings to offset that membership fee.

Many deals still require Prime. New members can sign up for a 30-day free trial (6-month free trial + 50% off afterward with student .edu address).

Deals that are still live.

Alexa-Only Deals. View all the Alexa-only deals here. Must be ordered via Alexa Echo, Echo Dot, Echo Show, Tap, Fire TV, Dash Wand, or compatible Fire tablets. The prices you see on the pages below will be different.

Other Amazon-related deals:

My Money Blog has partnered with CardRatings and may receive a commission from card issuers. Some or all of the card offers that appear on this site are from advertisers and may impact how and where card products appear on the site. MyMoneyBlog.com does not include all card companies or all available card offers. All opinions expressed are the author’s alone, and has not been provided nor approved by any of the companies mentioned.

MyMoneyBlog.com is also a member of the Amazon Associate Program, and if you click through to Amazon and make a purchase, I may earn a small commission. Thank you for your support.


The Incredible Shrinking Cell Phone Bill

My Money Blog has partnered with CardRatings and may receive a commission from card issuers. Some or all of the card offers that appear on this site are from advertisers and may impact how and where card products appear on the site. MyMoneyBlog.com does not include all card companies or all available card offers. All opinions expressed are the author’s alone.

iphonepixel200If you wanted to shave $1,000 a year off your housing expenses, you’d have to move or at least refinance a mortgage. That takes a pile of paperwork and lots of time. Meanwhile, with a few clicks on a website and a SIM swap, many people on a major carrier plan can easily save $1,000 on their annual cell phone bill. I just transfered my service to Sprint’s Free Year of Unlimited promotion (extended to 7/30) and my new bill is $3 a month per line including all taxes and fees. Took maybe 15 minutes of my time.

The average cell phone bill has dropped by over 12% from a year ago. If you haven’t shopped around in a while, you might be missing out on big savings. The WSJ article The New Sticker Shock: Plunging Cellphone Bills (paywall?) shows us how cell phone bills are dropping across the board:

wsjcell1

Verizon, AT&T, and Sprint have all been losing net customers this year. Most went to either T-Mobile or various MVNO/prepaid providers which can provide 95%+ of the coverage at a fraction of the cost. (MVNOs don’t have the same roaming agreements as a postpaid major carrier.) Sprint was both a smaller competitor and losing customers, so apparently they felt they had to do something drastic.

wsjcell2

I expect to switch to either T-Mobile or an MVNO after my year is up, unless Sprint can come up with another deal.

My Money Blog has partnered with CardRatings and may receive a commission from card issuers. Some or all of the card offers that appear on this site are from advertisers and may impact how and where card products appear on the site. MyMoneyBlog.com does not include all card companies or all available card offers. All opinions expressed are the author’s alone, and has not been provided nor approved by any of the companies mentioned.

MyMoneyBlog.com is also a member of the Amazon Associate Program, and if you click through to Amazon and make a purchase, I may earn a small commission. Thank you for your support.


Chart: Amazon Prime vs. Cable TV Subscribers

My Money Blog has partnered with CardRatings and may receive a commission from card issuers. Some or all of the card offers that appear on this site are from advertisers and may impact how and where card products appear on the site. MyMoneyBlog.com does not include all card companies or all available card offers. All opinions expressed are the author’s alone.

If you’re wondering why Amazon is pushing Prime membership so hard, check out this chart from Recode:

primecable

Within the next year or two, there will be more Amazon Prime members than cable TV subscribers. There is already roughly the same number of Costco memberships as Prime memberships. People may not sign-up for Prime solely for the video streaming, but I do still get value out of that feature (primarily for the kid’s videos, especially now that you can download them for the airplane and road trips). Amazon Prime Video is good enough for my needs that I don’t pay for Netflix.

My Money Blog has partnered with CardRatings and may receive a commission from card issuers. Some or all of the card offers that appear on this site are from advertisers and may impact how and where card products appear on the site. MyMoneyBlog.com does not include all card companies or all available card offers. All opinions expressed are the author’s alone, and has not been provided nor approved by any of the companies mentioned.

MyMoneyBlog.com is also a member of the Amazon Associate Program, and if you click through to Amazon and make a purchase, I may earn a small commission. Thank you for your support.


Best HSA Plan Provider For Long-Term “Healthcare IRA” Investing – Morningstar

My Money Blog has partnered with CardRatings and may receive a commission from card issuers. Some or all of the card offers that appear on this site are from advertisers and may impact how and where card products appear on the site. MyMoneyBlog.com does not include all card companies or all available card offers. All opinions expressed are the author’s alone.

piggy_hsaNearly 30% of covered workers are now enrolled in a high-deductible health plan (HDHP). This means a lot more people are also eligible to contribute to a Health Savings Account (HSA). HSAs have the unique feature of triple-tax-free savings when used as designed:

  • HSA contributions are tax-deductible,
  • HSA investments can grow tax-deferred, and
  • HSA withdrawals are also exempt from taxes if spent on qualified medical expenses.

(Penalties: Funds withdrawn for non-healthcare expenses are taxable. If withdrawn before age 65, there is an additional 20% penalty.)

HDHPs have lower premiums in exchange for higher deductibles and higher out-of-pocket maximums. As of 2017, in order to qualify for an HSA, an HDHP must have a deductible of at least $1,300 for individual coverage or $2,600 for family coverage. Many people will use their HSA balance to cover current health expenses. However, if you can manage to pay for your current expenses out-of-pocket while also contributing to the HSA, you have the opportunity to maximize the tax advantages by investing the funds into long-term vehicles like stocks. Here are the annual contribution limits:

hsa_morn1

You can then use the future balance to pay for Medicare premiums or other eligible healthcare costs in retirement.

We personally don’t have an HDHP/HSA option from our employers, so I don’t have much first-hand experience. However, Morningstar just released an HSA research whitepaper by Leo Acheson that examined 10 of the largest HSA plan providers:

  • Alliant Credit Union
  • Bank of America
  • BenefitWallet
  • HealthSavings Administrators
  • HealthEquity
  • HSA Bank
  • Optum Bank
  • SelectAccount
  • The HSA Authority
  • UMB Bank

In terms of using an HSA simply as a way to grab the upfront tax break on contributions, you really just want to find an HSA provider that offers a checking account without monthly maintenance fees. Earning 0.50% APY on a $2,000 balance will earn you $10 a year, but a $4 monthly fee will cost you $48 a year. The top plans listed by Morningstar for this short-term purpose were Alliant Credit Union, SelectAccount, and The HSA Authority.

In terms of using an HSA as a portable, long-term investment vehicle (think “Healthcare IRA”), the top plans listed by Morningstar were Bank of America, HealthEquity, Optum, and The HSA Authority. However, as a firm believer in the “Costs Matter Hypothesis”, I would personally narrow it down based on the lowest overall expense ratios (underlying fund + manager fee). Here’s a chart comparing costs for a $15,000 balance (click to enlarge):

hsa_morn2

The same cost chart but for a $50,000 balance:

hsa_morn4

The two cheapest plans recommended by Morningstar are HSA Authority and HealthEquity. You can see that overall HSA costs are still higher than what you can get in a IRA or better 401(k) plan. At least the selection is pretty good. See HSA Authority investment options and HealthyEquity investment options [pdf]. Below is a sampling from the HealthEquity menu.

hsa_morn3

Keep in mind, this is not my list but what Morningstar recommends. One option not listed here is Saturna, which may make sense if you only plan on making a single lump-sum max contribution each year and buy an all-in-one Vanguard mutual fund with one transaction per year.

Please feel free to share your own experiences in the comments below.

My Money Blog has partnered with CardRatings and may receive a commission from card issuers. Some or all of the card offers that appear on this site are from advertisers and may impact how and where card products appear on the site. MyMoneyBlog.com does not include all card companies or all available card offers. All opinions expressed are the author’s alone, and has not been provided nor approved by any of the companies mentioned.

MyMoneyBlog.com is also a member of the Amazon Associate Program, and if you click through to Amazon and make a purchase, I may earn a small commission. Thank you for your support.


Portfolio Visualizer: Asset Allocation Backtesting and Monte Carlo Simulation Tool

My Money Blog has partnered with CardRatings and may receive a commission from card issuers. Some or all of the card offers that appear on this site are from advertisers and may impact how and where card products appear on the site. MyMoneyBlog.com does not include all card companies or all available card offers. All opinions expressed are the author’s alone.

portpie_blank200Here’s another neat (and free!) portfolio analysis tool – PortfolioVisualizer.com. You can upload a custom asset allocation and get all sorts of backtest data and Monte Carlo simulation results from it. If you register for an account, it will remember your model portfolios for future use.

I created a custom portfolio “MMB Default” similar to my current portfolio asset allocation and below are selected charts that were produced. Here’s the summary:

pv1

Historical portfolio growth and annual returns. (Note that the time period shown was limited because the available data for Emerging Markets only went from 1995-2017. Apparently there are some ongoing issues with data licensing.)

pv2

Historical drawdowns during the same period. This provides a good feel of how “painful” it was to hold this portfolio. 2009 was certainly a stressful year when both our portfolio and future job prospects were being questioned.

pv3

Monte Carlo simulation of 4% withdrawal rate over a 30-year retirement period. I used my custom portfolio and had it simulate a withdrawal rate of $40,000 from a $1,000,000 portfolio (4%), adjusted annually for inflation, for a 30-year period. You can alter nearly all of these variables (withdrawal rate, inflation adjustments, period length, etc). Monte Carlo basically looks at many possible trajectories based on historical asset return characteristics. If things turn out well, you end up with a “runaway” portfolio, but if they don’t you can hit zero pretty fast.

pv4

The success rate looks at the percentage of simulated scenarios that end up with a positive value at the end of the period. At a 4% withdrawal rate for 30 years, it was 95%. At a 5% withdrawal rate for 30 years, it was only 84%. At a 5% withdrawal rate for 50 years, it was only 69%.

Here’s where I warn you that Monte Carlo simulations are not the end-all of portfolio safety. You can’t predict the next 50 years when you can barely look back 50 years. Living off a portfolio for decades involves not just a reasonable rate of withdrawal but planning as to how you could cut expenses or create additional income if conditions go sour for an extended time period. I’d rather have 90% theoretical safety and a flexible backup plan over 99% theoretical safety and no backup plan.

Portfolio Visualizer has several additional features that I may never use, but even the above is enough to make it a very interesting tool for the DIY investor. I hope they get their data source issues sorted out eventually. You can find all of my posts about portfolio tools in the Tools & Calculators category.

My Money Blog has partnered with CardRatings and may receive a commission from card issuers. Some or all of the card offers that appear on this site are from advertisers and may impact how and where card products appear on the site. MyMoneyBlog.com does not include all card companies or all available card offers. All opinions expressed are the author’s alone, and has not been provided nor approved by any of the companies mentioned.

MyMoneyBlog.com is also a member of the Amazon Associate Program, and if you click through to Amazon and make a purchase, I may earn a small commission. Thank you for your support.


Best Interest Rates on Cash Savings – July 2017

My Money Blog has partnered with CardRatings and may receive a commission from card issuers. Some or all of the card offers that appear on this site are from advertisers and may impact how and where card products appear on the site. MyMoneyBlog.com does not include all card companies or all available card offers. All opinions expressed are the author’s alone.

percentage2

Interest rates are slowly waking up from their multi-year slumber, so I am paying a bit more attention to the various changes each month. Don’t let a megabank pay you 0.01% APY or less for your idle cash. Here is my monthly roundup of the best safe rates available, roughly sorted from shortest to longest maturities. Rates checked as of 7/4/17.

High-yield savings accounts
While the huge brick-and-mortar banks rarely offer good yields, the online banks with a history of competitive rates offer online savings accounts clustered around 1% APY. Remember that with savings accounts, the interest rates can change at any time.

  • As I’ve been “bait-and-switched” a few times, I try to stick with savings accounts that have a consistent history of competitive rates and a good user experience. My favorite is currently Ally Bank Online Savings, which recently bumped their rate to 1.15% APY.
  • The Mega Money Market accounts of both Redneck Bank and All America Bank (they are affiliated) are paying 1.50% APY on balances up to $35,000. Note that amounts over $35,000 earn only 0.50% APY.

Money market mutual funds + Ultra-short bond ETFs
If you like to keep cash in a brokerage account, you should know that money market and short-term Treasury rates have been inching upwards. It may be worth the effort to move your money into a higher-yielding money market fund or ultrashort-term bond ETF.

  • The Vanguard Prime Money Market Fund has increased their SEC yield now to 1.07%. The default sweep option is the Vanguard Federal Money Market Fund, which only has an SEC yield of 0.87%. You can manually move the money over to Prime if you meet the $3,000 minimum investment.
  • The following bond ETFs are not FDIC-insured, but if you want to keep “standby money” in your brokerage account and have cheap/free trades, it may be worth a look. The PIMCO Enhanced Short Maturity Active Bond ETF (MINT) has a 1.49% SEC yield and the iShares Short Maturity Bond ETF (NEAR) has a 1.53% SEC yield while holding a portfolio of investment-grade bonds with an average duration of ~6 months. More info here.

Short-term guaranteed rates (under 1 year)
I am often asked what to do with a big wad of cash that you’re waiting to deploy shortly (just sold your house, just sold your business, inheritance). Honestly, I wouldn’t get fancy or take unnecessary risk. Just keep it safe in a short-term CD or online savings account that in insured under the FDIC limits until you have a plan.

  • The Ally Bank No-Penalty 11-Month CD is now paying 1.50% APY for $25,000+ balances and 1.25% APY for $5,000+ balances. The lack of early withdrawal means that you can your interest rate can never go down for 11 months, but you can still jump ship if rates rise.
  • Salem Five Direct is advertising 1.25% APY on balances up to $500,000. The good news is that this rate is guaranteed until 7/1/18 – more than a year away – and since it is a savings account you can still move your money in and out without penalty. The bad news is that this rate is for new customers only.

US Savings Bonds
Series I Savings Bonds offer rates that are linked to inflation and backed by the US government. You must hold them for at least a year. There are annual purchase limits. If you redeem them within 5 years there is a penalty of the last 3 months of interest.

  • “I Bonds” bought between May and October 2017 will earn a 1.96% rate for the first six months, and then a variable rate based on ongoing inflation after that. While that next 6-month rate is currently unknown, at the very minimum the total yield after 12 months will around 1% with additional upside potential. More info here.
  • In mid-October, the CPI will be announced and you will have a short period where you will have a very close estimate of the rate for the next 12 months. I will have another post up at that time.

Prepaid Cards with Attached Savings Accounts
A small subset of prepaid debit cards have an “attached” FDIC-insured savings account with high interest rates. The risks are that balances are capped, and there are many fees that you must be careful to avoid (lest they eat up your interest). The other catch is that these good features may be killed off without much notice. My NetSpend card now only has an eligible balance up to $1,000.

  • Insight Card is one of the best remaining cards with 5% APY on up to $5,000 as of this writing. Fees to avoid include the $1 per purchase fee, $2.50 for each ATM withdrawal, and the $3.95 inactivity fee if there is no activity within 90 days. If you can navigate it carefully (basically only use ACH transfers and keep up your activity regularly) you can still end up with more interest than other options. Earning 4% extra interest on $5,000 is $200 a year.

Rewards checking accounts
These unique checking accounts pay above-average interest rates, but with some risk. You have to jump through certain hoops, and if you make a mistake you won’t earn any interest for that month. Rates can also drop quickly, leaving a “bait-and-switch” feeling. But the rates can be high while they last.

  • Consumers Credit Union offers up to 4.59% APY on up to a $20k balance, although 3.09% APY on a $10k balance is more realistic unless you satisfy a long list of requirements. Note that the 4.59% APY requires you to apply and get approved for an additional credit card through them (other credit cards offer $500+ in sign-up bonuses) and also spend $1,000 on it every month. Keep your 12 debit purchases small as well, as for every $500 in monthly purchases you may be losing out on 2% cashback (or $10 a month on after-tax benefit). Find a local rewards checking account at DepositAccounts.

Certificates of deposit
If you have a large cushion, it’s quite likely to just sit there for years. One option is to keep your money in longer-term investments where you can still take it out in a true emergency and pay a reasonable early withdrawal penalty. Alternatively, you could create a CD ladder of different maturity lengths such that you have access to part of the ladder each year, but your blended interest rate is higher than a savings account.

  • Connexus Credit Union is offering a 1-year Share Certificate at 1.50% APY (90-day early withdrawal penalty) and a 3-year Share Certificate (180-day early withdrawal penalty) at 2.00% APY. Both have a $5,000 minimum deposit. Anyone can join this credit union via partner organization Connexus Association for a one-time $5 fee.
  • Hanscom Federal Credit Union is offering a 4-year Share Certificate at 2.50% APY (180-day early withdrawal penalty) if you also have Premier Checking (no monthly fee if you keep $6,000 in total balances or $2,000 in checking). HFCU also offer a 3% APY CU Thrive “starter” savings account. HFCU membership is open to active/retired military or anyone who makes a one-time $35 donation to the Nashua River Watershed Association.
  • Ally Bank also has a 5-year CD at 2.25% APY with a relatively short 150-day early withdrawal penalty and no credit union membership hoops. For example, if you closed this CD after 18-months, you can get a 1.64% effective APY even after accounting for the penalty.

Longer-term Instruments
I’d use these with caution, but I still track them to see the rest of the current yield curve.

  • Willing to lock up your money for 10+ years? You can buy certificates of deposit via the bond desks of Vanguard and Fidelity. These “brokered CDs” offer the same FDIC-insurance. As of this writing, Vanguard is showing a 10-year non-callable CD at 2.60% APY (2.70% if you log into Fidelity). (Unfortunately, current long-term CD rates do not rise much higher even as you extend beyond a 5-year maturity.) Prices will vary daily.
  • How about two decades!? Series EE Savings Bonds are not indexed to inflation, but they have a guarantee that the value will double in value in 20 years, which equals a guaranteed return of 3.5% a year. However, if you don’t hold for that long, you’ll be stuck with the normal rate which is quite low (currently a sad 0.10% rate). You could view as a huge early withdrawal penalty. You could also view it as long-term bond and thus a hedge against deflation, but only if you can hold on for 20 years. Too long for me.

All rates were checked as of 7/4/17.

My Money Blog has partnered with CardRatings and may receive a commission from card issuers. Some or all of the card offers that appear on this site are from advertisers and may impact how and where card products appear on the site. MyMoneyBlog.com does not include all card companies or all available card offers. All opinions expressed are the author’s alone, and has not been provided nor approved by any of the companies mentioned.

MyMoneyBlog.com is also a member of the Amazon Associate Program, and if you click through to Amazon and make a purchase, I may earn a small commission. Thank you for your support.


New vs. Used Car Total Cost of Ownership Calculations

My Money Blog has partnered with CardRatings and may receive a commission from card issuers. Some or all of the card offers that appear on this site are from advertisers and may impact how and where card products appear on the site. MyMoneyBlog.com does not include all card companies or all available card offers. All opinions expressed are the author’s alone.

f150_200

A financial topic that nearly everyone has an opinion on is car ownership. Do you buy new and drive it into the ground? Do you buy slightly used after the early depreciation hit? Do you buy a cheaper 10-year-old car, drive it for a while, sell it for not much less, and repeat?

Reddit user nmtxinsc2 put together an interesting car cost comparison of the total cost of ownership for these options and more. Here is the final graphic, which you should click to enlarge:

carcostcomp_full

Assumptions. These are not based on average or historical car values, but from a theoretical cost model for a single car. A quick overview:

  • Car Value. New price $32,000. Value depreciates exponentially down to $2,000 after 20 year lifespan. The historical depreciation behavior of a Ford F-150 is a general benchmark.
  • Maintenance. From $0 to $800 over lifespan.
  • Insurance. From $742 to $300 over lifespan.
  • Fuel efficiency. MPG goes from 25 to 16 over lifespan. 12,000 miles a year at $2.50 a gallon.

Don’t agree? You can download the source spreadsheet and adjust any of the assumptions yourself.

Observations. It’s not surprising that leasing a brand-new car every 3 years is the most expensive, or that buying a 10-year used car and keeping it for a while is the least expensive. However, it may interest you that the calculations show that, for example:

  • You would save ~$68,000 over 20 years if you Buy 10-year-old Used Car/Keep 5 years instead of always doing 3-year New Leases.
  • You would save ~$20,000 over 20 years if you Buy New/Keep 10 years instead of Buy new/Keep 5 years.
  • You would save ~$8,000 over 20 years if you Buy 5-year-old Used Car/Keep 15 years instead of Buy New/Keep 20 years.

My own thoughts on managing car costs. I like reading about models and statistics like this. However, my rule of thumb on affordability is more simple and behaviorally-based. If you want to achieve early retirement, you should only pay cash for cars. In my opinion, car debt and credit card debt are equally harmful to your financial health. In fact, auto loans may be worse – many can garnish your wages even after the car is repossessed. Financing obscures the real cost. When you’re faced with writing a huge check for $20,000 or whatever, your decision-making clarity is greatly improved.

My Money Blog has partnered with CardRatings and may receive a commission from card issuers. Some or all of the card offers that appear on this site are from advertisers and may impact how and where card products appear on the site. MyMoneyBlog.com does not include all card companies or all available card offers. All opinions expressed are the author’s alone, and has not been provided nor approved by any of the companies mentioned.

MyMoneyBlog.com is also a member of the Amazon Associate Program, and if you click through to Amazon and make a purchase, I may earn a small commission. Thank you for your support.