Friday, September 13, 2019

Financial Friday | Using Things For A Long Time Saves Money


Recently, Todd told me about a conversation that he had with his friend, and it brought up a financial topic that should be intuitive but it’s not.  A lot of saving money over your lifetime is about using something for a long time.

Todd was talking with his friend (let’s call her Nancy to protect the innocent).  Nancy said to Todd, “I just paid off my car… now I’m wondering what to do next.”  When he told me this, I said, “What do you mean ‘what to do next’?  You keep driving it for a long time, that’s what you do.”  This is where my mind goes to automatically when I’ve paid off something, or purchased something that cost a good amount of money.  I plan to use it for a LONG time.  But so many people default to the myth of the monthly payment scheme.  They are deluded into thinking that it’s ok to continue to pay for something monthly, because they can afford it or “it’s in their monthly budget”.  If that’s how you budget, then I would posit that your budget is bad and it doesn’t account for saving enough money for a good retirement.

We are so used to thinking about whether we could afford something by whether we can pay the monthly payment on it.  Car salespeople, home loan salespeople, and anyone whose job is to SELL you things will tell you that you can afford something because you can afford its monthly payment.  That supposition is wrong.  It’s a very myopic point of view.  You should be looking at the big picture of the lifetime cost of something, versus how much money you’d save if you didn’t always buy upgrades to your life because you “can afford the monthly payment”.

Let’s talk about cars first, because it’s an example of a costly item that a majority of Americans own multiples of.  Since I started working after college at the age of 23, I have owned and driven three cars, and this current one is a hand-me-down from Todd.  So for 26 years, I’ve paid for three cars.  The first car I owned, I paid off in three  years.  I kept driving it, but when my sister got into a big accident and totaled her car, I drove it down to Texas from Ohio and gave her my car for $1.  That was 1999 and I bought a Honda Prelude.  I paid that car off in three years, but drove it for 17 years, until late 2016, when I sold it on Craigslist for $2,800.  I had kept meticulous maintenance records on that car, and it was in good shape.  The only reason I sold that car was because Todd got a Kia Soul electric car, and I got his hand-me-down 2011 Subaru Outback.  I didn’t want to pay insurance for three cars, and had nowhere to park the 3rd car.  The Subaru is now nine years old (we bought it October 2010) and I’m still driving it. 

This is all well and good for you, you say.  But show me the numbers.  How much money are you actually saving by driving your cars for so long?  Assuming you choose wisely and buy good value cars that are also reliable and don’t need much fixing, you can save over $200,000 over a lifetime span of 40 years if you buy only 4 cars instead of 10 cars. 

Why am I comparing 4 cars versus 10 cars?  Because to me, driving a well-made reliable car for 10 years is reasonable.  Where did the 10 cars come from then?  That assumes people either lease cars so they could have the latest and greatest, or they pay off cars in four years and then buy another one immediately, because they could afford the monthly payments.  Of course there are scenarios in between, where someone could drive a car for 6 or 8 years.  But this comparison is between two extremes, just to show how much money you could save over 40 years.


The columns with loans assumes a 3% annual percentage rate loan over a 48 month loan span.

The money you save doesn’t even take into account what you would get if you invested it over time.  It’s just a straight-up amount.  If you pay off a car and then instead of buying another car or otherwise spend the money every month, you invest it into a stock index fund, you would have much more than $200k.

Another reason to always drive your car for at least double the years that it took you to pay off the car, is to stagger a multi-car household so that you never have to pay for more than one car at a time.

Another secret to saving money over the long run is to not mind hand-me-down items.  Todd drove the new Subaru Outback for six years.  When he got the Kia Soul EV, I sold my 17 year old Honda Prelude and started driving the Subaru.  The Subaru is now 9 years old and going strong.  I hope I can drive it for 7 more years! 

Another psychological reason that people buy things instead of using them for a long time is because they think they deserve it.  You work hard and have to put up with a lot of crap.  Don’t you deserve something new and shiny?  Maybe.  Another way to think of it is, don’t you deserve to pay your future self too?  So that you can retire earlier? That new and shiny thing now means robbing your future self to get it.  Is it worth it?  It is something you should always evaluate when considering buying new expensive things.

I also use other things for a long time.  As I write this blog post, I am using my new computer that we bought over Labor Day weekend.  I used my old computer for 7 years, and it finally got to the point that the performance was so degraded that if was locking up on a regular basis.  So I finally caved and asked Todd to find me a good deal on a new PC.  I’m still using an iPhone 6.  It’s four years old and it’s still fine.  When Todd gets a new iPhone this month, the newest one coming out, I will get his two year old iPhone 8 hand-me-down.  It’s paid off and I can probably use it for at least two more years.  We also never pay for two phones at the same time. 

Like I said, I don’t mind using things for a long time, or getting good hand-me-downs, if it means I could leave my job at age 48, after saving money for 25 years.  Oh wait, I did that already.  :)


  1. Loving these finance posts! I'm a visual person, so it's nice that you've done the math on a spreadsheet. I'm trying to pass on these lessons to my kids.


Thanks for stopping by! I love to hear from you!

[feedly mini]