Middle Class Struggle

[Anonymous]

Here’s the cars that people in SD bought in 2006:

Note: 1,121 Toyota Highlanders vs. 1,586 Lexus RX350s
(Same Toyota platform on both)

Additional cost per car is approx $10,000

Total = Almost $16 million extra in ‘Lexus Factor’

http://www.cmcda.org/ecmdev/AM/Template.cfm?Section=Industry_Data&TEMPLATE=/CM/ContentDisplay.cfm&CONTENTID=4056

[recordsclerk]

Here’s the cars that people in SD bought in 2006:

Note: 1,121 Toyota Highlanders vs. 1,586 Lexus RX350s
(Same Toyota platform on both)

Additional cost per car is approx $10,000

Total = Almost $16 million extra in ‘Lexus Factor’

“Lexus factor” great find. Got to give you credit for this one.
I have to admit it we couldn’t resist the Lexus factor. My wife drives a 2001 Lexus RX300, we bought it used in 2003 and from a private party. Dealer wanted at least $4k more then we paid with same mileage. She loves it, and we are not planing on buying another car for at least 5 years.

[Anonymous]

Sounds like you got a good deal. Some would critique the fact that I bought a new Toyota as well, but to be honest there wasn’t a huge difference between the new and used prices, and the cost of ownership over the lifetime will be less than the American counterparts, and it is safer.

That was one disagreement I had with another book I’m sure you’ve seen – The Millionaire Next Door. He makes the case that millionaires tend to buy used American cars.

[Borat]

Toyota Camrys are American cars. They’re made in Kentucky. The concept of “American car” vs. “Foreign car” has changed considerably since that book was written, and certainly since the millionaires surveyed had bought their cars. Mazdas and Volvos are now full of Ford parts, and vice versa. Saabs have GM parts, and on and on.

Pontiacs are still crap though.

[mixxalot]

Good stuff!

I drive a used BMW and its paid off and in good condition. Cost me 14k used and love it. I keep rent as low as possible and expenses down. I try to save as much as possible and max out my 401k and IRA.

Gas and real estate- thats the price gouge right now for living here in SD.

[gold_dredger_phd]

It’s the house and car.

When my parents lived in the Bay area in the late 60’s and early 70’s, they paid about 2-3 times my father’s income for their 4-bedroom house. This was for a new house.

When I live in San Diego today, I would have to pay at least 10 times my combined salary to live near my work. You can’t afford a house that costs 8-10 times your salary. No wonder people are broke.

[an]

The house and the car are the expense that you make actively and you have to do the proper calculation. If you want to spend beyond your mean, no “xxxx factor” can save you. If you buy a $40k new car and keep it for 20 years = $166/month. Buying a used car for $14k that only last you 10 years, $116/month. The difference would be $50/month. Is that such a big difference? I’m sure if you don’t eat out 1 time a month, you can save $50/month. That’s why the latte factor is such a big deal. It’s really the life style change. Don’t take it so literally and think only coffee and such.

[Anonymous]

I agree that it is a big deal, especially considering that even in my example above a family making 130k a year would be living on the margin. I think that it’s important to consider the margin, objectively and also as a psychological factor.

Unlike the rich who might go from saving 2000/mo to saving 1000/mo., this family will literally save nothing if they do not act. They might even lose money every month. For this family, settling for a very nice 600k home and not stretching for the 800k palace could mean the difference between having $1 million in 25 years or having nothing.

Also, it’s not fair to compare a 14k car over 10 years to a 40k car over 20 years. The ‘Lexus’ effect owners will not keep a car that long, I assume. Nearly every luxury car that I see in North County is a 2000 or newer.

[an]

To me, even a $600k home for a family that only make $130k is a huge stretch already. So, we’re basically saying the same thing, in that one have to actively think about what they spend on and not try to keep up w/ the “Jones”.

I don’t see why that’s not a fair comparison. A $40k new car can be bought for around $14k if it has around 80-100k miles. Given an average driving of 10k miles a year, a new car would reach 200k miles in 20 years and the old car will reach that in 10 years. That’s just an example. I know that people who buy new expensive cars tend to constantly upgrade to newer cars. But that’s not always the case. I for instance, will be keeping my car until it break down. Since it’s a Japanese car, that’s be a long long time from now. In my case, I’d rather not eat out once a month and buy that new car than eat out one more time a month a drive an older car, it’s a personal preference. But the point is, I actively made the calculation and made the conscious decision. So there’s no real surprise.

When one goes out a lot that’s when they get surprised at the end of the month. A dinner out w/ friends probably be around $100 (for 2). Do that 8 times a month (every Friday and Saturday night) and it’s more than most car payments.

[startingout]

Yeah, $200 on a designer outfit is ridiculous.

Now I’ll admit, my husband and I have some debt, but I’d like to believe that we’ve taken on our debt cautiously and with good purpose.

Yes, I have a student loan, but I borrowed as little as I possibly could, and consider my modest loan amount to be an investment in my future.

Yes, we have auto loans, but the total balance of both our loans is less than the price of one brand new Toyota or Honda sedan.

We do have some credit card debt, but it is small, and can be paid off in 1-2 years.

I suppose I’d like to think that we’ve taken on “necessary debt.” In today’s society, one needs a car. To make more money, one typically needs a degree. And sometimes life comes at you faster than you thought, and you need a little help. But I feel that my husband and I have taken on these “necessary debts” as frugally as we possibly could.

We try to apply this to all other aspects of our life, as well. Clothes from the GAP? No way! Target and CostCo, baby! I buy all my books and movies used and for ridiculously cheap prices on half.com. We keep rent as low as it is possible to keep, and don’t spend more on entertainment than our budget will allow.

Pretty much our only expense is a trip to Ireland every 18-24 months, to visit my husband’s family, and we always save up for it and pay cash.

There just isn’t enough to be said for the benefit, nay, necessity, of living below your means. But I’ve gotta agree that it’s the “Lexus factor” and not the “latte factor” that’s dragging the middle class down.

[Cow_tipping]

Submitted by gold_dredger_phd on March 2, 2007 – 8:13pm

In charlotte in 2003 I paid 2x my income for a brand new 5 bed 2723 sqft house. Well … Its no bay area … and I make more than average income for Charlotte … so I might still have over paid.

Yea I have old cars that are paid off and even older bikes that I paid couple 100 to 1000 each and I fix and use car pool and get free parking etc … and I sell them every other year or so. Good side business.
Cool.
Cow_tipping.

[Anonymous]

I agree we should be mindful of the small stuff that adds up, but I think it’s the house and car this is killing most people.

It’s the medical care, insurance and education.

[ucodegen]

I don’t see why that’s not a fair comparison. A $40k new car can be bought for around $14k if it has around 80-100k miles. Given an average driving of 10k miles a year, a new car would reach 200k miles in 20 years and the old car will reach that in 10 years.

You might want to double check your figures here.. a $40k car that is 10 years old with 100,000 miles on it will command less than $14k.. try using KBB.com (Kelly Blue Book).

Here is an example.. a 1996 BMW 750il with 90,000 miles on it, in excellent condition, will go for about $14,230 from private party. A 1996 BMW 750il did not cost $40K new.. try closer to $80k to $90K.

http://www.kbb.com/KBB/UsedCars/PricingReport.aspx?ManufacturerId=5&YearId=1996&VehicleClass=UsedCar&VehicleId=My81LzIwMDd8ODU5NA%3d%3d&PriceType=Private+Party&ModelId=16&Mileage=90000&SelectionHistory=8594%7c3007%7c92123%7c0%7c0%7c&Condition=Excellent&QuizConditions=0

I also tried a vehicle (in demand here in California)
A 1996 BMW 328i Convertible… same year, same mileage..
Result was $11,450. New, the convertibles were closer to $50K
http://www.kbb.com/KBB/UsedCars/PricingReport.aspx?ManufacturerId=5&YearId=1996&VehicleClass=UsedCar&VehicleId=My81LzIwMDd8ODU4Nw%3d%3d&PriceType=Private+Party&ModelId=12&Mileage=90000&SelectionHistory=8587%7c3007%7c92123%7c0%7c0%7c&Condition=Excellent&QuizConditions=0

Now for a less in demand vehicle.. (in demand vehicles have higher resale value).
1996 Infinity J30 Sedan = $6,095
http://www.kbb.com/KBB/UsedCars/PricingReport.aspx?ManufacturerId=21&YearId=1996&VehicleClass=UsedCar&VehicleId=My81LzIwMDd8OTIzMg%3d%3d&PriceType=Private+Party&ModelId=511&Mileage=90000&SelectionHistory=9232%7c3007%7c92123%7c0%7c0%7c&Condition=Excellent&QuizConditions=0

[ucodegen]

I agree we should be mindful of the small stuff that adds up, but I think it’s the house and car this is killing most people.

It’s the medical care, insurance and education.

And medical care costs are getting more expensive all the time (at a frightening rate).. If the cost model followed the behavior of ‘computers’, it would have gotten far cheaper. Greed and malpractice insurance costs are driving a large part of it.

A question to think of:
When going for medical care, the cost of the care is hidden from most clients (effectively through health insurance). Therefore there may be little downward pressure on costs. Part of what drives down cost is shopping for less costly ‘items’ with near the same ‘value’. So, if we go for a national health insurance, will this drive down costs? (how/why)

Did the mandatory drivers insurance in California drive down the cost of auto insurance for the buyers of auto insurance?

[ucodegen]

I also wonder how much is the cost of servicing outstanding loans. What is the difference in available spending power between someone who uses credit cards to make it through the month a opposed to someone who ‘pays as they go’ (cash personality).

[Author]

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