Much of the decision of whether or not to purchase a second vehicle after our 1999 Nissan truck died is based on the cost of the second vehicle. We are one month into being a one-vehicle household with decent results. Our optimum commute is waking up at 6:00 a.m., leaving the house at 6:30, dropping me off at 7:00, and then Paul driving to work for 8:00. This adds about a half an hour onto Paul’s normal day, and it allows me to meet my full 10 hour workday so that I can continue to have Fridays off to write. On Fridays he takes the car. On the weekends, we both coordinate schedules for errands or hanging out with friends (most of our driving on weekends are done together).

If we do purchase another vehicle it will be used. And just to strengthen my resolve in not wishing to purchase a new vehicle, I have researched new car prices and its percentage of household income in the United States.

Vehicle Purchase as a Percentage of Income

My father has always told me that a car is meant to get you from Point A to Point B. That is sound advice. The purpose of a car is not to be an extension of our homes (although we are spending much longer commuting than we used to), to show off to coworkers and friends, or to produce concert-quality music through the speakers; the purpose of a car is to safely deliver you to your destination.

Below I’ve listed the top 5 selling cars for 2010 as well as their MSRP price. The list is a little vague in specific car (for example, what type of Ford F-Series was the top seller?), so I chose the lowest priced car in each category I could find on Edmunds.com.

1. Ford F-Series: $22,790 (F-150 Regular Cab)
2. Chevrolet Silverado: $21,235 (1500 Regular Cab)
3. Toyota Camry: $20,195 (Camry Sedan)
4. Honda Accord: $21,380 (Honda Accord Sedan)
5. Toyota Corolla: $15,900 (Sedan)

The median household income in the United States in 2009 was $50,221.  That means that the least expensive car listed above (Number 5 at $15,900) is 31.9% of a household’s annual income, pre-taxes. The most expensive car in the list (Number 1 at $22,790) is 45.3% of a household’s annual income, pre-taxes. Since most people do not purchase their cars in cash, let’s take a look at the percentage of household income on a monthly basis. Using the median income minus 15% for federal taxes, monthly take home pay comes to approximately $3,557 (this will vary by household and state). An estimated monthly payment on the cheapest car above at 4% interest for 36 months is $469.43. This is approximately 13.2% of the median monthly budget. The most expensive car on the list at the same loan terms would be at $672.85, or approximately 19% of the median monthly budget.

My Vehicle Purchase History

I have owned four cars in my life from the age of 17 to 28. All of them have been used. As you can see below in the last 11 years of my life I have spent a total of $6,200 on purchasing vehicles. As far as major purchases to repair the cars, there haven’t been many. I had to replace two windshields, two mufflers, a bearing, brakes/brake pads/routers/drums, and more tires than I care to remember. But when the cost to repair the car did not make sense, then I purchased another used one with cash.

Let’s say we add $2,000 worth of repairs to the amount of cash that I paid for the vehicles above. This comes to a grand total of $8,200, which is approximately $62.00 per month. Since my income has swung wildly from mucking horse stalls to minimum wage to entry-level worker in the last 11 years of my life, I do not know what percentage it was of my income; obviously, it was a very small percentage.

While owning a used vehicle comes with its own perils—possible breakdowns, not knowing the vehicle’s history, typically no warranty (unless purchasing through certain places), not having that new car smell—it is usually a much cheaper route to get you from Point A to Point B. Because of this, if and when we decide to get our second vehicle, it will be another used car.

Do you purchase new or used vehicles? What has made you decide one way or the other?

Two weeks ago our 1999 Nissan truck died. The head gasket blew just 1.5 years after we purchased it for $3500 cash when my other used car finally called it quits after six successful years (boy I miss my 1997 Chevy Cavalier). While I never liked the truck, it was a huge disappointment that it did not last longer. Repairs were estimated at $3500, and it is clearly not worth it to put this amount of work into it. So much for our truck lasting us the five years we had hoped for! Heck, it didn’t even make it for two.

If you remember the last time when one of our vehicles died we had just moved into our new home and had cut our emergency savings down too much (note: I don’t recommend this as we were in a bit of a pinch). We were still able to pay cash for a vehicle…but here we are again 1.5 years later, so I guess we didn’t make a very good choice. Well, we have wizened up since then and we actually have enough money above and beyond our emergency savings that we could purchase a good used car with cash.

Here’s the thing though: we don’t want to.

Pros of a One Car Household

• Cost Savings: A savings of approximately $1296 per year from not having to pay insurance and gas on a second vehicle. This doesn’t include the time, hassle, and money saved on not having to register, inspect, and get oil changes for a second vehicle.
• Not Having to Shop Around: Picking out a new used car takes a lot of time and energy. I have been known to spend hours just trying to figure out which cat food to buy. Think about how long the process could be for a car!
• More Exercise: We have a library, YMCA, JCC, grocery store, community pool, bayou, CVS, and church all within walking and biking distances from our house. I would be without a car on Fridays while Paul takes it to work (unless his work schedule changes: see below), so this would be a great time to run errands on foot instead of in starting up a vehicle.
• Possibly More Time Spent Together: If we are driving together to work each day, this means more time together!
• Fewer Emissions: If every household went down to one vehicle (or to no vehicles), think about the emissions saved and its impact on Houston’s brown haze in the summertime.

Cons of a One Car Household

• Scheduling: Paul and I are two different people with two different schedules. I am sure there will be conflicts on the weekends and during the week when errands need to be run or one of us is hanging out with our friends.
• Work Schedule Change: Currently I work a highly coveted compressed work schedule of 10 hour days Monday through Thursday. This allows me to write and work on my blog three days a week, which is crucial to Frugal Confessions and to my happiness. Paul is going to attempt to get on the same compressed work schedule at his job (we should find out soon), but if he cannot, then I would have to switch my work schedule to five 8-hour days a week again. If he can, than this will be even more ideal as he would love to go on a compressed work schedule like mine.
• Truck for Hauling: As one of my regular readers (Michelle) pointed out last week, our truck has been an integral part in our renovation process throughout the house. Without a truck, we will most likely have to rent a truck when we need to haul equipment, borrow a truck from someone, or pay a delivery fee (the last time I checked the delivery fee at Lowe’s is $79 even though we live just three miles away from one).

This decision mainly rests upon work schedules, as it would for any household with two full-time employees. The independence/freedom factor is there as well, but the feeling of not being free or independent to do what we wish when we wish to because of not having a car is not very strong for either of us. We are fortunate to live in an area with many things to do, and there is always blog/writing work I can do on Fridays instead of leaving our home.

Do you have a one car, two car, or no car household? Do you have a car loan you are dying to get rid of by paring down to a one car household? What is holding you back?

I hate purchasing insurance. I don’t know if it’s the result of hearing so many insurance fraud stories on the news or years of insurance reps trying to instill the promise of future disasters in my head, but I always have the sneaking suspicion that I am getting taken for a ride behind the guise of imaginative language (what is ‘inexperienced operator surcharge’ anyway?). Because of this, my experience with insurance agents has been to call them every six months or so and try to squeeze extra savings out of them—mostly with success—and to ignore them at every other possible forum.

                So when Insurance Agent Adam Miller came into our agency and offered to give a presentation on insurance, I was quite skeptical. To be quite honest, it was his offer of food that coaxed me away from my desk. But I was so impressed with the information he was willing to give out that I decided to interview him for an article and share his information to you all, my readers.

Urban Legends in the Car Insurance Industry

Adam mentioned several urban legends that people like me have about car insurance, and it was great to have these suspicions dispelled by someone from the inside. As it turns out, red cars are not more expensive to insure, and Adam assured me of this because insurance companies do not ask for the color of your car! Teenage boys are no longer more expensive to insure than teenage girls as insurance companies are now experiencing nearly the same amount of losses from both (could cell phones be the culprit behind increased risk in teenage girl drivers?). Also, your car insurance policy will not automatically drop at the magic age of 25; it actually starts to decline between the ages of 18-25.

Your Car and Home are Linked

 Sometimes I still find myself in the ole’ college mentality when my possessions were few and far between: I owned a car, textbooks, and some linens. Now I own a home, which I would not have thought needed to be addressed in my semi-annual conversations with my car insurance agent.

Adam gave me a nightmare scenario, but actually explained the logistics of it, and I would like to pass this information onto all of you: Let’s say you own a home and your car insurance has property damage coverage for $25,000 or below. Unfortunately, you get into an accident which is your fault. The other driver files a claim with your insurance agent, who gives them the maximum he/she can: $25,000. Except there is just one problem: it is Houston, and the guy was driving a $35,000 car. The victim now goes to his own insurance company and files a claim for the remaining $10,000 he is out to fix or replace his car. What happens next? The victim’s insurance company is going to want to recoup their $10,000, so they come after you. While your primary residence in Texas is protected through a homestead exemption, the equity in your home is not protected. The victim’s insurance company can place a lien on your home so that when you sell it, they recoup their costs before you get a check from the bank. If you never move from your home, they may even be able to garnish your wages in order to get their money back.

In other words, before I owned a home, I had no assets. Now I have an asset with which a person can sue me for in order to recoup their expenses because of my deficient car insurance policy. I better get on that…

Premiums: What will Save You Money and What Will Cost You Money

I recently had my car insurance premium drop by $100 per year because I got married in April! Getting married, purchasing a home (there is a continuum of premium discount for home ownership starting with an apartment, to a condo, to a single detached home), taking defensive driving, and carrying high deductibles will all drop your premium price. Higher liability coverage over a longer period of time will also result in lower premiums.

However, there are life events that will increase your premium. These include getting a divorce or declaring bankruptcy. In fact, if your credit score takes any kind of dip, you could see a premium increase.  Even if you renew with your same insurance company, each year they do a soft pull on your credit to reevaluate your premium.

Some Final Tips

Here are some final tips offered by Adam:

• Search around for insurance quotes every six months to a year from various companies. Each company can offer you a different price because their pool of insured customers is unique to them and their price for you is based on their experience only. This is why one company may come in significantly lower than another.
• Figure out if it is worth filing a small claim for things like fender benders and windshields. Look at your deductible that you will have to pay as well as add in the 10-15% your policy will increase after filing a claim (there is typically a 10-15% discount for claim-free histories); over the long haul it could be worth it to shell out the $500 yourself instead of filing a claim.
• Purchase your car with insurance in mind. Cars that are made in Japan and America are cheaper to insure because the car parts are easier to find. Cars that are made in Europe will be more expensive to insure because their parts are sparse and are made overseas.
• Try to insure everything under one company. This will prevent headaches down the road when you are dealing with a claim; Adam gave me an example of a client who recently drove a truck into his home, and now has to deal with two different companies. Also, most companies will offer multi policy discounts.
• If you have a child who has moved to college or into their own apartment, do not allow them to have renter’s insurance on your home policy. There will be a deductible, and it will be much higher because it is tied to your mortgage than if they had their own cheap renter’s policy. The difference in deductible could be $2500 versus $250, and it is likely that your child’s belongings are not worth the higher deductible.  
• Try not to renew or get a new insurance policy of any kind during hurricane season.
• Allstate Home Insurance policies do not cover your foundation.

All in all, I was very appreciative of Adam’s honesty and openness of information. In fact, if you have questions or want him to check out any of your insurance policies, please feel free to contact him below.

Adam Miller started InsurTexas in 2006 and offers all kinds of insurance from cars to pets. He is an insurance broker, offering insurance from several companies, and lots of information you may not get from other insurance agents.

I must admit…I am driving around scared. Each time I come out of my car to go into a store, restaurant, work, or home, I wonder if I am going to be spotted by a Frugal Confessions reader. Why am I so scared? It’s because of what I am driving.

Yours truly now drives a 2007 red mustang. I know…the shame. My car officially bit the dust a week ago, or at least enough to not make me want to put more work into it. If you remember from my original article here, I only paid $1500 in cash for the vehicle six years ago. It would need a new transmission, and that is just too much for me to spend on a vehicle that has 225,000 miles and a few interesting noises.

For three weeks, we either got rides from coworkers (thank you if you are reading this!) or carpooled. Carpooling was not so bad, except I had to change my schedule to fit Paul’s, and so it was a temporary solution. Paul’s father works for a car dealership, and so he asked a mechanic that he uses to look around for us. The mechanic happened to have a Nissan Frontier Truck that he was looking to sell, and had put a little bit of work into it (new battery, new tires, oil change, etc.). One of our stipulations was that no matter what, we did not want to take out a loan for a second vehicle, and the truck happened to be in our price range to be able to pay cash from our emergency fund. We took it for a test drive, thought on it for a few hours, and decided to give it a try.

Paul is driving that now, and he has given me his mustang to use. So far, the truck has been very helpful in picking up our lawnmower from the shop, and bringing back a grill that my mother bought for us as a housewarming present while she was visiting this past week. Plus having the truck is going to make picking up free wood from craigslist a cinch (I am a huge proponent of never paying for wood, especially down South where you don’t need much of it. Craigslist always has someone who has just cleared land and is looking to get rid of wood under the free section)!

The lesson learned in all of this is to keep a savings account where we pay a car payment into each month so that when the time comes for us to get a new car (probably when the Nissan truck goes in a few years), we can pay cash and get a newer model that will last even longer. I am not sure of who first came up with this concept, but it’s a great idea—just pay a few hundred dollars (or start at $100 or even $50 if you have to) into a savings account each month as if you were paying a car loan where it will earn interest. Right now, we will be very happy if the Nissan lasts two years, and our goal is 5 years. There is no indication that it will not last for 5 years, it’s just we are trying to not get our hopes up entirely.

Also, we are very thankful and proud of ourselves that we left an emergency fund after buying our home last month and were able to cover these extra costs that have crept up. I think this is very important for people looking to buy a home: don’t spend everything you have for the downpayment. Wait until you have enough for a downpayment, as well as an emergency fund, because there is no guarantee that your car will not break down the following week!

Please Note: This was written on Wednesday of last week.

As I type this article, I look down at my left hand and notice a shiny diamond wrapped around a greasy finger with dirt lodged under its nail. The dirt is from my car.

This morning I woke up at 6:00 a.m., got out of bed at 6:15 a.m., and headed out to my car at 6:30 a.m. After starting her up, I immediately shut her down because it sounded like an animal had climbed under the hood and the engine was chopping it up. I ran out and pulled the hood up (this explains the dirty fingers), and lo and behold…there was no animal! It was the car making that noise! I started the engine again, and this time, the noise was slightly less, but there was a new vibration I could feel. Granted, my car is old and has a low-grade churning noise that never ceases. But these noises and rumblings are definitely not the ordinary ones, and I know something is wrong.

Before this morning occurred, I knew that I would most likely have to purchase a car within the next year. We had hoped that it would be after the wedding. But ofcourse, one week after closing on our new home (and thus draining much of our savings), and before spending any money on the wedding (of which is only 8 months away), the car looks like it might die.

If you’ve checked out my other post, you know that this car really owes us nothing. I bought it six years ago at 160,000 miles for $1500 cash. Thus far, nothing major has gone wrong with it. I’ve replaced some tires, a windshield, the brakes, Freon, a few belts, a muffler, and a bearing. Other than insurance, gas, and oil changes, it really has been easy to maintain. But wow it would have been great if the car had made it to 250,000 miles (currently it is at 228,282). That was my goal, and I am definitely coming up shy.

Paul drove to the house from work to picke me up, and we started to discuss our options on the way to my office. Here are a few we came up with:

• Fix the car (we have not yet determined what is wrong with it, but if it will only cost a few hundred dollars, then this will be well worth it)
• Buy a new car with a loan (not another loan!!)
• Pay for a used car from someone with cash (though we must admit, there is not much of that left in the emergency savings fund!)
• Figure out a bus route to my office (Houston is not necessarily the most public transportation-friendly city)
• Take a cab (oh the cost!)
• Live off of one car

Hopefully in the next few days we will know the diagnosis. I’ll let you know how things turn out.

Out of curiosity, which option would you choose for your household if you were in the same situation?

I have always had the sneaking suspicion that after sinking a significant amount of my savings account into my 1997 Chevy Cavalier, it will abandon me at some critical moment. And this suspicion has served me well in deterring costly car repairs thus far, though I think that luck and a clean track record has more to do with it than smarts.

Two years ago, after dropping my car off at a garage with a coupon to fix my air conditioning, I returned to find a laundry list of mechanical problems that needed attention. I felt like I was playing a game of chicken, and never averted my eyes from the mechanic’s. Was he bluffing and just trying to buffer his paycheck? Which ones were actually needed so that I wouldn’t find myself stranded on the side of the road, or worse, injured?

I asked to have the repairs listed in descending order of priority (aka: need-done-now-or-will-crash’s vs. the nice-to-have’s), buying me some time to go over the stats of my vehicle in my head and hedge my bets to see which investments would actually pay off, if any. I had bought the car as used in 2002 and paid $1500 cash for it with a total of 160,000 miles. Now in 2005, at 193,835 miles, I was being told to get the following repairs (in order of necessity): new brake drums, rotors, pads (all 4), transmission flush, belt replacement, realignment, tune-up, fuel injector cleaning, and coolant rinse. I started to fret and worry right away. If I put in this work, would the car actually squeeze out another 20,000-30,000 miles to make it worthwhile?

The drive home from the garage was only a mile, but I drove with fingers coiled around the wheel in nervous anticipation of a disaster and ears perked to this side or that as the car made all of its normal hiccups. Bracing myself at every stop sign, red-light, and bump in the road, I hoped for my sake that the car would go out in the least painful way.

At home, I decided to rationally choose which repairs were necessary (mind you with absolutely no vehicle experience at all) instead of allowing my emotions and paranoia to get the best of me. The importance of reliable braking I had witnessed firsthand moments before when I almost ran a stop sign while calculating costs. Besides, the brakes were pulsating when I pushed down on them, perhaps even grinding a little. Realignment? Sure, when I let go of the wheel my car tends to swerve to the right about 10 degrees, but that is something I have learned to deal with and it doesn’t particularly bother me. A tune-up sounded like something of an exercise equipment infomercial to me and I was sure that my car, while old and out of shape, didn’t need me to spend a few hundred dollars to ensure that its parts were toned and brassy-looking. And I wasn’t too concerned with the fuel injector cleaner either as I had no desire to accelerate faster than 2 mph in first gear anyway. My mind was made up.

The brake repairs were made—four new rotors, pads, and drums installed—with a cost of only $272.13 (I have since been told that I must have stolen the parts and labor from them). In the name of frugality I chose to not make the other repairs, and this choice was not made in vain. Now, almost four years and 36,000 miles later, my car still runs with a breakdown-free record.

Sometimes the decision to purchase things or services, and where to best focus your money, is a completely random one rife with potential for any number of catastrophes. But sometimes, with luck, the universe, God, and a little intuition on your side, you just may find yourself able to save an extra buck.