386-You_Should_Not_Upgrade_Your_Car_for_Gas_Mileage
00:00:00.000 | I'm the youngest of my parents' seven children.
00:00:05.200 | If you ever have seven children in your family, you'll start to see that there are certain
00:00:09.380 | expenses and costs that many other families with fewer children don't get to enjoy.
00:00:16.240 | Those costs would range from the cost of going out to eat.
00:00:19.800 | Just about any restaurant visit automatically turns into a $100 meal if you have seven kids
00:00:25.320 | and you're trying to go out to eat.
00:00:27.620 | One of the costs is transportation because you need to want a vehicle big enough to carry
00:00:32.400 | your family around.
00:00:33.400 | If you have three, four, five kids, there are lots of options.
00:00:36.720 | But when you get to seven, all of a sudden now you have nine people total that you've
00:00:40.560 | got to cart around.
00:00:41.800 | And that requires a larger vehicle.
00:00:44.560 | When I was growing up, all during my younger years, my parents had a 1985 Chevy 12-passenger
00:00:50.320 | van.
00:00:51.320 | We used that van for many, many years, drove it all over the United States, had a lot of
00:00:55.760 | great memories in that van.
00:00:56.920 | My dad fixed it up and it was repainted a couple times and just was a great vehicle
00:01:00.840 | for us.
00:01:01.960 | But sometime probably about the late '90s, we needed to upgrade.
00:01:07.740 | And so my parents were looking around and trying to figure out if they could switch
00:01:11.140 | to a different kind of vehicle.
00:01:13.660 | They were shopping.
00:01:14.660 | They knew they probably needed a van.
00:01:16.440 | At one point, I have a clear, vivid memory of going and looking at the Chevy Astro.
00:01:21.760 | The Chevy Astro had three rows, but at that point in time, they put me in the backseat
00:01:26.340 | and I probably wasn't as big then as I am now, but I'm about 6'5", 6'6" and I'm not
00:01:31.740 | skinny.
00:01:33.100 | And they put me in the backseat and realized they needed something a little bit bigger.
00:01:36.460 | So after a while, they found a 1995 Chevy conversion van and bought that.
00:01:43.900 | I found it used and bought that.
00:01:46.100 | And we had a lot of great memories in that vehicle as well.
00:01:49.140 | It was very, very useful, very, very comfortable.
00:01:51.600 | It was a great car.
00:01:53.420 | One of the problems though of driving a full-size van is it's not the most fuel-efficient vehicle.
00:01:58.580 | Well, my parents kept that vehicle for many years.
00:02:02.900 | And when I was in college, most of the needs of being able to carry the whole family together
00:02:07.420 | had been eliminated simply due to kids growing up, getting married, starting their own families.
00:02:12.980 | And my dad just got kind of tired of this big van that he was driving to work every
00:02:17.820 | day.
00:02:18.820 | We lived out west of town, about 20 miles, and he would drive this thing in and out,
00:02:22.860 | in and out, in and out.
00:02:23.860 | And looking at the gas tank, I mean, to fill the thing up is 80 bucks.
00:02:28.340 | And it gets hard to do that.
00:02:29.700 | So he was thinking, "Well, it might be time to get something a little bit more fuel-efficient
00:02:32.780 | for his commute."
00:02:34.060 | He was also getting tired of putting money into it and fixing a few things.
00:02:37.340 | And so he was talking to me about whether he should switch to a different car.
00:02:42.500 | Well, I didn't know the answer.
00:02:44.940 | So I sat down and built a calculator in Excel to try to figure out the answer.
00:02:52.400 | And the results of that challenge that I had set for myself really, really shocked me.
00:03:01.540 | Because what I learned was that even though he was driving one of the worst vehicles in
00:03:08.060 | terms of fuel mileage, even so, and even though he was driving a lot, it still didn't make
00:03:18.580 | a lot of financial sense for him to move up to a newer car based solely on gas mileage
00:03:30.660 | improvements.
00:03:33.500 | Since that time, I've done this calculation many times.
00:03:35.900 | I sent my calculator out to all my friends and would email it out.
00:03:38.540 | And anytime somebody was thinking about buying another car and they're trying to justify
00:03:42.220 | it based upon gas mileage, I would send them my calculator, let them do the numbers.
00:03:46.060 | And there are times at which this makes sense.
00:03:48.020 | And I'll go over those in today's show.
00:03:50.700 | The answer, of course, is you need to calculate your own numbers, which is why in the show
00:03:54.940 | notes for today's show, in the blog post, you'll just see a link right to it, which
00:03:58.900 | is to the Excel file.
00:03:59.900 | I haven't touched this thing since 2000.
00:04:02.660 | I think I built it in about 2008.
00:04:05.300 | But you can download it and run the numbers for your own situation.
00:04:08.420 | But today I'm going to run you through some numbers and give you some examples.
00:04:13.780 | Because I want you to get this very, very clearly in your head.
00:04:17.660 | Gas mileage matters, but it may not be the most important thing for you to focus on such
00:04:27.440 | that you sell your older car that's functional to buy a newer one because of gas mileage.
00:04:32.620 | Now let's start with the real numbers for my dad's vehicle.
00:04:36.760 | And I'm going to punch these into my calculator.
00:04:38.740 | If you'd like to do them yourself, again, the Excel file is linked in the blog post
00:04:42.140 | or show notes for today's show.
00:04:43.780 | You can pull it up.
00:04:44.980 | What you do is you just edit the cells in yellow and all this does is calculate what
00:04:50.020 | the actual cost is.
00:04:52.460 | And this is a very, very simple calculation.
00:04:54.540 | I'll explain it as we do it.
00:04:56.700 | So the first thing we enter in is what the current MPGs are of that vehicle.
00:05:00.940 | Well, that big old Chevy van with a thirsty 350 V8 got about 14 miles per gallon.
00:05:07.840 | We drove it smoothly enough.
00:05:09.460 | Most of the highway miles were ... Most of the miles that we drove on it were highway
00:05:12.620 | miles.
00:05:13.620 | So my dad was looking at a car, just an average sedan.
00:05:16.780 | He actually wound up later on getting a Buick sedan.
00:05:20.900 | So that's what I'm going to use as my proxy here.
00:05:22.860 | And that Buick sedan was a perfectly functional, normal, mid-level consumer sedan that got
00:05:29.100 | probably about 23 or 24 miles per gallon.
00:05:31.980 | So I'm going to use 24 miles per gallon as my calculation.
00:05:37.660 | Now in my calculator, you have to put in the cost per gallon of gas.
00:05:41.840 | And so for the sake of our analysis, let's leave it at just about what it is today right
00:05:47.180 | now, about $2.30 across the country.
00:05:51.540 | So we'll just plug in $2.30 worth of gas.
00:05:55.420 | Now the next two numbers that you've got to calculate is what is the current price that
00:06:02.020 | you're going to sell your car for?
00:06:04.660 | And you need to figure this out.
00:06:07.660 | Well, if you're going to sell your current car, as I remember that that van was worth
00:06:12.860 | about $2,500 at the time that he was looking to sell it, you want to put that number in
00:06:18.140 | as how much are you going to sell your current car for, and how much will you pay for your
00:06:22.260 | new car?
00:06:24.600 | And my dad, I think, was looking at cars that were going to be about $7,500.
00:06:30.080 | Now I also want to make sure that you calculate what are some of the additional expenses or
00:06:35.640 | some of the additional savings that you're going to have.
00:06:38.680 | We'll come back to that in a moment after I give you this example.
00:06:41.160 | And then how many miles you drive every month.
00:06:44.200 | And in this case, the miles that he would drive every month were about 1,000.
00:06:49.440 | So we'll keep it at 1,000.
00:06:51.440 | Well when you run the numbers on that, you wind up with 73 months, 73 months before you
00:07:01.760 | would finally make up the cost of the purchase of the newer car.
00:07:11.800 | If that number doesn't shock you, it's simply because you're a human calculator and you've
00:07:16.080 | never worked with people.
00:07:19.320 | Because when I've interacted with people, usually they say, "Oh, about a year or two
00:07:22.520 | I'll break even."
00:07:24.680 | Six years just to break even on a very, very sensible vehicle change.
00:07:35.920 | Remember, I'm talking about moving from a $2,500 car up to a $7,500 car.
00:07:43.680 | I'm not talking about going to a $30,000 new car.
00:07:46.760 | Just moving up from a $2,500 car to a $7,500 car.
00:07:51.440 | For somebody who drives 1,000 miles a month and gets a 10 mile per gallon improvement
00:07:59.000 | in their gas mileage from 14 miles per gallon to 24 miles per gallon.
00:08:07.200 | And it takes six years to break even on the fuel cost.
00:08:14.120 | I'm going to give you a couple other examples here just to drive this point home to you.
00:08:19.480 | And then we'll talk about some of the factors that should influence your personal decision.
00:08:26.120 | So I'm going to give you two more scenarios.
00:08:28.160 | Not real scenarios.
00:08:29.160 | I'm just making these up.
00:08:30.160 | I thought of friends that I knew and people that I am encountered with and I just thought
00:08:34.440 | this would be interesting.
00:08:36.120 | So scenario one is that you drive a 2,000, currently as I record this 2016, you drive
00:08:41.120 | a 2,000 Ford F-150, which gets you 16 miles per gallon of combined mileage according to
00:08:48.360 | fuel economy.gov.
00:08:50.600 | And this vehicle is worth $1,500.
00:08:53.680 | So that's the amount of money that you're going to sell it for.
00:08:56.320 | Again, 2,000 Ford F-150, you get 16 miles per gallon.
00:08:59.880 | It's worth $1,500.
00:09:02.520 | And you're looking around and you're concerned about gas prices at $2.30 a gallon.
00:09:07.400 | And you're looking around and by the way, I'm giving you this now.
00:09:12.800 | Don't laugh at the $2.30 per gallon number.
00:09:15.420 | We were doing these numbers when they were up in the $3 and $4 numbers, but I'm doing
00:09:19.920 | it now because I want you to be thinking about gas mileage.
00:09:22.700 | We're going to keep today's numbers and then we'll show you all the variables that can
00:09:26.020 | affect your personal situation.
00:09:28.740 | Now back to the scenario.
00:09:30.180 | So 2,000 Ford F-150, get 16 miles per gallon according to fuel economy.gov.
00:09:34.900 | I just priced it on auto trader and I saw some of these listed that I think you could
00:09:39.320 | get these for about 1,500 bucks.
00:09:40.940 | So that's what you would sell it for.
00:09:42.580 | You're going to buy a 2016 Toyota Corolla.
00:09:46.400 | So you're going to go and buy a new car, but it's a very sensible car, intelligent car
00:09:50.740 | choice, small, very fuel efficient, should have a very long lifespan.
00:09:55.460 | And I checked that out on trucar.com to see what the prices are in my area.
00:09:59.880 | And I could get a 2016 Toyota Corolla for $21,510.
00:10:05.420 | So that was what they said is the average price actually paid.
00:10:09.040 | Doesn't include taxes, doesn't include title, but that's just the number that we're going
00:10:12.100 | to use, $21,510.
00:10:15.260 | Now that Toyota Corolla gets according to fuel economy.gov, 30 miles per gallon.
00:10:25.220 | So 30 miles per gallon, 2016, very reasonable situation and scenario here.
00:10:33.160 | I think very reasonable.
00:10:35.540 | Now guess how long with no other savings or expenses every month to count in.
00:10:40.260 | Just exclusively based upon gas mileage, not depreciation, not any other expenses.
00:10:48.820 | How long do you think it takes to break even on that car purchase?
00:10:55.660 | The answer is 298 months, which comes out to 24.8 years.
00:11:06.260 | We'll round that to 25 years among friends.
00:11:13.420 | Going from an old 2004 F-150, 16 miles per gallon to a new 2016 Toyota Corolla takes
00:11:21.980 | 25 years to break even based on gas mileage.
00:11:28.740 | You say, but I don't want to have a car that's that old and I don't want to buy a car that's
00:11:33.180 | not new.
00:11:34.180 | I planned out one other scenario to share with you.
00:11:36.940 | You're going to upgrade from an SUV, a 2006 Honda Pilot to a slightly newer but still
00:11:44.460 | used Prius that's very fuel efficient.
00:11:49.100 | So I pulled the numbers here from autotrader.com, a 2006 Honda Pilot would sell for about 5,000
00:11:55.940 | bucks and that currently, that car is rated for 18 miles per gallon according to fuel
00:12:01.380 | economy.gov.
00:12:03.020 | So we're going to sell it for $5,000, 18 miles per gallon.
00:12:07.340 | Now your new miles per gallon that you get with a Toyota Prius, it's rated by fuel economy.gov
00:12:12.660 | to get you 48 miles per gallon, 48 miles per gallon.
00:12:18.020 | And you're going to pay $11,000 for it because it's in the used market.
00:12:23.980 | No additional savings, no additional expenses.
00:12:26.340 | And by the way, in all of these, I've kept constant that you're driving a thousand miles
00:12:30.020 | per month.
00:12:32.820 | Guess how many months to break even?
00:12:35.500 | Answer, 75 months.
00:12:42.300 | Seventy-five months to break even just based upon gas mileage.
00:12:52.660 | When I started running these scenarios using my calculator, I was stunned because there
00:12:56.860 | are other factors and other expenses and other things that you've got to consider as well.
00:13:02.220 | But I was stunned at how long it took to break even on gas.
00:13:06.220 | Now you say, "Well, what if gas is more expensive?"
00:13:08.460 | Because let's stick with this Honda Pilot to Toyota Prius example because this is the
00:13:12.860 | one where it's the closest.
00:13:13.940 | This is the most reasonable type of scenario where you should consider changing on gas
00:13:18.460 | mileage.
00:13:19.460 | 2006 Honda Pilot worth five grand, upgrading just a few years, five years into a Prius
00:13:25.660 | and you go from 18 to 48 miles per gallon.
00:13:29.940 | You pick up 30 miles per gallon.
00:13:32.740 | Let's just change that and let's just bump gas prices up to $3 a gallon and see what
00:13:37.260 | the break even point is.
00:13:38.900 | Well, now it's 58 months, five years at $3 a gallon.
00:13:48.020 | At $4 a gallon, it's 43 months.
00:13:51.700 | Just under four years.
00:13:56.420 | I'm not going to take it higher than $4 a gallon.
00:13:58.460 | Okay, let's double your mileage and here's where things matter.
00:14:01.500 | Let's take you up to 2,000 miles.
00:14:03.420 | At $4 per gallon and 2,000 miles per month, it takes you 22 months to break even on that
00:14:18.180 | upgrade from a 2006 Pilot SUV to a 2011 Prius used.
00:14:26.700 | So what do we learn from this?
00:14:28.380 | A few things.
00:14:30.740 | Gas cost and gas mileage is probably generally not your biggest expense and it will almost
00:14:40.860 | never make sense to upgrade your car in terms of cost exclusively based upon gas mileage.
00:14:50.860 | I emphasize again, it will almost never make sense to upgrade your car based on cost to
00:14:59.540 | a more expensive car exclusively based on gas mileage.
00:15:05.460 | The upgrade word is important because where can we save money?
00:15:10.860 | Well, first, if you could go from a similarly priced car to a similarly priced car that
00:15:19.340 | gets better gas mileage, then you will experience some savings.
00:15:26.300 | So let's just do this.
00:15:29.280 | Let's say that instead of going from a 2006 Pilot to a 2011 Prius, you went from a 2006
00:15:36.260 | Pilot to a 2006 Prius.
00:15:40.660 | Well here we start to get into cars that are worth about the same amount of money.
00:15:44.820 | Now you've got to look for the individual numbers for your deal in your area.
00:15:49.220 | I just again, am doing a web search for cars listed for sale and doing a quick average.
00:15:54.100 | But when I do that, I find that a 2006 Pilot would be worth about $5,000 and a 2006 Prius
00:16:02.460 | would be worth about $5,000 to $6,000.
00:16:06.540 | Well in this situation here, if we drop this gas back to $2.30, you're going to pay, let's
00:16:12.460 | just say you're going to pay $6,000 for your new car and you're going to sell your current
00:16:16.940 | car for $5,000 and you drive 1,000 miles a month, 18 to 48 miles per gallon.
00:16:23.940 | Now all of a sudden at $2.30, you've got 13 months and you'll be in the clear.
00:16:28.620 | You'll be in the black in 13 months.
00:16:31.200 | And if we drop that to 5,500, you'd be there in six months.
00:16:36.060 | Maybe you can do an even swap.
00:16:38.700 | Well in this situation, if you drove 1,000 miles a month, you would wind up saving, switching
00:16:45.420 | from the Pilot of 2006 Pilot to the 2006 Prius, you would wind up saving about $80 per month
00:16:51.620 | in fuel.
00:16:53.940 | And that would add up pretty quickly.
00:16:56.500 | So if you want to change out your vehicle because you're concerned about gas mileage,
00:17:02.000 | look for a vehicle that gets better gas mileage, but that's of a similar vintage to your current
00:17:07.880 | vehicle or that is cheaper than your current vehicle.
00:17:12.380 | Because when you look at that, you can definitely save money based on gas mileage.
00:17:19.100 | What else do you need to consider?
00:17:20.100 | Well, you've got to consider what you actually expect the cost of gas to be.
00:17:25.660 | And that's the reason why I'm doing the show right now.
00:17:27.500 | I know very few people who are complaining about the cost of gas.
00:17:30.460 | It's a little funny.
00:17:33.740 | There's a bumper sticker.
00:17:35.780 | It's a political bumper sticker, but it's funny.
00:17:38.820 | It says the cost of gas and has a picture of Barack Obama.
00:17:41.180 | It says the cost of gas when President Obama took office in January 2009 was, I think it
00:17:46.700 | was about $1.90 a gallon.
00:17:49.260 | And the idea here is that when gas was close to $4 a gallon, that was quite the damning
00:17:59.620 | political statement.
00:18:00.620 | Well, today with gas at $2.30, every time I see that bumper sticker, I just kind of
00:18:04.780 | chuckle and say, "Haven't you removed that yet?"
00:18:06.940 | That didn't really make a big argument for yourself.
00:18:11.020 | So $2.30, no one is complaining unless you work in the oil industry or unless you live
00:18:15.600 | on dividends from your oil shares.
00:18:18.660 | Then you're complaining about current gas prices being what they are.
00:18:22.660 | But if you expect gas prices to change in the future, then this can be something that
00:18:30.460 | you should pay attention to.
00:18:32.580 | And you can use this calculator and you can use it to figure out what would be some significant
00:18:39.140 | changes that I can make in order to be prepared for changing gas prices.
00:18:45.940 | As an example, if I switch the cost of gallon per gas from $2.30 to $4 a gallon, now all
00:18:53.220 | of a sudden you're going to be saving $140 a month if you swap out your pilot for a Prius.
00:19:02.300 | And the time to do that is when prices are low.
00:19:05.960 | The time to shop for fuel-efficient cars is when the demand for them is low.
00:19:10.480 | Right now, the demand is low.
00:19:12.260 | People aren't thinking about that.
00:19:13.380 | People are very happily going out and buying bigger vehicles.
00:19:17.220 | They're not worried about it because at $2.30, it's easy to fill up the tank.
00:19:23.060 | That's not for you.
00:19:24.060 | You're smarter than that.
00:19:25.840 | So you should be shopping for your fuel-efficient vehicle now and my calculator can help you.
00:19:30.860 | One other fact, two other lines that are on my calculator that will make a big difference
00:19:35.460 | for you.
00:19:36.460 | First is how many miles do you drive every month?
00:19:38.780 | If you drive a low number of miles per month, and this should be intuitive, but for many
00:19:42.940 | people it's not.
00:19:44.660 | If you only drive a few hundred miles a month, the actual MPGs of your vehicle is probably
00:19:51.160 | the least relevant number for you because you're only paying for gas when the vehicle's
00:19:58.020 | moving.
00:19:59.860 | If you have a full-size van or like me, I want my vehicle to have this big Dodge van
00:20:05.660 | RV.
00:20:07.860 | The thing gets about 15 miles per gallon, but I don't drive it all that much.
00:20:13.320 | It's not a commuting vehicle.
00:20:14.940 | So the cost of gas matters, but it doesn't matter all that much unless I'm on the road
00:20:20.780 | a ton, a ton, a ton, but it's an RV.
00:20:22.460 | They usually don't get driven all that much.
00:20:25.420 | So don't worry.
00:20:26.420 | If you don't drive very much, don't worry about swapping out your vehicle because you're
00:20:29.260 | concerned about gas prices.
00:20:32.180 | The other number, however, on my calculator is one that you do need to pay attention to.
00:20:36.140 | And I have it listed here.
00:20:37.140 | It's called additional monthly expenses or savings from the change.
00:20:42.260 | And the idea is you want to make sure that when you're thinking about a purchase decision
00:20:46.540 | like a car, that you factor in all the costs.
00:20:50.980 | Now the way this process goes for most people is they run out and they start looking for
00:20:56.380 | cars.
00:20:57.420 | And unfortunately, they start by looking according to their budget.
00:21:02.820 | Then they start going to dealerships and looking at the newer cars because after all, I want
00:21:07.700 | to get an idea of what's out there and it's a lot easier to look at the newer cars at
00:21:10.780 | the dealership.
00:21:11.780 | Well, at the dealership, all of a sudden you find out how nice those newer cars are, how
00:21:15.900 | comfortable they are, how beautiful they are, and how inexpensive they are.
00:21:21.760 | And so you start looking at the numbers and many people just calculate them based upon
00:21:25.300 | the monthly number and they forget about the total cost of ownership.
00:21:30.440 | What you need to do is you need to calculate the actual number.
00:21:33.300 | If you're going to change from one car to another car, you need to calculate the cost
00:21:36.700 | of transferring the title, transferring the tag, paying the tax.
00:21:41.420 | In my state, we have a 6% sales tax.
00:21:45.140 | So if I were going to switch from one car to the next, I'm going to automatically incur
00:21:48.620 | a 6% sales tax from that.
00:21:51.960 | You want to consider if there are any savings with insurance because this can help a lot.
00:21:57.280 | My calculator does make provision for that.
00:21:59.740 | You might drive an older vehicle that has a very high insurance cost, but you might
00:22:03.660 | be able to switch up to a newer vehicle that has a very low insurance cost.
00:22:08.840 | In that situation, you want to count that as savings.
00:22:11.620 | Or you want to factor in savings based upon you're not having to repair your older vehicle.
00:22:19.140 | Older vehicles do tend to nickel and dime you on repairs and newer vehicles might have
00:22:27.180 | fewer repairs.
00:22:29.240 | Here you need to figure out, are we talking about actual repairs or are we talking about
00:22:33.380 | maintenance items?
00:22:34.780 | All vehicles burn up batteries about once every two, three, four years.
00:22:38.300 | All vehicles burn up tires.
00:22:40.460 | You got to replace your tires every five to six years, even if you're not putting a lot
00:22:43.700 | of miles on them just to keep them safe.
00:22:46.020 | So that six year, most people aren't going to run through an entire set of tires.
00:22:50.100 | You can buy a set of tires now at 90,000 with a 90 to 100,000 mile.
00:22:54.420 | I've seen them with 90,000 mile warranty.
00:22:56.460 | So figure 70 to 100,000 miles of useful lifespan.
00:23:00.020 | Most people are going to be replacing their tires, not because they're worn down, but
00:23:04.460 | because they're old, which by the way, if you don't know that, you need to do that for
00:23:08.180 | a safety consideration.
00:23:10.700 | Majority of significant, let me not say a majority because I don't know that to be the
00:23:14.540 | fact, a significant number of catastrophic blowouts of tires are caused due to the age
00:23:22.720 | of the tire, not due to another factor.
00:23:26.880 | So when your tires get to about five to six years old, you need to replace them proactively
00:23:33.460 | so that you don't wind up with a catastrophic blowout.
00:23:37.060 | Catastrophic blowout is the type of thing that you want to avoid.
00:23:40.660 | That's when it happens at 70 miles an hour and all of a sudden the tire shreds.
00:23:44.780 | You get a flat tire because you popped it with a nail.
00:23:47.100 | That's no big deal.
00:23:48.100 | That's not a safety hazard.
00:23:49.660 | Catastrophic blowout on the interstate is a safety hazard.
00:23:51.780 | So replace your tires when you get them to about five to six years and don't take a chance
00:23:56.180 | on that.
00:23:57.180 | It's not worth it.
00:23:58.420 | Point of the tire issue though is all vehicles need tires.
00:24:06.180 | All vehicles need oil changes.
00:24:07.860 | So sometimes with an older vehicle, there aren't a lot of actual changes.
00:24:12.180 | I've had now a little 1998 Toyota Corolla that I bought for $500, a little more than
00:24:20.940 | a year ago.
00:24:22.660 | I have not repaired anything with it and I put 4,000 miles on it.
00:24:28.180 | There's not been a single problem.
00:24:29.740 | I haven't had to repair anything.
00:24:30.980 | The vehicle just works.
00:24:32.460 | It works largely due to its nature, meaning it's very, very simple.
00:24:36.340 | It's mechanically simple.
00:24:37.340 | I've got a manual transmission and roll up windows.
00:24:40.460 | I don't have anything.
00:24:41.700 | There's very few things on it that can break.
00:24:44.300 | Now, of course, things can break, but mechanically it's very simple.
00:24:49.340 | That's different than the TPMS, tire pressure monitoring system light on my other car that
00:24:54.020 | I can't seem to fix no matter how much money we throw at the thing because it's got more
00:24:58.740 | issues, more things to break.
00:25:01.940 | So do some actual true calculations for your situation.
00:25:06.340 | Figure out if there are additional monthly expenses.
00:25:09.180 | Do you have insurance costs that go up?
00:25:12.700 | Or if there are additional monthly savings, you need to factor those in.
00:25:15.740 | Obviously, of course, you also want to factor in the depreciation.
00:25:20.340 | Now my calculator does not factor in depreciation, but you need to do that mentally.
00:25:26.300 | What I mean is, and the reason it doesn't is because I built it real quick and I was
00:25:30.260 | just trying to answer the question of fuel mileage.
00:25:33.620 | But remember that your car is going to be worth progressively less and less and less
00:25:40.340 | for each year that goes on.
00:25:42.620 | Now you can't always drive a 1922 vehicle.
00:25:45.380 | Of course, you've got to upgrade at some point in time, but that depreciation is a real cost.
00:25:51.460 | And if we were going to go back to my Toyota example, my Toyota Corolla example, let me
00:25:57.540 | run these numbers again.
00:25:58.540 | So we've got a 2000 Ford F-150, 16 miles per gallon.
00:26:02.860 | 2016 Toyota Corolla gets 30 miles per gallon.
00:26:05.820 | Gas, let's put it at $2.50 now.
00:26:09.020 | We're going to pay $21,510 for it.
00:26:11.900 | We could sell our current car for $1,500, drive a thousand miles a month.
00:26:17.300 | So in my situation here, under this example, what I find out is that the average, the current
00:26:24.220 | cost of fuel per mile is 16 cents per mile, just gas in that F-150.
00:26:31.420 | And the newer cost of fuel per mile to go up to the Toyota Corolla is 8 cents per mile
00:26:35.900 | of gas.
00:26:38.260 | So I'm going to save some money in gas.
00:26:40.100 | I'm going to wind up saving a total of $73 per month of fuel.
00:26:48.420 | Now it's going to take me 412 months to break even on the fuel costs, but I'm saving $73.
00:26:57.940 | But now let's talk about depreciation on that $30,000 vehicle.
00:27:02.500 | $31,510 times 0.15 comes out to $4,726 of depreciation in the first year.
00:27:13.180 | Brought out monthly, divide that by 12, we wind up with $393 per month of depreciation,
00:27:26.540 | meaning the car is just worth progressively less from sitting in my driveway and from
00:27:31.340 | driving me to work.
00:27:33.700 | That's $400 out the door gone before we even get to fuel savings.
00:27:40.780 | My calculator doesn't take this into account, but you need to take this into account.
00:27:44.940 | Now it won't always be $400 a month because in the future the car will be worth less and
00:27:49.700 | less.
00:27:50.700 | But let's say a couple of years from now it's now worth $15,000.
00:27:53.940 | Well a $15,000 car is losing $2,250 this year in depreciation costs.
00:28:01.380 | Divide that by 12, that's $187 gone.
00:28:06.560 | Equal what I'm saving on fuel mileage savings.
00:28:11.140 | At that point in time, I guess the car would probably have to be what, $7,500.
00:28:16.360 | So we'd have to get down to when the car is worth, in order to save money on fuel here,
00:28:24.260 | in order for the loss of depreciation to equal the loss of savings on fuel, we've got to
00:28:30.440 | get down to $5,000 times .15, 750 divided by 12, a little bit more.
00:28:39.840 | Okay, $6,500 times .15 divided by 12.
00:28:43.200 | Great, good enough.
00:28:44.280 | So when your 2016 Toyota Corolla is worth $6,500, now at this point in time you are
00:28:57.160 | finally going to only be losing $81.25 this month, every month this year, in depreciation
00:29:05.560 | costs where you're saving $73 per month of fuel.
00:29:13.520 | So you've got to drive, in that example, if you were going to think about trading in your
00:29:16.920 | 2000 Ford F-150 and buying a 2016 Toyota Corolla, you would have to drive off $24,000 of value
00:29:25.880 | of the Corolla before you ever make up your fuel savings when we factor in depreciation.
00:29:41.400 | Point of the story, don't buy a newer car because it saves you money on gas.
00:29:48.400 | Buy a newer car because you want a newer car, because at this stage of your life it's appropriate
00:29:53.440 | for you to have a newer car.
00:29:55.120 | Buy a newer car because your circumstances change.
00:29:59.720 | Buy a newer car because you have a reason to buy a newer car that's not financial.
00:30:04.760 | Now when you're buying a newer car for a reason that's not financial, make sure you factor
00:30:10.680 | in good financial decisions.
00:30:14.200 | There's no reason to buy something that gets bad gas mileage if you have an option to buy
00:30:17.960 | something that gets better gas mileage.
00:30:20.640 | I remain convinced in consumer reports and many other people agree with me that if you
00:30:24.800 | are interested in driving a car, a Toyota Prius is the best car for the vast majority
00:30:30.640 | of people to buy and to be driving.
00:30:32.640 | It's fantastic.
00:30:33.640 | I'm going to do a show, it might be tomorrow, on the Chevy Volt, the new 2017 Chevy Volt.
00:30:39.160 | I think it's one that if I were buying a newer car today, I would seriously consider it.
00:30:44.560 | It's a great vehicle.
00:30:47.240 | But I wouldn't be telling myself that I'm buying the newer car because I'm going to
00:30:50.720 | save on money by switching from gas to electric.
00:30:54.320 | Although that will come eventually.
00:30:56.080 | Yes, you can save on gas by switching to electric.
00:31:01.440 | But it's going to take a really long time to make up those savings.
00:31:04.080 | I'm just saying if you're in that stage of life where you need to upgrade your car, make
00:31:08.960 | a sensible decision at that point in time.
00:31:12.840 | And don't fool yourself into thinking that you can buy the new car because you're going
00:31:18.960 | to save on gas.
00:31:23.320 | I'm the youngest of my parents' seven children.
00:31:27.160 | If you ever have seven children in your family, you'll start to see that there are certain
00:31:31.340 | expenses and costs that many other families with fewer children don't get to enjoy.
00:31:38.200 | Those costs would range from the cost of going out to eat.
00:31:41.760 | Just about any restaurant visit automatically turns into a $100 meal if you have seven kids
00:31:47.280 | and you're trying to go out to eat.
00:31:49.560 | One of the costs is transportation because you need to want a vehicle big enough to carry
00:31:54.320 | your family around.
00:31:55.320 | If you have three, four, five kids, there are lots of options.
00:31:58.640 | But when you get to seven, all of a sudden now you have nine people total that you've
00:32:02.520 | got to cart around.
00:32:03.760 | And that requires a larger vehicle.
00:32:06.520 | When I was growing up, all during my younger years, my parents had a 1985 Chevy 12 passenger
00:32:12.560 | van.
00:32:13.560 | We used that van for many, many years.
00:32:15.760 | Drove it all over the United States.
00:32:17.440 | Had a lot of great memories in that van.
00:32:18.880 | My dad fixed it up and it was repainted a couple times and just was a great vehicle
00:32:22.780 | for us.
00:32:23.920 | But sometime probably about the late '90s, we needed to upgrade.
00:32:29.680 | And so my parents were looking around and trying to figure out if they could switch
00:32:33.080 | to a different kind of vehicle.
00:32:35.600 | They were shopping.
00:32:36.600 | They knew they probably needed a van.
00:32:38.360 | At one point I have a clear, vivid memory of going and looking at the Chevy Astro.
00:32:43.700 | The Chevy Astro had three rows, but at that point in time, they put me in the backseat
00:32:48.280 | and I probably wasn't as big then as I am now, but I'm about 6'5", 6'6" and I'm not
00:32:53.480 | skinny.
00:32:55.040 | And they put me in the backseat and realized they needed something a little bit bigger.
00:32:58.400 | So after a while, they found a 1995 Chevy conversion van and bought that.
00:33:05.880 | I found it used and bought that.
00:33:08.040 | And we had a lot of great memories in that vehicle as well.
00:33:11.080 | It was very, very useful, very, very comfortable.
00:33:13.560 | It was a great car.
00:33:15.360 | One of the problems though of driving a full-size van is it's not the most fuel efficient vehicle.
00:33:20.520 | Well, my parents kept that vehicle for many years.
00:33:24.860 | And when I was in college, most of the needs of being able to carry the whole family together
00:33:29.380 | had been eliminated simply due to kids growing up, getting married, starting their own families.
00:33:34.920 | And my dad just got kind of tired of this big van that he was driving to work every
00:33:39.760 | day.
00:33:40.760 | We lived out west of town, about 20 miles, and he would drive this thing in and out,
00:33:44.800 | in and out, in and out.
00:33:45.800 | And looking at the gas tank, I mean, to fill the thing up is 80 bucks.
00:33:50.280 | And it gets hard to do that.
00:33:51.660 | So he was thinking, "Well, it might be time to get something a little bit more fuel efficient
00:33:54.720 | for his commute."
00:33:56.000 | He was also getting tired of putting money into it and fixing a few things.
00:33:59.280 | And so he was talking to me about whether he should switch to a different car.
00:34:04.440 | Well, I didn't know the answer.
00:34:06.900 | So I sat down and built a calculator in Excel to try to figure out the answer.
00:34:14.360 | And the results of that challenge that I had set for myself really, really shocked me.
00:34:23.480 | Because what I learned was that even though he was driving one of the worst vehicles in
00:34:30.000 | terms of fuel mileage, even so, and even though he was driving a lot, it still didn't make
00:34:40.520 | a lot of financial sense for him to move up to a newer car based solely on gas mileage
00:34:52.600 | improvements.
00:34:55.440 | Since that time, I've done this calculation many times.
00:34:57.880 | I sent my calculator out to all my friends and would email it out.
00:35:00.440 | And anytime somebody was thinking about buying another car and they're trying to justify
00:35:04.160 | it based upon gas mileage, I would send them my calculator, let them do the numbers.
00:35:08.000 | And there are times at which this makes sense.
00:35:09.960 | And I'll go over those in today's show.
00:35:12.640 | The answer of course is you need to calculate your own numbers, which is why in the show
00:35:16.920 | notes for today's show, in the blog post, you'll just see a link right to it, just to
00:35:21.160 | the Excel file.
00:35:22.160 | I haven't touched this thing since 2000.
00:35:24.600 | I think I built it in about 2008.
00:35:27.260 | But you can download it and run the numbers for your own situation.
00:35:30.400 | But today I'm going to run you through some numbers and give you some examples.
00:35:35.760 | Because I want you to get this very, very clearly in your head.
00:35:39.600 | Gas mileage matters, but it may not be the most important thing for you to focus on such
00:35:49.380 | that you sell your older car that's functional to buy a newer one because of gas mileage.
00:35:54.560 | Now let's start with the real numbers for my dad's vehicle.
00:35:58.700 | And I'm going to punch these into my calculator.
00:36:00.680 | If you'd like to do them yourself, again, the Excel file is linked in the blog post
00:36:04.080 | or show notes for today's show.
00:36:05.720 | You can pull it up.
00:36:06.920 | What you do is you just edit the cells in yellow and all this does is calculate what
00:36:11.960 | the actual cost is.
00:36:14.360 | And this is a very, very simple calculation.
00:36:16.440 | I'll explain it as we do it.
00:36:18.640 | So the first thing we enter in is what the current MPGs are of that vehicle.
00:36:22.880 | Well, that big old Chevy van with a thirsty 350 V8 got about 14 miles per gallon.
00:36:29.760 | We drove it smoothly enough.
00:36:31.360 | Most of the highway miles were ... Most of the miles that we drove on it were highway
00:36:34.520 | miles.
00:36:35.520 | So my dad was looking at a car, just an average sedan.
00:36:38.720 | He actually wound up later on getting a Buick sedan.
00:36:42.860 | So that's what I'm going to use as my proxy here.
00:36:44.800 | And that Buick sedan was a perfectly functional, normal, mid-level consumer sedan that got
00:36:51.040 | probably about 23 or 24 miles per gallon.
00:36:53.720 | So I'm going to use 24 miles per gallon as my calculation.
00:36:59.600 | Now in my calculator, you have to put in the cost per gallon of gas.
00:37:03.800 | And so for the sake of our analysis, let's leave it at just about what it is today, right
00:37:09.120 | now, about $2.30 across the country.
00:37:13.480 | So we'll just plug in $2.30 worth of gas.
00:37:17.360 | Now the next two numbers that you've got to calculate is what is the current price that
00:37:24.080 | you're going to sell your car for?
00:37:26.600 | And you need to figure this out.
00:37:29.600 | Well, if you're going to sell your current car, as I remember that that van was worth
00:37:34.800 | about $2,500 at the time that he was looking to sell it, you want to put that number in
00:37:40.080 | as how much are you going to sell your current car for, and how much will you pay for your
00:37:44.200 | new car?
00:37:46.520 | And my dad, I think, was looking at cars that were going to be about $7,500.
00:37:52.020 | Now I also want to make sure that you calculate what are some of the additional expenses or
00:37:57.600 | some of the additional savings that you're going to have.
00:38:00.640 | We'll come back to that in a moment after I give you this example.
00:38:03.120 | And then how many miles you drive every month.
00:38:06.160 | And in this case, the miles that he would drive every month were about 1,000.
00:38:11.400 | So we'll keep it at 1,000.
00:38:13.360 | Well when you run the numbers on that, you wind up with 73 months, 73 months before you
00:38:23.720 | would finally make up the cost of the purchase of the newer car.
00:38:33.760 | If that number doesn't shock you, it's simply because you're a human calculator and you've
00:38:38.040 | never worked with people.
00:38:41.280 | Because when I've interacted with people, usually they say, "Oh, about a year or two
00:38:44.480 | I'll break even."
00:38:46.640 | It takes years just to break even on a very, very sensible vehicle change.
00:38:57.880 | Remember, I'm talking about moving from a $2,500 car up to a $7,500 car.
00:39:05.640 | I'm not talking about going to a $30,000 new car.
00:39:08.720 | Just moving up from a $2,500 car to a $7,500 car.
00:39:13.400 | For somebody who drives 1,000 miles a month and gets a 10 mile per gallon improvement
00:39:20.960 | in their gas mileage from 14 miles per gallon to 24 miles per gallon.
00:39:29.160 | And it takes six years to break even on the fuel cost.
00:39:36.080 | I'm going to give you a couple other examples here just to drive this point home to you.
00:39:41.440 | And then we'll talk about some of the factors that should influence your personal decision.
00:39:48.080 | So I'm going to give you two more scenarios, not real scenarios.
00:39:50.880 | I'm just making these up.
00:39:52.200 | I thought of friends that I knew and people that I am encountered with and I just thought
00:39:56.400 | this would be interesting.
00:39:58.080 | So scenario one is that you drive a 2,000, currently as I record this 2016, you drive
00:40:03.040 | a 2,000 Ford F-150, which gets you 16 miles per gallon of combined mileage according to
00:40:10.280 | fuel economy.gov.
00:40:12.520 | And this vehicle is worth $1,500.
00:40:15.640 | So that's the amount of money that you're going to sell it for.
00:40:18.240 | Again, 2,000 Ford F-150, you get 16 miles per gallon.
00:40:21.840 | It's worth $1,500.
00:40:24.480 | And you're looking around and you're concerned about gas prices at $2.30 a gallon.
00:40:29.360 | And you're looking around and by the way, I'm giving you this now.
00:40:34.760 | Don't laugh at the $2.30 per gallon number.
00:40:37.360 | We were doing these numbers when they were up in the $3 and $4 numbers, but I'm doing
00:40:41.860 | it now because I want you to be thinking about gas mileage.
00:40:44.640 | We're going to keep today's numbers and then we'll show you all the variables that can
00:40:47.960 | affect your personal situation.
00:40:50.680 | Now back to the scenario.
00:40:52.120 | So 2,000 Ford F-150, get 16 miles per gallon according to fuel economy.gov.
00:40:56.840 | I just priced it on auto trader and I saw some of these listed that I think you could
00:41:01.260 | get these for about 1,500 bucks.
00:41:02.880 | So that's what you would sell it for.
00:41:04.520 | You're going to buy a 2016 Toyota Corolla.
00:41:08.360 | So you're going to go and buy a new car, but it's a very sensible car, intelligent car
00:41:12.680 | choice, small, very fuel efficient, should have a very long lifespan.
00:41:17.400 | And I checked that out on trucar.com to see what the prices are in my area.
00:41:21.820 | And I could get a 2016 Toyota Corolla for $21,510.
00:41:27.380 | So that was what they said is the average price actually paid.
00:41:31.000 | Doesn't include taxes, doesn't include title, but that's just the number that we're going
00:41:34.040 | to use, $21,510.
00:41:37.200 | Now that Toyota Corolla gets according to fuel economy.gov, 30 miles per gallon.
00:41:47.160 | So 30 miles per gallon, 2016, very reasonable situation and scenario here.
00:41:55.120 | I think very reasonable.
00:41:57.480 | Now guess how long with no other savings or expenses every month to count in, just exclusively
00:42:04.640 | based upon gas mileage, not depreciation, not any other expenses.
00:42:10.760 | How long do you think it takes to break even on that car purchase?
00:42:17.620 | The answer is 298 months, which comes out to 24.8 years.
00:42:28.220 | We'll round that to 25 years among friends.
00:42:35.380 | Going from an old 2004 to F-150, 16 miles per gallon to a new 2016 Toyota Corolla takes
00:42:43.780 | 25 years to break even based on gas mileage.
00:42:50.660 | You say, "But I don't want to have a car that's that old and I don't want to buy a car that's
00:42:55.100 | not new."
00:42:56.100 | Okay, I planned out one other scenario to share with you.
00:42:58.900 | You're going to upgrade from an SUV, a 2006 Honda Pilot to a slightly newer but still
00:43:06.420 | used Prius that's very fuel efficient.
00:43:11.060 | So I pulled the numbers here from autotrader.com, a 2006 Honda Pilot would sell for about 5,000
00:43:17.940 | bucks and currently that car is rated for 18 miles per gallon according to fueleconomy.gov.
00:43:24.980 | So we're going to sell it for $5,000, 18 miles per gallon.
00:43:29.300 | Now your new miles per gallon that you get with a Toyota Prius, it's rated by fueleconomy.gov
00:43:34.620 | to get you 48 miles per gallon, 48 miles per gallon and you're going to pay $11,000 for
00:43:42.180 | it because it's in the used market.
00:43:45.980 | No additional savings, no additional expenses and by the way in all of these I've kept constant
00:43:50.620 | that you're driving 1,000 miles per month.
00:43:54.820 | Guess how many months to break even?
00:43:57.180 | Answer, 75 months.
00:44:02.620 | 75 months to break even just based upon gas mileage.
00:44:14.620 | When I started running these scenarios using my calculator I was stunned because there
00:44:18.820 | are other factors and other expenses and other things that you've got to consider as well
00:44:24.180 | but I was stunned at how long it took to break even on gas.
00:44:28.180 | Now you say, "Well, what if gas is more expensive?" because let's stick with this Honda Pilot
00:44:32.940 | to Toyota Prius example because this is the one where it's the closest.
00:44:35.940 | This is the most reasonable type of scenario where you should consider changing on gas
00:44:40.420 | mileage.
00:44:41.420 | 2006 Honda Pilot worth 5 grand upgrading just a few years, 5 years into a Prius and you
00:44:47.940 | go from 18 to 48 miles per gallon.
00:44:51.900 | You pick up 30 miles per gallon.
00:44:54.700 | Let's just change that and let's just bump gas prices up to $3 a gallon and see what
00:44:59.220 | the break even point is.
00:45:00.820 | Well, now it's 58 months, 5 years at $3 a gallon.
00:45:09.980 | At $4 a gallon it's 43 months, so just under 4 years.
00:45:18.420 | I'm not going to take it higher than $4 a gallon.
00:45:20.380 | Okay, let's double your mileage and here's where things matter.
00:45:23.460 | Let's take you up to 2,000 miles.
00:45:25.380 | At $4 per gallon and 2,000 miles per month, it takes you 22 months to break even on that
00:45:40.140 | upgrade from a 2006 Pilot SUV to a 2011 Prius used.
00:45:48.660 | So what do we learn from this?
00:45:50.260 | A few things.
00:45:52.700 | Gas mileage is probably, gas cost and gas mileage is probably generally not your biggest
00:45:59.420 | expense and it will almost never make sense to upgrade your car in terms of cost exclusively
00:46:09.980 | based upon gas mileage.
00:46:12.860 | I emphasize again, it will almost never make sense to upgrade your car based on cost to
00:46:21.500 | a more expensive car exclusively based on gas mileage.
00:46:27.420 | The upgrade word is important because where can we save money?
00:46:32.820 | Well, first if you could go from a similarly priced car to a similarly priced car that
00:46:41.260 | gets better gas mileage, then you will experience some savings.
00:46:48.240 | So let's just do this.
00:46:51.220 | Let's say that instead of going from a 2006 Pilot to a 2011 Prius, you went from a 2006
00:46:58.620 | Pilot to a 2006 Prius.
00:47:02.580 | Well here we start to get into cars that are worth about the same amount of money.
00:47:06.780 | Now you've got to look for the individual numbers for your deal in your area.
00:47:11.140 | I just again, I'm doing a web search for cars listed for sale and doing a quick average.
00:47:16.020 | But when I do that, I find that a 2006 Pilot would be worth about $5,000 and a 2006 Prius
00:47:24.420 | would be worth about $5,000 to $6,000.
00:47:28.500 | Well in this situation here, if we drop this gas back to $2.30, you're going to pay, let's
00:47:34.400 | just say you're going to pay $6,000 for your new car and you're going to sell your current
00:47:38.880 | car for $5,000 and you drive 1,000 miles a month, 18 to 48 miles per gallon.
00:47:45.880 | Now all of a sudden at $2.30, you've got 13 months and you'll be in the clear.
00:47:50.580 | You'll be in the black in 13 months.
00:47:53.140 | And if we drop that to 5,500, you'd be there in six months.
00:47:58.000 | Maybe you can do an even swap.
00:48:00.640 | Well in this situation, if you drove 1,000 miles a month, you would wind up saving, switching
00:48:07.380 | from the Pilot of 2006 Pilot to the 2006 Prius, you would wind up saving about $80 per month
00:48:13.560 | in fuel.
00:48:15.880 | And that would add up pretty quickly.
00:48:18.440 | So if you want to change out your vehicle because you're concerned about gas mileage,
00:48:23.960 | look for a vehicle that gets better gas mileage, but that's of a similar vintage to your current
00:48:29.840 | vehicle or that is cheaper than your current vehicle.
00:48:34.320 | Because when you look at that, you can definitely save money based on gas mileage.
00:48:41.060 | What else do you need to consider?
00:48:42.060 | Well, you've got to consider what you actually expect the cost of gas to be.
00:48:47.600 | And that's the reason why I'm doing the show right now.
00:48:49.460 | I know very few people who are complaining about the cost of gas.
00:48:52.460 | It's a little funny.
00:48:55.700 | There's a bumper sticker.
00:48:57.720 | It's a political bumper sticker, but it's funny.
00:49:00.760 | It says the cost of gas and has a picture of Barack Obama.
00:49:03.120 | It says the cost of gas when President Obama took office in January 2009 was, I think it
00:49:08.640 | was about $1.90 a gallon.
00:49:11.200 | And the idea here is that when gas was close to $4 a gallon, that was quite the damning
00:49:21.560 | political statement.
00:49:22.560 | Well, today with gas at $2.30, every time I see that bumper sticker, I just kind of
00:49:26.720 | chuckle and say, "Haven't you removed that yet?"
00:49:28.880 | That didn't really make a big argument for yourself.
00:49:33.000 | So $2.30, no one is complaining unless you work in the oil industry or unless you live
00:49:37.580 | on dividends from your oil shares.
00:49:40.640 | Then you're complaining about current gas prices being what they are.
00:49:44.620 | But if you expect gas prices to change in the future, then this can be something that
00:49:52.440 | you should pay attention to.
00:49:54.540 | And you can use this calculator and you can use it to figure out what would be some significant
00:50:01.080 | changes that I can make in order to be prepared for changing gas prices.
00:50:07.880 | As an example, if I switch the cost of gallon per gas from $2.30 to $4 a gallon, now all
00:50:15.160 | of a sudden you're going to be saving $140 a month if you swap out your pilot for a Prius.
00:50:24.240 | And the time to do that is when prices are low.
00:50:27.900 | The time to shop for fuel-efficient cars is when the demand for them is low.
00:50:32.420 | Right now, the demand is low.
00:50:34.200 | People aren't thinking about that.
00:50:35.340 | People are very happily going out and buying bigger vehicles.
00:50:39.380 | They're not worried about it because at $2.30, it's easy to fill up the tank.
00:50:45.000 | That's not for you.
00:50:46.360 | You're smarter than that.
00:50:47.800 | So you should be shopping for your fuel-efficient vehicle now and my calculator can help you.
00:50:52.800 | One other fact, two other lines that are on my calculator that will make a big difference
00:50:57.400 | for you.
00:50:58.400 | First is how many miles do you drive every month?
00:51:00.720 | If you drive a low number of miles per month, and this should be intuitive, but for many
00:51:04.880 | people it's not.
00:51:06.600 | If you only drive a few hundred miles a month, the actual MPGs of your vehicle is probably
00:51:13.120 | the least relevant number for you because you're only paying for gas when the vehicle's
00:51:19.960 | moving.
00:51:21.800 | If you have a full-size van or like me, one of my vehicles, I have this big Dodge van
00:51:27.600 | RV.
00:51:29.800 | The thing gets about 15 miles per gallon, but I don't drive it all that much.
00:51:35.260 | It's not a commuting vehicle.
00:51:36.880 | So the cost of gas matters, but it doesn't matter all that much unless I'm on the road
00:51:42.720 | a ton, a ton, a ton, but it's an RV.
00:51:44.400 | They usually don't get driven all that much.
00:51:47.360 | So don't worry.
00:51:48.360 | If you don't drive very much, don't worry about swapping out your vehicle because you're
00:51:51.200 | concerned about gas prices.
00:51:54.140 | The other number, however, on my calculator is one that you do need to pay attention to.
00:51:58.080 | And I have it listed here.
00:51:59.080 | It's called additional monthly expenses or savings from the change.
00:52:04.200 | And the idea is you want to make sure that when you're thinking about a purchase decision
00:52:08.480 | like a car, that you factor in all the costs.
00:52:12.920 | Now the way this process goes for most people is they run out and they start looking for
00:52:18.360 | cars.
00:52:19.360 | And unfortunately, they start by looking according to their budget.
00:52:24.760 | Then they start going to dealerships and looking at the newer cars because after all, I want
00:52:29.640 | to get an idea of what's out there and it's a lot easier to look at the newer cars at
00:52:32.720 | the dealership.
00:52:33.720 | Well, at the dealership, all of a sudden you find out how nice those newer cars are, how
00:52:37.840 | comfortable they are, how beautiful they are, and how inexpensive they are.
00:52:43.700 | And so you start looking at the numbers and many people just calculate them based upon
00:52:47.240 | the monthly number and they forget about the total cost of ownership.
00:52:52.400 | What you need to do is you need to calculate the actual number.
00:52:55.240 | If you're going to change from one car to another car, you need to calculate the cost
00:52:58.640 | of transferring the title, transferring the tag, paying the tax.
00:53:03.360 | In my state, we have a 6% sales tax.
00:53:07.080 | So if I were going to switch from one car to the next, I'm going to automatically incur
00:53:10.580 | a 6% sales tax from that.
00:53:13.920 | You want to consider if there are any savings with insurance because this can help a lot.
00:53:19.240 | My calculator does make provision for that.
00:53:21.680 | You might drive an older vehicle that has a very high insurance cost, but you might
00:53:25.600 | be able to switch up to a newer vehicle that has a very low insurance cost.
00:53:30.800 | In that situation, you want to count that as savings.
00:53:33.560 | Or you want to factor in savings based upon you're not having to repair your older vehicle.
00:53:41.080 | Older vehicles do tend to nickel and dime you on repairs and newer vehicles might have
00:53:49.120 | fewer repairs.
00:53:51.200 | Here you need to figure out are we talking about actual repairs or are we talking about
00:53:55.320 | maintenance items?
00:53:56.760 | All vehicles burn up batteries about once every two, three, four years.
00:54:00.240 | All vehicles burn up tires.
00:54:02.400 | You got to replace your tires every five to six years, even if you're not putting a lot
00:54:05.640 | of miles on them just to keep them safe.
00:54:07.960 | So that six year, most people aren't going to run through an entire set of tires.
00:54:12.040 | You can buy a set of tires now at 90,000 with a 90 to 100,000 mile.
00:54:16.080 | I've seen them with 90,000 mile warranty.
00:54:18.400 | So figure 70 to 100,000 miles of useful lifespan.
00:54:21.960 | Most people are going to be replacing their tires not because they're worn down, but because
00:54:26.760 | they're old, which by the way, if you don't know that, you need to do that for a safety
00:54:31.160 | consideration.
00:54:32.160 | Majority of significant, let me not say a majority because I don't know that to be the
00:54:36.480 | fact, a significant number of catastrophic blowouts of tires are caused due to the age
00:54:44.680 | of the tire, not due to another factor.
00:54:48.840 | So when your tires get to about five to six years old, you need to replace them proactively
00:54:55.440 | so that you don't wind up with a catastrophic blowout.
00:54:58.280 | A catastrophic blowout is the type of thing that you want to avoid.
00:55:02.960 | That's when it happens at 70 miles an hour and all of a sudden the tire shreds.
00:55:06.720 | You get a flat tire because you popped it with a nail.
00:55:09.040 | That's no big deal.
00:55:10.040 | That's not a safety hazard.
00:55:11.620 | Catastrophic blowout on the interstate is a safety hazard.
00:55:13.720 | So replace your tires when you get them to about five to six years and don't take a chance
00:55:18.120 | on that.
00:55:19.120 | It's not worth it.
00:55:20.360 | The other side of the tire issue though is all vehicles need tires.
00:55:28.120 | All vehicles need oil changes.
00:55:29.800 | So sometimes with an older vehicle, there aren't a lot of actual changes.
00:55:34.120 | I've had now a little 1998 Toyota Corolla that I bought for, I bought it for $500, a
00:55:42.600 | little more than a year ago.
00:55:44.600 | I have not repaired anything with it and I put 4,000 miles on it.
00:55:50.120 | There's not been a single problem.
00:55:51.680 | I haven't had to repair anything.
00:55:52.920 | The vehicle just works.
00:55:54.420 | It works largely due to its nature, meaning it's very, very simple.
00:55:58.280 | It's mechanically simple.
00:55:59.360 | I've got a manual transmission and roll up windows.
00:56:02.440 | I don't have anything.
00:56:03.680 | There's very few things on it that can break.
00:56:06.200 | Now, of course, things can break, but mechanically it's very simple.
00:56:11.320 | That's different than the TPMS, tire pressure monitoring system light on my other car that
00:56:15.960 | I can't seem to fix no matter how much money we throw at the thing because it's got more
00:56:20.720 | issues, more things to break.
00:56:23.880 | So do some actual true calculations for your situation.
00:56:28.000 | You figure out if there are additional monthly expenses.
00:56:31.160 | Do you have insurance costs that go up?
00:56:34.680 | Or if there are additional monthly savings, you need to factor those in.
00:56:37.720 | Obviously, of course, you also want to factor in the depreciation.
00:56:42.320 | Now my calculator does not factor in depreciation, but you need to do that mentally.
00:56:48.160 | And what I mean is, and the reason it doesn't is because I built it real quick and I was
00:56:52.240 | just trying to answer the question of fuel mileage.
00:56:55.620 | But remember that your car is going to be worth progressively less and less and less
00:57:02.320 | for each year that goes on.
00:57:04.620 | Now you can't always drive a 1922 vehicle.
00:57:07.440 | Of course, you've got to upgrade at some point in time.
00:57:10.360 | But that depreciation is a real cost.
00:57:13.440 | And if we were going to go back to my Toyota example, my Toyota Corolla example, let me
00:57:19.520 | run these numbers again.
00:57:20.520 | Okay, so we've got a 2000 Ford F-150, 16 miles per gallon.
00:57:24.720 | 2016 Toyota Corolla gets 30 miles per gallon.
00:57:27.760 | Gas, let's put it at $2.50 now.
00:57:30.960 | We're going to pay $21,510 for it.
00:57:33.840 | We could sell our current car for $1,500, drive 1,000 miles a month.
00:57:39.240 | So in my situation here, under this example, what I find out is that the average, the current
00:57:46.200 | cost of fuel per mile is 16 cents per mile, just gas in that F-150.
00:57:53.380 | And the newer cost of fuel per mile to go up to the Toyota Corolla is 8 cents per mile
00:57:57.880 | of gas.
00:58:00.220 | So I'm going to save some money in gas.
00:58:02.080 | I'm going to wind up saving a total of $73 per month of fuel.
00:58:10.400 | Now it's going to take me 412 months to break even on the fuel costs, but I'm saving $73.
00:58:19.920 | But now let's talk about depreciation on that $30,000 vehicle.
00:58:24.480 | $3,510 times 0.15 comes out to $4,726 of depreciation in the first year.
00:58:35.120 | Brought out monthly, divide that by 12, we wind up with $393 per month of depreciation,
00:58:48.520 | meaning the car is just worth progressively less from sitting in my driveway and from
00:58:53.320 | driving me to work.
00:58:55.640 | That's $400 out the door gone before we even get to fuel savings.
00:59:02.760 | My calculator doesn't take this into account, but you need to take this into account.
00:59:06.880 | Now it won't always be $400 a month because in the future the car will be worth less and
00:59:11.680 | less.
00:59:12.680 | But let's say a couple of years from now it's now worth $15,000.
00:59:15.880 | Well a $15,000 car is losing $2,250 this year in depreciation costs, divide that by 12,
00:59:24.520 | that's $187 gone.
00:59:28.520 | Double what I'm saving on fuel mileage savings.
00:59:33.100 | At that point in time, I guess the car would probably have to be what, $7,500.
00:59:38.320 | So we'd have to get down to when the car is worth, in order to save money on fuel here,
00:59:44.840 | excuse me, in order for the loss of depreciation to equal the loss of savings on fuel, we've
00:59:52.200 | got to get down to $5,000 times .15, 750 divided by 12, a little bit more, $6,500 times .15
01:00:03.600 | divided by 12.
01:00:05.160 | Great, good enough.
01:00:06.220 | So when your 2016 Toyota Corolla is worth $6,500, now at this point in time you are
01:00:19.120 | finally going to only be losing $81.25 this month, every month this year in depreciation
01:00:27.520 | costs where you're saving $73 per month of fuel.
01:00:35.480 | So you've got to drive, in that example, if you were going to think about trading in your
01:00:38.760 | 2004 F-150 and buying a 2016 Toyota Corolla, you would have to drive off $24,000 of value
01:00:47.740 | of the Corolla before you ever make up your fuel savings when we factor in depreciation.
01:01:03.360 | Here's the story, don't buy a newer car because it saves you money on gas.
01:01:10.360 | Buy a newer car because you want a newer car, because at this stage of your life it's appropriate
01:01:15.400 | for you to have a newer car.
01:01:17.080 | Buy a newer car because your circumstances change.
01:01:21.700 | Buy a newer car because you have a reason to buy a newer car that's not financial.
01:01:26.720 | Now when you're buying a newer car for a reason that's not financial, make sure you factor
01:01:32.640 | in good financial decisions.
01:01:36.120 | There's no reason to buy something that gets bad gas mileage if you have an option to buy
01:01:39.920 | something that gets better gas mileage.
01:01:42.600 | I remain convinced and Consumer Reports and many other people agree with me that if you
01:01:46.760 | are interested in driving a car, a Toyota Prius is the best car for the vast majority
01:01:52.600 | of people to buy and to be driving.
01:01:54.600 | It's fantastic.
01:01:55.600 | I'm going to do a show, it might be tomorrow, on the Chevy Volt, the new 2017 Chevy Volt.
01:02:01.120 | I think it's one that if I were buying a newer car today, I would seriously consider it.
01:02:06.480 | It's a great vehicle.
01:02:09.160 | But I wouldn't be telling myself that I'm buying the newer car because I'm going to
01:02:12.560 | save on money by switching from gas to electric.
01:02:16.240 | Although that will come eventually.
01:02:17.960 | Yes, you can save on gas by switching to electric.
01:02:23.360 | But it's going to take a really long time to make up those savings.
01:02:26.000 | I'm just saying if you're in that stage of life where you need to upgrade your car, make
01:02:30.880 | a sensible decision at that point in time.
01:02:34.760 | And don't fool yourself into thinking that you can buy the new car because you're going
01:02:40.840 | to save on gas.
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