From Tesla to Subaru: Downshifting My Financial Paradigm

From Tesla to Subaru: Downshifting My Financial Paradigm

This post is about how my own financial paradigm shifted during the process of buying a new car.  I entered the planning stages of purchasing a new vehicle in early 2018 with one set of values and ideas and came out on the other side at the end of 2018 with a completely different perspective.   

As I described in my post Why Am I Writing this Blog?, I went through my own financial awakening about a year ago in the summer of 2018.  During this difficult time in my life I felt trapped by my circumstances and was looking for a way out.  During this search I came across the concept of financial independence (FI) and it literally began to transform my perspective of not only my finances, but my future.  

As I learned more about FI, I started to make many changes in my financial life.  This didn’t, however, happen all at once.  As I read multiple books, listened to podcasts, and explored personal finance blogs, I changed one thing in my life at a time, progressing down a path towards FI.  

During the time of this progressive transformation, I was already in the process of planning to purchase a new vehicle that year. My son would be turning 16 years old in December and my wife and I wanted to have a vehicle he could use to take him to early morning seminary, sports practices, and activities with friends. As he became older he had become involved in more and more activities and we were getting exhausted with driving him everywhere.

I knew this time would be coming and had actually been looking at vehicles since early 2018. At the time we had 2 family vehicles: a 2015 GMC Yukon XL that my wife primarily drove as our family vehicle, and a 2014 Chevrolet Silverado truck that I drove. My tentative plan was to let my son use our truck, with emphasis on the word use. I made it clear to him I wasn’t handing over the title, but would let him use it to get to various activities and help pick up the kids when needed. I felt safer with him in a larger vehicle like a truck given how it handles in the snow and the sheer amount of metal around him. Then, the plan was for me to purchase a new vehicle.

I looked online at a number of different types of vehicles. It was kind of exciting because I was starting to look at some nicer luxury vehicles, something I had never really even considered possible before. But now that I had been a neurosurgeon for 4 years, I felt like I could probably afford to get a luxury vehicle. After all, I see many of the doctors at the hospital have nice cars, why not me? I looked at BMWs, Mercedes, Audis, Range Rovers, and more. But the car that really seemed to intrigue me was the Tesla Model S. The combination of a high speed electric car and state of the art technological innovations was very alluring. I began building different customized versions on their website and pricing them out. Needless to say, they weren’t cheap. Most builds ended up in the $100K to $120K range. While I couldn’t afford to pay cash for a vehicle like that at the time, I felt that I could likely afford the monthly payments to finance or lease it.

An expensive monthly car payment seemed reasonable to me so long as I could afford to make the payments. I really believed it was normal for everyone to have a monthly car payment. Then I started to learn more about this idea of financial independence. I started to have doubts about the path I was heading down. Reading The Millionaire Next Door by Thomas J. Stanley, Ph.D. and William D. Danko Ph.D. really made me question what I was doing. In their research they had found that most self-made millionaires typically drove 2-3 year old used vehicles that were not luxury cars, and had paid cash for them. This was the exact opposite of what I was about to do and begged the question: Why was I doing this?

So I honestly asked myself, why am I doing this?  There really wasn’t any “keeping up with the Jones” mentality, because most of the people I associate with don’t drive fancy luxury cars.  It wasn’t because I really love cars or that I have always wanted this car.  For me, the novelty of new cars in the past hasn’t lasted more than a few months.  Being completely honest with myself, the main reasons I was considering this car was because I liked how unique it was (no one else I knew had one), its advanced technology, and I felt like I could afford the payments.  So I asked myself do I really need this?  Does this bring value to my life? And again, being brutally honest with myself, the answer was clearly no.  I realized I was allowing lifestyle inflation to creep in, which means I was allowing my to spending on consumption items to grow as my income grew.  The scary thing was that this was happening slowly over time and I didn’t even realize it. When I took a step back, I couldn’t believe I was considering spending six figures on a car and it didn’t really seem outrageous to me.

It is not about how much you can afford, but where you choose to allocate your resources . . . being intentional in your purchases and buying only those things that truly bring value to your life.

Now, I don’t want to demonize buying a luxury vehicle, because I really believe that if for any individual buying a luxury vehicle brings great value to you and you can truly afford it, then it is absolutely OK to buy one.  But during this process I learned that for myself this just wasn’t the case.  Not only was it something that I don’t personally place great value in, but I also couldn’t truly afford it because I couldn’t pay cash for it.  

During this re-evaluation I also decided to breakdown the opportunity cost of buying the $120K Tesla Model S compared to a much more modest $40K vehicle like my truck, with an ~$80K price difference. If I were to invest that $80,000 for 25 years in a passive index fund with an average return of 8%, it would grow to $547,878. This helped me realize it definitely was not worth that much to me. I was beginning to understand that it is not about how much you can afford, but where you choose to allocate your resources. It’s about being intentional in your purchases and buying only those things that truly bring value to your life. For me, investing that much money to purchase the ultimate luxury, my financial freedom, was much more important to me than driving a luxury car.

After coming to these realizations, my financial paradigm completely shifted. This forced me to start from scratch on my search for a new vehicle.  I began by asking myself what was truly important to me in a vehicle, from which I formulated a list: safety, 4WD or AWD for good handling in the snow, ground clearance for the snow, heated seats, reliability, and reasonable gas mileage.  I also felt there were two “luxury” features that were really important for me personally:  Bluetooth capabilities (and better yet Apple Car Play) so I could listen to podcasts and music from my phone, and a heated steering wheel.  Our Yukon XL had one, but my truck did not and I learned I really missed it when I was driving the truck in the winter.  That was it.  My honest list did not include brand name or luxury status, any requirement for the year of the vehicle, it didn’t have to be an electric or hybrid car, and it didn’t have to have a lot of extra bells and whistles above what I had listed.  

With this list in mind I began my new search.  One of my primary areas of focus was Subarus because a friend had told me he loved his and that it handled really well in the snow.  As I looked at different Subaru models, the Outback seemed to stand out because it had AWD, higher ground clearance, and it had an available 6 cylinder model (I liked a little more power and speed compared to some of the 4 cylinder vehicles I had tested).  I test drove other makes and models that fit my criteria, including other Subaru models, but found that I liked the Subaru Outback best.  

Next, I started to look for used Subaru Outbacks between 2 and 3 years old just like it suggested in The Millionaire Next Door.  But as I looked, I discovered two general trends.  First, used Subarus only 2-3 years old are pretty hard to find.  Most people hold onto their Subarus for many years and there is higher brand loyalty than almost any other automaker.  Second, the available used Subarus weren’t significantly cheaper than the new models.  Other cars 2-3 years old had depreciated a fair amount as expected, but this was much less so with the Subarus.  In order to find a model with 6 cylinders, a heated steering wheel, and the Apple Car Play I wanted, I realized I may have to buy a new 2019 model.  

At this point I asked myself if these things were important enough to me to justify buying the car new rather than used (if I could even find one).  As I thoughtfully considered this question, the answer was definitely yes.  I knew that in the upcoming Wisconsin winter I would be kicking myself if I bought another car without a heated steering wheel.  I also knew it would bother me if I didn’t have the Apple Car Play given how much I enjoy the integration of my phone with the vehicle and how much it improves the user experience.  These items actually would bring me great value and justified the increased cost.

With my decision made, now I needed to decide how I was going to buy this car.  As part of the financial changes I was making in my life, I had already promised myself that I would never buy ANYTHING on credit again no matter what.  Now that commitment was being put to the test.  I admittedly did not have the full $35-40K in cash ready and available to buy a new Subaru Outback.  I had some money saved, but not the full amount.  It seemed so easy to justify buying the car now, paying more than half of it up front and then paying off the remaining balance over the next several months.  I would be paying very little interest and then it would be paid off.  That would allow me to get what I want NOW, rather than waiting until I saved the full amount. 

Despite this internal struggle, I stayed firm in my commitment. I could hear Dave Ramsey yelling at me if I chose to finance or lease the car.  I told myself I needed to be disciplined and save the money.  So that is what I did.  I saved all of our extra money over the next several months until I had bridged the gap and saved enough to pay cash for the car.  

Some days I will get in the car and just relish the feeling of having a completely paid for vehicle with the exact features that I actually value, no more, no less.

When the day finally came to purchase the new car, it was very rewarding to be able to write a personal check for the full amount.  I had never had an experience like that before.  I had never saved up that much money for something and then paid cash for it.  I experienced the satisfaction of delaying gratification until I was truly able to afford the vehicle.   

Since purchasing the Subaru Outback, I have to admit that driving it remains a very rewarding experience.  Some days I will get in the car and just relish the feeling of having a completely paid for vehicle with the exact features that I actually value, no more, no less.  After careful introspection, I was able to find my own personal sweet spot for buying a car.  I don’t feel I would be any happier with any more of a “luxury vehicle” or any other extra features.  At the same time, I know I would be disappointed if I didn’t have the heated steering wheel or Apple Car Play that have really brought me great value.  By downshifting my financial paradigm I was able to be 100% intentional in my purchase, buying no more and no less of a vehicle than I needed.

Conclusion

Here are some of the lessons this experience has taught me:

• As our income grows, we have to be very careful to prevent lifestyle inflation from creeping in, otherwise we will spend all the extra money we make.
• It is imperative to determine what things are really important to you and bring you value vs. those things that really don’t matter to you and would be a waste of your money
• Be intentional in what you purchase, only buying things that bring true value to your life
• It is important to understand and consider the opportunity cost of major purchases
• There is tremendous satisfaction in saving enough money for something and great peace of mind after paying for it in full

I hope the lessons I learned through this experience can add value to your life. If you have had any similar experiences, please tell me about them in the comments below. Thanks for reading!