A Penny Saved

Entrepreneurs and 9-5′ers often handle their money in dramatically different ways.  For a 9-5′er, income is a fixed item, and stays relatively the same each month.  These folks tend to stick to a budget religiously, and track every single penny they spend.  With a set income, this is the smart choice.

Folks who are self employed often have a bit of a different approach to budgeting.  They figure that all the time spent counting how many pennies they spent and where it all went is wasted.  A better use of their time would be working, and finding ways to earn more money.

Ideally, the entrepreneur should focus more on budgeting, to make sure his expenses stay in line.  But neither school of thinking is really wrong.  Making more money is just as good as spending, after all.   Which one are you - self employed free spender or a budget-minding clock puncher?

You probably just did a double take, didn’t you?  I think that buying and owning a new car is often a better financial decision than driving an older car.  How can I say that, you ask?  It’s easy, when you look at the big picture.

Let’s say that you’re currently driving a 1997 Dodge Ram with 150,000 miles on the odometer.  You get about 11 miles per gallon ( which is probably optimistic ), spend an average of $150 per month in repairs, and lose 2 days of work per month due to breakdowns.

At $3.00  per gallon, you’ll spend about $339 per month gassing up your truck.  That’s based on the average of 15,000 miles per year, by the way.  Insurance probably only runs you about $50.  With gas, insurance and repairs, you’re spending just about $539, plus your lost wages every month to drive your truck is .  Assuming you make a reasonable $15 per hour, that’s an additional $240 that your truck costs you, for a grand total of $779.  A little much to drive around a 10 year old pickup truck, don’t you think?

How does a new car compare to the used truck?  Let’s take a look and find out.  There’s no need to buy a new truck - in fact, a compact car will do nicely.  The Honda Civic comes to mind, in the sedan LX trim, with an automatic transmission.  This car has an MSRP of about $18355, and it should be no problem to buy it for $18,000 plus TT&L.  Figuring a good interest rate and 6.25 sales tax, you’re looking at about a $360 car payment for 60 months.

You should get about 30 miles per gallon in your new Civic.  Based on the same driving habits, that’s $125 per month in gas.  Insurance will cost you a bit more since you’ll need full coverage, so figure $100 per month.  Since you’re driving a new car, you won’t be missing work anymore.

The total to drive a brand new Honda Civic is $585 per month, compared to $779 for your Dodge Ram.  By choosing to drive a new car, you’re actually saving nearly $200 per month - not too shabby!

P.S.  Also just wanted to note that the Civic LX is not a stripped-down model at all.  It has an automatic transmission, power windows & locks, keyless entry, and air conditioning. 

For you to effectively spend less money every month ( that is one of your goals, isn’t it? ), you’ll need a solid budget.  And the only way a budget works is if you stick to it, and there aren’t any unexpected expenses.  Considering the fact that you generally don’t see unexpected expenses coming ( hence the name ), what can you do? 

First, you need to sit down and think about what sort of extra expenses may come up over the course of the month.  Two big ones that spring to mind are auto repairs and medical bills.  Both of these can be crushing expenses, but they can be headed off without too much trouble.

Let’s start with medical bills.  A $10,000 medical bill ( not unheard of for even a minor procedure ) can be budget-killing to most everyone - that’s a lot of cash.  What can you do about it?  Make sure you carry adequate health insurance.  Yes, health insurance is expensive, and gets more expensive every year.  But those few hundred dollars every month will make sure that you don’t get hit with a 5 figure doctor’s bill.  Your medical expenses won’t disappear entirely - nearly all insurance policies require you to foot part of the bill.  But the majority of your costs will be paid by your insurer, which takes the weight off your shoulders.  It also helps you stick to your budget.

The auto repair side is a touchier subject, and one I’ll touch base on later, more in-depth.  But imagine for a moment that you’re driving to work in your 1991 Ford Taurus.  It’s been a relatively trouble-free car, but it has 175k on the odometer - it’s no peach.  All of a sudden your timing belt snaps and all sorts of bad things happen to your engine.  After getting your trusty Taurus towed to your mechanic and checked out, you’re presented with an estimate for $2,000 to fix the damages.  That is, of course, not counting the tow truck bill, or your missed time at work. 

What could you have done differently?  Well, not driving a 1991 Taurus with 175k would be a start.  A newer car with less miles would be much less likely to fail, and would probably be under warranty if it did.  There’s a good chance that you’d need to finance the car, and deal with the resulting car payment, but it’s much easier to budget for than unexpected repairs.  And sticking to a budget is one of the most important steps to a better financial place.