Most people look at their vehicles as a necessary expense. Most cities do not have robust options for public transit, and the rest of the country is too vast for any other form of common transportation to be useful. In contrast, I’ve met a smattering of diehard bicyclist fanatics who swear that leg-powered, two-wheeled transport can suffice even if you’re hauling lumber or a two-year-old child in a snowstorm. These are the same people who appear to have exquisitely muscular physique, and claim that biking everywhere contributed to their abs of steel and plaque-less arteries.
Which came first, the biking or the toned abs? Should you just keep an extra set of heels and outfits at the office? What about a vanity kit, hairdryers, irons, and extra shower room too?
The majority of people will unlikely go against the grain of owning a car, but it’s still critical to be aware that what starts as a necessity often transforms into a luxury. Our cars likely account for the top two or three expenses in our budget.
Going the fancy car route
Doctors have to look the part, right? It is important to look the part in the physician’s parking lot at the hospital, and frankly, the barrier to ownership of a luxury vehicle isn’t actually that high. Many of my colleagues also opt to lease vehicles in order to maintain the flexibility of having access to a new car and not worrying about the maintenance.
A lease on a $90,000 SUV may only set you back roughly $1200 a month, or $40 a day. Gas might run you $250 a month ($8.33/day), and insurance perhaps $2000 for six months ($11.11/day). In total, this might cost $60/day. While this amount may not be a huge dent to a Hospitalist earning $120/hour, remember that these purchases are made using post-tax dollars. At an effective income tax rate of 30-40%, that $60/day may be costing you closer to $90+ of pretax dollars.
Is ownership of a luxury vehicle worth 10% of your ten-hour shift?
The amount of detail you can analyze this situation is endless—most shift worker physicians are only posting 15-18 shifts (often less) a month. This lease might actually eat into more than 15% of your monthly gross income. Two of these leased vehicles would consume 30% of your income, just to get from A to B.
Keeping a beater until it no longer starts
In contrast, there are plenty of physicians who purchase a vehicle outright, and drive it until the car no longer works. This might translate to a decade of use for the average non-technical car driver to maybe 15-20 years for the car hacker.
Ownership might still cost you $30/day if you amortize the cost of maintenance through the life of the vehicle. If you are unfortunate enough to buy a lemon that dies after year 7, you’ve effectively increased your daily cost of car ownership.
For the high net worth individual who needs umbrella insurance, there is a trade-off with owning an old beater. While umbrella insurance itself is relatively inexpensive, the policies often require a certain amount of pre-existing coverage of your home and vehicles in order to pass underwriting and avoid gaps. This additional amount of auto insurance coverage might be more than what you’d like to pay for an old car, but you have no other choice.
The moral of car ownership
It’s unlikely that your life circumstances allow you to circumvent car ownership completely. Even as a high-income earning professional, you are likely still giving up 10% of your earnings to this luxury. With teenage children, you’ll easily double the expense. If this amount has no impact on your well-being, then look no further. You needn’t worry about it.
However, the most important aspect of car ownership is realizing that it can and will sting your wallet. If that sting is sufficient to disrupt your financial plan, then and only then should you analyze what to do to reduce the financial burden.
What is your stance on ownership of a luxury vehicle?