I own a BMW X1.
It was made in 2021. Bought it in 2024. I think I paid $25,000.*
That’s less than I paid for the Prius I owned before it.
But if I factor in:
Premium Gas
Maintenance
Insurance
Registration, Taxes, Fees
Depreciation
The total cost of ownership, assuming I sell it at about 150,000 miles (8 years from now), is about $100,000.
These cars are reasonable up front, but kill you on the back end. Almost invisibly.†
Our pal Charlie Munger talked about Inversion.
Here’s an example “reframe” I consider:
If someone offered to pay me $100,000 to go 10 years (the 2 years I’ve owned it, plus 8 more years) without a car, would I do it?
Let’s assume:
1 – They paid me $10,000 a year
2 – I invested that at the average market returns (S&P 500, 7% real, invested at the beginning of each year)
3 – I stayed local and rode my bike around town, never rented a car, never took a rideshare‡
That would become $147,843.
(Or $110,560 if I got rid of it now, 8 years early, and not counting what I could sell it for.)
A less extreme option would be to own the most economical car possible over that period:
A 2021 Toyota Corolla Hybrid.
Total cost of ownership? $60,000.
Invested, that amount would become $88,702.
Framed another way: if someone paid me $59,141 (the difference between $147,843 and $88,702), would I drive a Toyota Corolla Hybrid instead of a BMW X1 for 10 years?
Now I can’t help but think of this when buying a burrito or a book or a shirt. What would this amount grow to in 10 years?
It’s the curse of Mustachianism.
As Benjamin Franklin said: “If you don’t buy something, you’re literally being paid to not buy it.” Or something like that, right?
What if, for one year, someone “paid” you to…
1 – Only attend local free events you can walk to
2 – Not buy anything discretionary (clothes, streaming subscriptions, Starbucks)
3 – Sell everything you haven’t used over the previous year
How much would that add up to? Could you do it?
Life is full of opportunity costs… not just in money, but in time, energy, and health.
We pay a price for the things we want, but we rarely know what that price is. We don’t bother to do the math.
“To get something that we like, we usually have to give up something else that we also like.” -Principles of Economics, 8th Edition
“You can afford anything, but not everything. Every decision has a trade-off.” -Paula Pant
“You are free to do whatever you like. You need only face the consequences.” -Sheldon B. Kopp
*This sunk cost lump sum throws off some of the calculations here, but close enough for a stupid blog post.
†Similar trick: want to buy a house for $500,000? With a typical 30-year mortgage, 20% down, 6.5% interest, you actually pay about $1,000,000. Or ~$750,000… 2% inflation-adjusted. Just an estimate, bro.
‡Yes, I am seriously tempted to do this. From 2008 to 2011, my main transportation was the bike at the top of this post. I still have it, it works great, and it’s named Ramsey I after my favorite redneck radio host.