What was Kansas thinking?

In just about every state you visit, you are greeted at the border by a friendly sign (sometimes quite elaborate signs) and a fancy rest stop. For those passing through the state, you have a great selection of restaurants, convenience stores, and sometimes outlet malls to keep you fed and happy along the trip. Everything about the experience screams "welcome!"

Except, I learned, Kansas.

No, it's clear that Kansas wants you to drive through it as quickly as possible and be miserable while you're there. This is the only reason I can see why Kansas would take the only major freeway that goes through it, turn it into a toll road for which you must pay $10 to get through the state, block off every exit with the exception of the tolls, offer no turn-offs or parking areas, and absolutely refuse to let you make any u-turn (missing your precious exit would surely cost you 3 times the toll fees and add about 2 1/2 hours to your trip).

Could it get any worse than driving an hour without a stop or a bathroom? Sure...because of the few "rest stops" that are on this toll we discover that Kansas is apparently sponsored by McDonald's, because other than prepackaged potato chips, McDonald's is the only food available for the entire journey through their state. I'm glad we packed our own lunches.

Avoid Kansas. Obviously they don't want you there anyway.

I might need to get divorced

I had a disturbing conversation with my wife the other night. We were talking about the results of this situation with the medical bills and about our progress on paying down our debt. We threw the idea back and forth of paying off my student loan before her car loan. Now interest-wise this makes no sense, but balance-wise it does. I can pay off the student loan in one big lump payment if I focus all our debt repayment on it for one month. That would kind of simplify things since I would have one less debt to worry about, and would be a nice feel-good victory. The extra interest we would end up paying on the car loan to do this would be negligible. She agreed. Then she gave a reason why she agreed:

"Well, the car loan isn't really debt anyway."

I was floored! What? Not debt? I need to tell the bank to stop charging us interest. She stood her ground; a car loan is not really debt. So I ask her why she thinks a car loan isn't debt.

"Because everyone has a car loan."

I stopped to think about this. Does everyone have a car loan? Of course not. Does anyone need a car loan? Of course not. Very few people absolutely need to buy a car that second...they could easily just start saving a payment and buy a car in a few years. Most people buy a new car when theirs starts having problems, or they just get tired of it. That's certainly not a necessity to borrow money. Rarely do people literally run their car into the ground until the engine implodes and it refuses to move another inch (and those that do have probably been saving for a new car anyway).

Yet there is the mentality that everyone has a car loan, that everyone needs a car loan, and that it isn't really "debt". Why is this? Is it because everyone around us is so addicted to debt that one little car loan doesn't seem like a big deal? Has the automotive industry itself so well marketed buying a car on time that it seems like just another standard process in buying any car? Or are we just so entrenched in this culture of instant gratification that saving money for 5 years for a single purchase just seems outrageous and out of this world?

When should you get rid of your car?

No Credit Needed has a problem that made me think a lot about our relationship with automobiles. In this specific case, a transmission may need replacing - among other things - at a tune of $2,000 on a 7 year old van with 135k miles.

Some of the comments from his readers made me pause. A good many of them considered such a car to be unreliable, and the solution to be to buy a newer one. Here is a van that probably cost $25,000 new, and 7 years later it is unreliable and needs replacing? The math doesn't work well in my head. Over $3,500 a year for transportation. We must be out of our minds to buy these things!

When the automobile was invented, an owner of such a machine could take it apart and put it back together again. They took time to learn how it operated and how to fix it. Today most people can't even change a tire (and not the actual tire on the rim, just bolting it to the shaft!).

This is a recipe for utter disaster. An expensive machine, bought on credit, constantly depreciating, needing more maintenance as it gets older, without any knowledge of it beyond how to operate its controls in the most basic way, and utterly reliant on an industry (mechanics) that benefit from mechanical failures and lack of consumer education.

Now a repair is due...yet when we consider whether to go forward we do not think of how much we paid for it, $25,000, we think of what it is worth now, say $8,000. A $2,000 car repair looks huge. Yet this is something that cost us $25k, needing a repair of a mere 8% of it.

Somewhere along the line we forget how much we paid (probably because we never wrote a check, we just made little payments), and its value is judged not by what it is worth to us, but what it is worth to everyone else. This leads us to terrible financial decisions, like trading in a vehicle for chump change (market value) simply because it needs an expensive repair.

This is not even considering the dependency we have on mechanics. Our lack of knowledge is our enemy here. We are dependent on the trustworthiness and honesty of the mechanic, something we cannot judge unless we have had experience with them. And that experience could be costly.

I just can't imagine buying a living room set, spending $25,000 on it, and then buying all new furniture for $25k again in 5 years. If the couch needs reupholstering, we don't say "Well this job will cost $1,000 and I can only get $3,000 out of this set at a garage sale, so I should just buy all new furniture!" - no, we say "$1,000 is worth it, this furniture cost $25,000!". We expect value out of the things we buy, why don't we expect it from our cars? And when repairs do come up, why do we ignore what we originally paid when evaluating whether the repair is worth it?

Looking for a fuel sipping hatchback?

We're getting more hatchbacks in the US that are great on gas mileage. Unfortunately, most of them were already being built but still not available here. Take for example the Smart car, which has been wildly popular in Europe and has only recently planned on releasing in the US.

I saw a hatchback in the neighborhood where I work and LOVED it. It's a great looking little car, and it appeared to have a Ford brand on it. Curious, I checked the Ford website. Nothing. Maybe I was wrong?

So I kept seeing this car, and finally I got fed up and ran after it while at a stoplight and caught the brand (the owner likely thought I was psychotic) - yep, it's a Ford. Huh?

Turns out Ford only sells this car outside the US. Our own domestic brand sold us out! Here she is: the 2007 Ka. Here's an English review of the car.

FACTS AS A GLANCE
CAR: Ford Ka range
PRICES: £7,095-£9,995 [exc. Streetka] - on the road
INSURANCE GROUPS: 2-6 [exc. Streetka]
CO2 EMISSIONS: 147-189g/km
PERFORMANCE: [1.3] Max Speed 104mph/ 0-60mph 13.7s
FUEL CONSUMPTION: [1.3] (urban) 35.8mpg / (extra urban) 58.8mpg /(combined) 47.9mpg

A bit pricey at $14k US, but hey...I'd buy a used one! Get your act together, US auto makers...bring us some efficient cars! I knew it was a Ford, I knew I wasn't crazy. Sell it in the US, dangit, Ford!

How much do we spend on wheels?

Bankrate.com has a brief article about how much our cars cost us. We have a figure here of about $28k for the average brand new car. Americans typically trade cars every 3-5 years.

A car is an incredible waste of money. Between the age of 30 and 60, the averages show that we will spend over $170,000 on automobiles. What's really upsetting is that after you've spent all this money on cars and you're 60 years old you have nothing to show for it. Maybe some photos. All your cars are sitting in junk heaps.

Is it worth it? Why do you buy a new car? Why do you waste so much money on something that you will probably sell in 5 years and have nothing to show for?

Reader inquiries: bankrupt mortgages and the Texas car credit

I have been getting a lot of directs to the site with questions input into Google. I thought I would make some comments on the two most common.

First, a common question is "What if my mortgage company goes bankrupt?" - some people, from their searches, seem to think that their mortgage might be forgiven! Actually, it will just be sold to some other bank. Your lender in bankruptcy should send you a letter notifying you of the transfer. In any case, it is up to you to continue making payments to the right place. So if you see your mortgage company about to fold, call them up. If you send the check to the old bank after your mortgage transfers, it won't be applied to your mortgage. The bank might even cash it, leaving you scrambling for 2 payments in a single month while waiting for a refund (because as we all know, once a company gets your money they will drag their feet giving it back). Maybe they are legally required to pass on the check, who knows. If you assume they'd send on the check instead of cashing it just because they are legally required to, I guess you haven't dealt with big banks very often!

The good news is that whatever bank buys your loan will be forced to fulfill the terms you signed with the first bank. Some things, like how they handle extra principle payments may change, so if you are paying down your mortgage make sure to inquire about any new rules. Escrow requirements might also change, but I do not know how the new bank is legally bound to those terms. Insurance requirements might also change, and again I would call the bank and ask. If you do find changes to your loan terms, it might be a good idea to contact an attorney if the bank refuses to play nice. Whatever you do, keep paying your mortgage!

Second, there have been a lot of inquiries about the new Texas car credit coming into effect in December. Some news outlets have been giving slightly incorrect or missing information, so go to the source, http://www.tceq.state.tx.us/. Details can be found here. Only certain counties, in which your vehicle must be registered, apply. San Antonio and El Paso, for example, do not appear to be participating in the program. Please note that this is not a new program. Actually, it has been around since 2001, they are just increasing the voucher value that you can get.

Embracing the debt culture - auto financing

I think financing an automobile is absurd. This is my opinion after having dealt with financing vehicles myself and currently being indebted to a financial institution for my wife's car. Financing a car, let alone financing a new car, doesn't add up. You pay more for the price of a purchase that is constantly depreciating. By the time its done depreciating, it's nearly worthless and you've spent thousands of dollars while paying interest on top of it to a bank.

There are 2 winners here: the bank and the dealership. The dealership wins again when you trade in your $30k car for $10k and they resell it for $13k!

But, consumers are more than willing to accept these terms in order to get into a new car. In fact, they are accepting even worse terms than our parents did. Compared to this, spending $500 on "rust-proofing" sounds like a good deal.

Buyers are paying more, extending loan terms and making smaller down payments, according to a recent study by the Consumer Bankers Association. Many buyers are also wrapping old loans -- for vehicles they haven't yet paid off

Way to go consumers!

According to this survey, 60% of buyers are opting for loan terms greater than 5 years. That's a staggering number. The average loan is 65 months. That could mean about a thousand extra in interest over the whole loan. Ouch!

Worse, while car prices are going up, down payments are going down. 1% was the average this year, or $3,000 on a $30,000 car leaving you with $27,000 financed. That must leave the bank salivating. Since your car probably depreciated more than that just by driving it off the lot, you're upside-down in the loan before you even park it in your garage. This also means when you turn it in, you'll probably be financing your old car along with your new one. The average amount a car buyer is upside-down when trading in their 2005 clunker? $2,600. I think we can safely say that 1% down payment is going nowhere towards the principle of the new vehicle.

It gets better. Apparently blind to the subprime mortgage crisis, banks are lending big loans to people with worse credit. Maybe the departments don't talk to each other? Or it could be that Americans are obsessed with their shiny vroom-vrooms, often skipping house and revolving credit payments to pay for shiny.

I was also surprised that a whopping 21% of people lease - ie, rent their cars.

"Overall there's a lot of debt," says Elmendorf. "And if you add that to credit card debt, and home equity debt, consumers are pretty tightly leveraged these days."

No kidding. I wonder what percentage of consumers just pay cash? I bet it's not very high. I often hear a car loan is, along with a mortgage, "normal debt". I guess normal is "leveraged", ie, "broke". When you think about the numbers, paying cash for a used car just makes sense.

$3,000 state voucher to buy a new car

Representatives of the state of Texas feel that the way to curb pollution is to get older cars off the roads. This isn't a bad idea, but I'm not so sure about the way they are doing it. I've discovered other states, Vermont specifically, have offered this as well.

Here's how the program works. Say you are a family of 4 with a pre-1996 vehicle. If your annual income is less than $41k, you qualify. You can take your old car to a dealership where you can get a $3,000 voucher towards the purchase of a new or 3 year old used vehicle. The dealers get no money for your trade, which is given to a salvage yard at no cost, and there is no indication that the dealer offers any trade in value other than the state sponsored voucher.

You can then use that voucher to purchase a 2004 and up car or light truck.

Here's the problem. The cheapest 2004 vehicle in the state of Texas (from autotrader.com) is $4,500 plus TT&L (remember this is a dealer, so you will likely be paying many fees on top of the asking price). A small number of cars in this year range are below $10k. Most are above. The maximum you can buy is a $25k vehicle. The very idea that a family of 4 making less than $41k a year should go out and buy a brand new car is absurd, but at least they allow used.

Regardless, it is more than likely that the family is going to have to take out a loan to get this new vehicle. I find it incredible that the state is encouraging people with low incomes to go out and buy brand new cars by dangling a check for $3,000 in front of them. If they are driving a pre-1996 vehicle, isn't it safe to assume that they can't afford a new car to begin with? Is $3k going to make any difference? Is the state of Texas encouraging debt? Will the state of Texas help them if their car is repossessed because they can't make the payments?

In reality, the people who will most likely take advantage of this is people who were already planning to trade in their clunker for a newer vehicle, or were planning to. Thus, we have a state funded car purchase - the funds for this program were collected by raising vehicle registration rates.

Should I sell my bike?

I have a bike that I usually commute with that is worth around $1,500. With poor weather lately, I've had to take the larger car, which of course gets far worse gas mileage. After some reflection, we have been discussing selling the bike to pay towards the debt (which would pay it off faster) and then purchasing a small hatchback for less than $2k after we are debt free, paying cash of course.

So I decided to run some numbers.

Scenario 1: Keep it, continue to commute. Given I ride about 3 out of a 5 day work week due to weather, etc, and my mileage (I won't list all the numbers here), 3 days with the bike and 2 days with the car will cost - assuming $3.00 a gallon - about $575/yr in gasoline. However my wife and I often carpool to work, maybe twice a week.

Scenario 1a: Keep the bike, continue to commute 3 days a week, carpool 2 days a week. Now my gas only costs $172/yr.

Scenario 2: Sell it, commute with car only. Sell the bike, it goes into the debt. $1,500 is taken from the sale. This will cost $1008/yr in gas. So my net from the sale of the bike is only $492. But often my wife and I share a ride to work, because we work fairly close to one another and depending on when we need to be there, we'll drive there and home together. Lately we've been doing that 2 times a week.

Scenario 2a: Sell it, commute with car, carpool twice a week. Total cost in gas for me is now $604/yr, compared to the other carpooling option which was $172 that's a difference of $432.

This doesn't include maintenance on the bike and other associated costs that are a little pricey. If I take scenario 2a, I still end up with about $1,000 extra that has gone into the debt after a year. By that time our debt will be well paid off (we're currently projecting a payoff date of April, 2008) and we will be starting on building our savings goal of $33k by the end of 2009. Of course, the bike will probably be sold anyway after the debts are repaid and replaced with a hatchback for commuting.

The bike will probably go on sale this weekend. Or am I missing another option?

What will a brand new car really cost?

If you're anything like me, you balk at the very idea of paying more than $15k for an automobile. The value of these things sink like a rock. The depreciation is even worse on a luxury car. I wonder what this guy felt like when he traded in his car. If the link doesn't work, it's a 2002 Volvo S80, very nice, full leather interior, with only 87k miles on it selling for $12,000. Guy probably traded it in for around $9-10k. The MSRP on this vehicle brand new was around $45k. Over 5 years that's a depreciation of $6,600 a year!

Assuming a no-down zero-interest loan (we'll assume the guy has awesome credit since he's buying a luxury sedan) he was paying $750 a month on the car while it was going down in value $550 a month. So over 5 years, this vehicle cost him $583 per month to own, not including all his maintenance costs.

Compare this to the person buying the car now. When people take care of their vehicles, they can last forever (I've had plenty over 150k that looked and ran brand new). There will be some increased maintenance costs for an older car, but the preventative maintenance is about the same as with a new car. Oil changes, adjustments, etc.

Figure paying $12k for the 5 year old luxury car with 85k miles on it. After another 5 years the vehicle is 10 years old with, say, 170k miles. Its probably nearing a good retirement age by that time. So sell it for a few grand. My 2002 Volvo has now depreciated $150 a month during my ownership, as opposed to $550 a month. Oh, and by the way, instead of a $750 car payment while waiting for the beautiful 02 Volvo to go on sale after 5 years, I was stashing away $400 a month in a nice 5% savings account.

So the first owner has sold his brand new car, spent $33,000, and is back in another new car with a loan.

I waited 5 years, kept the clunker I had, stashed $400 (leaving me with, btw $350 extra a month to maintain my old clunker) and bought the same car for $12k with $15,800 left over in my pocket, not including the extra $350 a month that I doubt went entirely to maintenance.

The difference between the same car purchase brand new vs 5 years old is $48,800!

Are airline vouchers worth it?

Are airline vouchers worth the effort?

My wife and I returned from a trip and were scheduled on an early morning flight. As it turned out, the airport was packed, the flight was overbooked, and the rep at the desk called for any volunteers to accept a later flight. I immediately jumped up and volunteered us. They gave us a $400 voucher each. That ends up being a couple of round trip tickets to basically anywhere for free.

We always take these opportunities. What surprised me is that no one else took them up on the offer. The next flight was an hour later, not a bad wait at all. Yet the had to repeatedly request volunteers (maybe everyone was holding out for them to increase the voucher value?). That never happened, but eventually they managed to get enough people signed on.

Is it worth it? I can imagine for a business professional, who needs to arrive when he is expected to, missing a flight is not an option. For most people on vacation however, why not? A simple phone call can adjust any pick up time you have arranged, and what difference does a few hours make?

My wife was a little reluctant because we intended to use the vouchers for our Christmas trip. She remembers all the black out dates and restrictions on her miles rewards and was worried we couldn't use them. A call to Continental revealed that the vouchers were valid for any flight!

Several years ago when we were in Las Vegas, we sat at the crowded airport with overbooked flights. Our original flight requested volunteers, then the flight they moved us to requested them, and then the airline again was overbooked. In fact, the last flight was overbooked. We ended up with $3,000 in vouchers between the two of us, around 6 total free flights. As if it couldn't get better, we went back to the hotel (the Vegas Hilton) and told them we had waited at the airport all day and ended up allowing ourselves to be bumped and our next flight wasn't until tomorrow, and asked if they had another open room we could stay in. They did, and they gave it to us for free!

So far I have had nothing but good fortune with airline vouchers and Continental. Based on your own experiences, are they worth it?

Useless public transportation

My city has recently added some new modes of public transportation. Supposedly they were going to help congested roads and give people an alternative to driving. That's pretty important today, as gas prices near $3.50 a gallon.

The problem is that it doesn't really save you any money.

I commute 13 miles to work each way, each day. 26 miles round trip. I live in a suburb, so the inner city public transportation system isn't within walking distance. However I could drive a few miles and park in a Bus Lot and take it from there.

Here's the problem. It takes me 30-40 minutes to get to work. At $3.50/gal using my 20mpg SUV I end up spending $4.55 on gas each day to get to work. If I took the bus however, it would take me an hour and a half to get to work - mainly because of all the stops and that the bus actually has to sit in traffic also. The problem is that it costs $2.50 a day to park in their lot. Then it costs $1.00 each way for the bus ticket. So every day by taking 'alternative' public transportation it will take me twice as long to get there and I will have saved 5 cents.

Just about everyone who does this lives in the suburbs and works downtown. What gets me is that I always see small econocars in the lot, like one particular old Geo Metro. That Metro gets around 40mpg if driven properly and is well maintained. So it would cost him $2.26 to drive into downtown and back each day. He spends more on parking than it would cost him just to drive himself.

On top of it all, the city spends millions to billions on public transportation, paid for by our taxes, just so we can have access to a system that costs more than it would for us to drive ourselves!

Does this make any sense?

Avoid airline fees

Previously I wrote about some of the new airline fees that are being considered by several airlines. But in this article we see a good summary of some fees that are already in place. I knew about many of them, but some caught me by surprise. A $1 charge for soda? An extra fuel fee? Hey, I thought that was part of the ticket. A $25 booking fee when redeeming a (supposedly) free voucher?

Incredible! And lest you get caught in the mess I was in a few months ago, check out these tips on baggage fees. Continental wanted to charge me $80 for a 55 lb bag. Instead I went out to the street and left my bag with them after taking 5 lbs out and putting it in my backpack. No fee. Later, I returned and found out the overweight fee was $25, not $80.

My advice? Drive.

Cut your gas spending!

Here is an article listing 6 ways to reduce gas prices. Naturally, it puts all the blame and hard work on the government and other organizations. Bah! Here's some of my tips to reduce your gas consumption, which will inevitably leave you with a lower monthly gas bill.

• Drive with a lighter foot. Stop speeding, start out from a stop sign/light at a slow pace and take your time making turns, etc. Keep light on the gas pedal and you can save a lot of gas. Up to 15% or more, it is estimated.
  
• Use AC on the freeway, not around town. Once you get above 40mph or so, the wind negates any savings you have by turning off the air conditioning. However when you are running around a parking lot, or around a neighborhood, turn it off and crack open a window. This results in negligible savings but it will add up over time.
  
• Combine trips. A little thought goes a long way to saving gas. Make any pit stops one the way home or to work, and once you are home make an effort to stay there. Make a list of things you need and combine them into one trip one or two days of the week, instead of running out whenever you need something.
  
• Shop for gas. Grocery stores will often give you discounts on gas, especially if you shop a certain amount there. You already need groceries, so after your grocery shopping stop by the attached gas station to fill up - even if you don't need it. If they offer a good discount, it pays off. Also, find a station close to you, preferably on your regular routes, that generally sells cheap gas. Make that your station; it doesn't pay to drive around looking for something a few cents cheaper.
  
• Check your tire pressure weekly. Your tire pressure changes over time. As the season changes, the air in your tires will expand with heat. No need to drive to the gas station, buy a cheap pressure gauge and do it yourself in your garage just before heading off to work. Poorly inflated tires can suck 10-20% of your mileage.
  
• Buy an economic vehicle. This may not be feasible if you just bought a new truck last month, but think about that 5 year old SUV. I know there are those who tell you the cost of the vehicle is not worth the savings but consider this: Saving gas is a lifestyle change. Get used to a smaller, more economical car. Do it now. Buying a car is a long term investment, up to 5-10 years if you take care of it, and so you should look at your gas savings in the long term. Not only will you save gas over the life of the vehicle, but after adjusting to a smaller car you will be more at ease purchasing another...and another. The lifetime savings of making the decision now and ditching that gas guzzler will be enormous.
  

What airlines really need: more fees

Airlines, becoming ever more expensive, are currently considering another round of fees to rake in more money. Their fee plans come at yet another spike in gas prices. Some of these fees caught my attention:

AirTran Airways is reportedly considering fees for advance seat assignments and $10 to $15 for reserving premium seats like those in exit rows

The web has allowed us to choose our own seats based at check-in, something I've found to be extremely convenient. I can find an entire row for my wife and I that lets us stretch out, if the plane is not fully booked. Northwest airlines is doing the same, and I imagine other airlines will follow suit.

The carrier [Southwest] vows not to charge for things that are free now, such as a soda or a blanket. But it doesn't rule out fees for amenities it doesn't currently offer like seat assignments and meals.

Gee, thanks for not charging me a dollar for the soda that's supposed to already be included in the price of the ticket.

I was caught by this one on my last trip:

Most domestic airlines now allow you to check two bags weighing no more than 50 pounds each. Go over that weight and you'll pay $25 or more per bag. If you want to check an extra bag, you'll pay up to $80 or more per bag.

Amazingly, airlines how charge (Continental in my case) $80 for an oversized bag. My bag was 5 lb overweight. Solution? I had to put 5 lb of clothes into my backpack, which fortunately was almost empty, to avoid an $80 fee. $80 for 5 extra pounds of luggage! It's outrageous. If the airline is trying to recoup the costs of fuel due to extra weight, they lost. I carried the weight on with me anyway.

Some airlines are adding fuel surcharges. Some want to charge you per-bag. What concerns me with all this is that these are just hidden costs of your ticket, making the pricing structure unnecessarily complex so consumers don't see up front what their plane ride really costs. It's yet another sneaky tactic from the greedy corporation department. And how are we supposed to compare airline ticket prices when we may get hit with a mountain of fees once we get to the airport?

We can't. And maybe that's the point. The good old American car trip is looking better by the minute. Now how can I figure out how to charge my wife extra if she wants to recline the front seat?