#133 – How entrepreneurs think about car ownership

Show notes from Episode #133 of the Sweaty Startup Podcast.

A key component of the lean lifestyle that Nick embraces is car choice. In very few other decisions can you save so much money while sacrificing so little. Being responsible and frugal with your car is a common rule of personal finance, yet many people get caught up in breaking it out of personal desire. In today’s episode, Nick is out to show you just how impactful these decisions can be.

Nick has gone back and calculated the true cost of ownership for every car he’s owned since 2006. He talks about how much it cost him, how to think about how much your cars cost you, and why he loves used vehicles.

Nick’s cars

  • 1996 Dodge Dakota
    • Purchased in 2006 for $4,000, using it to make thousands of dollars mowing lawns
    • Put 94,000 miles on it over 5 years and sold it for $1,500
    • The only maintenance was new tires and brakes, and he covered it with liability insurance only
  • 1999 Toyota Camry
    • Purchased in 2011 for $4,500 with 170,000 miles on it
    • Drove it for 45,000 miles until its 2015 death
    • Paid nothing for maintenance and covered it with liability insurance only
  • 2009 Toyota Camry
    • Purchased in 2015 for $6,000 with 120,000 miles on it
    • Drove it until 2017 and sold it for $4,000 after driving it for 29,000 miles
    • Paid nothing for maintenance and covered it with liability insurance only
  • 2009 Ford Taurus X
    • Purchased in 2017 for $3,300 with 112,000 miles on it
    • Still driven daily, now with 160,000 miles on it. Only maintenance has been on front brakes and snow tires
    • If he sold today, would be worth about $2,500

You’ll notice the key themes in Nick’s car purchases: cars are usually 5-10 years old when he buys them and never new. Maintenance is minimal and only what’s necessary. Since he buys in cash, he only needs liability insurance which costs him just $600 a year.

In total, Nick’s cost of car ownership has been just over $52,000 over 14 years. For the 216,000 miles he drove, that comes out to 24 cents per mile. Nick could have put the cars under his business, but instead opted to deduct the miles that he drove for work. With 150,000 miles deductible at 55 cents per mile, he managed to save almost $29,000 in tax expenses by keeping the car under his name.

Now, let’s compare Nick’s real costs to the cost of being less disciplined in car ownership. What if you bought a new car for $30,000 every 5 years, at standard 5% interest?

First, consider depreciation, Carfax tells us that a new car will lose 60% of its value in 5 years. Next, you’ll need full coverage insurance if you finance your new car. Even if maintenance is cheaper and the car is more fuel efficient, the incremental cost is astounding at $65,000 over 14 years; that’s $4,600 per year, or $384 per month.

The same principle applies to your business, when you have the choice to buy an expensive truck or not. Nick has saved a lot of money in his business buying 15 or so Ford E-150s, and even offers a guide on how to find them and inspect reliable vans for under $4,000. In fact, some of his vans are still running 8 years later.

Nick has never been stranded on the side of the road. He’s driven between Indiana, Boston, and New York in these cars, going on 10 hour road trips with his family. You can bet he’s been happy with his choices.

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About Me

I started the Sweaty Startup in December of 2018 because I believe the Shark Tank and Tech Crunch culture is ruining the real spirit of low-risk entrepreneurship.