I have a story I’m a little embarrassed to share, but one that some may be able to relate to or learn from.
This is a story that started when I was fresh out of college (Maybe there is something to the studies that say young adults at this age don’t have their judgment capabilities fully developed, but I digress).
I had grand plans to be financially smart. I went from finishing my undergraduate degree in the spring straight into a master’s program in the fall and I was also working full-time. My plan was to cash flow my Master’s degree as I went through and not have to take out student loans.
I royally screwed up that plan.
It started when my husband wanted a truck. Not just any truck, a Toyota Tacoma. We were both driving 12-13 year old paid for Subarus at the time. (Side note: we lived in a rural area without public transportation and I frequently travelled overnight for work so two vehicles were a necessity).
Since we were DINKs (dual-income, no kids) and had disposable income for the first time, we felt like we had money to spend. Although in the grand scheme we had very normal, modest jobs and were not making a ton of money.
Mr. FC had wanted a Tacoma since high school. He began to research Tacomas thoroughly. He learned about their specs, price ranges, and features, and then he started watching auto sale sites. Daily. The tipping point was when a colleague got a brand new Tacoma and he was totally smitten with that truck.
I want to be clear that I don’t blame my husband. This story is owned by both of us, together. Even though I wrote about our biggest money fight, in all honesty, money is one thing we hardly ever fight about. We talk everything through (often even the littlest purchases) and consult each other. This situation is no exception.
Have you heard of attentional bias?
At that time, I had no idea what attentional bias was, but we were completely guilty of it.
Attentional bias is when we give our attention to something and begin to over-inflate its value and positive impact on our lives. It’s a positive feedback cycle where the more you obsess over something you want, the more it makes you want it.
Mr. FC had crossed the line from research to fixation on a Tacoma and was falling prey to attentional bias. Then, like a virus, I let it spread to me.
I began to think about my little Subaru. It had some weird issue with the engine and severe hail damage, but it ran. Since I did quite a bit of driving, I wanted a car with better gas mileage. I liked the appeal of a Toyota Corolla because they were “cheap”, had good gas mileage, and consistently rank among the most reliable vehicles. I started to think that I deserved it and had earned it (Hah!).
Attentional Bias led to a Big Purchase
I don’t remember when we officially made the decision to go to the car dealership. It definitely wasn’t after saving up enough money to buy the car outright, but one day, we went. We were going to look for a Tacoma.
Mr. FC found one that he loved, and then we decided just to test drive a Corolla while we there.
We ended up trading in both our little Subies and left with two brand new cars. I’m sure we made the car salesman’s week.
We also left with $50000 in car debt.
We live in a state that charges registration based on a formula of the age of the car and the factory cost. The newer and more expensive the car is, the more you pay in registration. So, between the two vehicles, we also owed nearly $1000 in registration fees plus taxes.
Then Life Happened
About six months after we bought the cars, we moved across the country. Our jobs changed and our circumstances changed and we finally admitted we really couldn’t afford $800+ in car payments on two modest incomes.
We decided to sell the Tacoma because it was the more expensive one and we were breaking even on the value to loan ratio. We kept the Corolla and decided to just pay it off because we were so underwater at that point.
Lessons I learned:
1. It takes one day to accumulate debt that can haunt you for years.
We were debt free when we bought those cars and I still kick myself for giving away that status so easily. Debt should be considered a heavy and serious prospect and you should thoroughly weigh all that it will impact before you decide to commit to it.
2. Debt is a problem that grows upon itself.
The money I had intended to use for cash flowing graduate school went to our new cars instead of school. So, I had to take out student loans. I learned that debt limits your opportunities and can exponentiate when you are giving your paycheck to past priorities. My debt problem grew because I couldn’t pursue the things that my life had moved on to without more debt.
3. Be aware of attentional bias.
Where you give your attention, you spend your time. Time is money. I now try to be cognizant of the things I am focusing my attention on, and try to make sure I am not focusing on material things. I would rather focus my attention on things like my family and gratitude. It’s one way I’m trying to incorporate intentionality and simplicity in my life. I want to be the one to consciously decide where I spend my time and money without being unduly influenced by biases.
4. Fixating on specific brands is a great way to spend too much money.
Mr. FC liked Tacomas, but there was no reason why he needed a Tacoma specifically. There was no reason why I needed a Corolla instead of a similar model like a Honda Civic. This point may be controversial, and true car enthusiasts may argue with me that the little differences between models can matter a lot, but I firmly believe that if we had been open to a class of car instead of specific models we could have saved money.
5. Afford is a dangerous word.
Just because someone will give you a loan does not mean you can afford it. They have no idea what your budget looks like, or what it should look like. A gross salary number looks very different than a take-home salary after taxes, responsible retirement contributions, and other expenses are taken out. Don’t let anyone else tell you what you can afford.
6. If you need a 5-year loan to afford your car payment, you can’t afford the car.
You may be thinking, “You just told me not to let me listen to anyone about what I can afford and now you’re telling me what I can’t afford!?” I don’t care. Five years is too long. Cars should ideally be bought in cash, but I will give anyone grace for life happening and needing to adapt. However, five years is just too long. With a loan that length you end up underwater on the car, it doesn’t let your life move on, and it easily becomes a perpetuating cycle of debt.
7. A car purchase should be made with long-term foresight for your future needs.
When I bought the Corolla, I didn’t consider that I would be starting a family during the time that I owned the car. It seemed too far away at that point. I knew I wanted kids within 10 years though, which is a realistic timeframe for keeping a brand new car.
We hope to have two kids some day and fitting two kids and a large dog in a Corolla is a tight squeeze. I’m not saying I should have bought a minivan and driven it for 5 years unnecessarily before I had kids, but I probably should have bought a used car that I could have gotten more value out of before changing to a family car (or better yet, KEPT the Subie!).
For the record though, the Corolla is paid off now and still a great car with one baby here so I plan to make it last as long as possible!
To this day, I still curse those cars and consider buying them my biggest financial mistake. I do recognize the privilege that this happens to be my biggest mistake yet and not other more serious financial problems.
I attended college on a full academic scholarship and Mr. FC’s family saved money for his education. We didn’t have exorbitant debt from school and we were extremely fortunate that this was a situation where we were able to sell something to partially fix our mistake. Many with crippling debt in other forms (such as student loans) are not so fortunate.
I will likely never buy a brand new car again because the thought of taking the hit on their depreciation gives me physical pain. New car prices are also simply outrageous. However, I will never forget the lessons I learned from this experience.
Financial Mistakes – The official chain gang
This post is part of a chain of personal finance bloggers all telling stories about their financial mistakes.
Link 1: ThinkSaveRetire – Don’t brag about success; tell me your failures
Link 2: OthalaFehu – Budget Bungles, Money Muddles, and Fiscal Flubs
Link 3: Turning Point Money – My Financial Mistakes
Link 4: Femme Cents – 7 Lessons I Learned from my Biggest Financial Mistake
Link 5: Jumpstart from Scratch – Recent Financial Blunder
Link 6: The Frugal Gene – Top 5 Sorry Ass Financial Mistakes of my Early 20s
Link 7: Gen Y Money – My Tell All: Investing Mistakes in my 20’s
Link 8: 99 to 1 Percent – Our 6 Financial Mistakes and 15 Lessons Learned
Link 9: Winning Personal Finance – My 7 Most Regrettable Financial Decisions
Link 10: Chief Mom Officer – Overdrawn Checking Account – CMO Clan Makes A Big Mistake
Link 11: Foreign Born MD – My Biggest Financial Mistake – over A Million Dollars Worth!
Link 12: Kiwi & Keweenaw – Is an Emergency Fund Necessary with a High Savings Rate?
Link 13: Cash Dad – My “Normal” Story is Filled with Money Mistakes!
Have you learned lessons from your financial mistakes? What about lessons learned from buying cars? Let me know in the comments!!