Buy a used Honda Fit (2009 or newer) for your daily driver.
That's it, I'm going to write a bunch to explain why but all you have to do is buy a used Honda Fit and not think too much about it and you'll probably save thousands of dollars a year. Mr. Money Moustache says the average american family spends $4500 per car per year (ref). This will be significantly less than that, could easily be more than $1000 less per year.
My goal is to find the lowest cost per km car and the Fit might not be the absolute lowest cost per km but from what I can tell it is the least effort safest bet in the pursuit of a all around car.
1) They still make them, so there will be supply for a while
2) They are very versatile, they can fit 5 adults, or they can fit a lot of cargo
3) They are consistently on the top of reliability lists
4) They are the cheapest Honda model, and they look pretty good
5) They are near the top of all fuel economy lists, they'll beat out some hybrids
6) The model range has all the features you could want
7) They are typically at the top of the lists for cars that retain their value
Tips to avoiding headaches:
1) Try to avoid those smaller private used car dealerships. They cost less but they generally deal in cars which have been in accidents. The prices are cheaper but you never know if all the accidents have been reported or not.
2) Use CarProof not CarFax in Canada. Some dealers in Canada provide a CarFax report outlining the accidents, but a more reliable source for Canadian information is CarProof. This happened to me, I was told a certain car had an accident and the driver side door was repaired. There was a CarFax to back this up. I got the CarProof and the car had been in multiple accidents, the second one was an insurance write off (total loss).
3) If you want help negotiating a good deal consider using a broker. Here is an example of one in Ontario http://automallnetwork.com/. Contrary to what their website says, they want you to contact them before you contact the dealer. You can do some searching but when I talked to them on the phone they were quite adamant that once you walk into the dealership you are the dealer's customer not the broker's. The broker wants to negotiate the price and then have you go test drive the car. They said if you do contact the dealer don't give them your full name or contact info. If you are contacting them by email don't use your normal email account. I don't know how this works if you end up not wanting the car. It seems like you just get their negotiating help with one car at one dealership for $195.
If you really want to dive into how to save money a bit more here is an article outlining how having a series of cheaper cars can save thousands of dollars vs. buying an expensive car and having it for 10+ years. The idea behind it is that it allows you to pay less interest on other loans, or investing the extra money. It might seem complicated, but it's just really just as simple as having less money tied up in your car so you can get the other money to work for you.
On the topic of auto loans here is a scary video about those small dealerships that give credit to anyone. Watch out for these traps
If you're all the way down here I'll let you know an even cheaper option.
If you read enough personal finance advice you'll hear someone say you can Drive For Free (DFF), or even make money by driving. This is not quite accurate, what they are generally saying is, you can become a (one car at a time) used car mechanic/salesman easier than you think. Many people sell cars undervalue because they don't want to put in the effort to tuning them before selling them, they just want to move on and spend more money. This is real, you can do this, you could even take it to the next level and have a hobby of fixing exotic cars and really make some big money while doing something you enjoy. If this sounds appealing look into it. If you just want to drive a car, buy a Honda Fit.
Here's an article on DFF
I'm reluctant to mention other options because as soon as you get too many options you can get overwhelmed easily. If you don't like the Fit consider a used Civic.
If you want more options ..., I'm warning you, this can take up a lot of time ...
I highly recommend Phil Edmonston's Lemon-Aid Car Buying Guides. Just buy it and read through it and try to stick to the low cost cars that he gives a 'Recommended' rating to. You can go to a library to read it or a book store to get some tips, but to really get all you want out of the book you'll need to spend a lot of time reading all of his general car buying advice, in addition to the specific advice for each car, so I'd lean towards buying it and considering it part of the price of the car you are buying.
Generally the lowest cost cars are more reliable, it's like they know those customers won't put up with unreliable cars, unlike people buying for looks or performance, they'll push the limits of reliability in order to have the latest and greatest.
Here is a list of 10 cars to consider, but cross reference these to the Lemon Aid book before considering them too seriously.
Save money, save gas, save your headaches with costly repairs, buy a nice looking economical car, with as many features as you need. I'm not recommending buying something you don't like, I'm saying take a look at the true cost a car you have or want. Add up the extra money on more gas (sometimes premium gas), larger wheels, insurance, repairs, depreciation. Start to realize the reason companies have to pay their employees so much per km when driving for work, it's because your car really is costing you close to that much per km, it's just hard to see it since the costs are so spread out. Then using that knowledge buy a car you like that is within a price per km you want to spend.
Wanting things can give us motivation to be more productive and to make more money, so wanting a nice car and working hard for it can work out for some people. I just don't want people being tricked into thinking they need to spend more than they need to by marketing and by having the costs spread out so much.
OK here it is, my attempt at creating a user manual for your brain so you can make the most of this site. Many people are well intentioned but fail to follow through. This shows you why that is and how you can overcome it if you want. I focused on the topic of money but the principles are the same for any goal.
This is meant to be an open discussion, a goal of this site is to come up with a new mental model for why we do what we do. One that we can all use day to day to make better decisions and to get along better with each other. If you agree or disagree with any aspects let me know and let's see what we can come up with
Let me know what you think of this, it's a pretty rough cut, no editing done. I haven't even listened to it myself, I feel like if I do I will never stop tweaking it. So let me know, if the content is good or bad, if the audio is ok or not, and any way I can improve it.
1 - I highly recommend getting a copy of Tony Robbin's Get The Edge or the booklet or a transcript. His other books or programs like Unleash The Power Within may cover the same material but I haven't listened to them so I don't know for sure. From his site they are pretty expensive but on amazon they are very reasonable. I can lend you my copy if you want. He does a great job describing the way we make up rules based on experiences, and how to reset those rules. His style may not be for everyone, he's really intense but I recommend you just try to stick it out and try to get used to it. He's got a lot of great insight in behaviour.
2 - The Willpower Instinct by Kelly McGonigal. This is an amazing resource for understanding your auto pilot (she calls it your 'monitor' I think). If you skip Tony Robbins don't skip this one. You can even get the audiobook forfree using my link to audible.
Others Books (don't bother with these until you've read/listened to the first two)
3. Happy Money - This outlines ways to make the most of your money.
4. Your Brain at Work - How your brain has limited bandwidth and you need to manage it as a resource. He suggests thinking of it as a stage, and thoughts as actors on the stage. You really need to stage manage, both by limiting what is in front of you and practicing mindfulness/meditation to have better control over thought selection (ignore distractions)
5. Happiness Hypothesis - a great book that outlines the tension between pilot and auto-pilot, he describes us as an elephant and a rider. I love this analogy but didn't have time to explain it in the video above.
6. Time Wars - This was the first book I read that pointed out that the most important thing in our lives is the predictions of the future we think of or that other people tell us. They dictate everything. When I read it at first I thought he was crazy, now it seems so obvious, and it seems like something everyone needs to be made aware of.
And of course Links to the previous posts
Links to Part 1, Part 2, Part 3, Part 4
I just realized I forgot to mention mental shortcuts that the auto-pilot uses. These are called cognitive biases. Check out this short list and check out this long list.
And I forgot to mention the concept of mental junk food. Just like you watch what you eat you need to watch what you spend your time thinking about. So many companies are competing for your attention you need to watch out for this more than ever. An interesting book on the topic is Distracted, another one available on Audible.com
I've been thinking about getting a 'smart' thermostat since the first time I heard they existed. The appeal to me is the ease of turning down the termostat when leaving for the day. I have no faith in the thermostat to learn my routines but I'm ok with doing it manually via my smartphone. The big question is, 'do you really save energy or is it somewhat evened out by the recoery time?'
The consensus is (based on the laws of thermodynamics) you'll save energy for every minute your thermostat is set back, not much but some. So I've only had it a week or so and I'm trying to set it back any chance I get, but the recovery time is significant, and the savings in the best case scenario are not that significant if I'm only doing a one degree set back here and there.
Overall I like the termostat (Ecobee 3, in Ontario Canada there is a $100 rebate available to most people, link, Google your area you might have a rebate too).
In all my hours of looking into this I came across two interesting things.
1) When you drop the temp your humidity goes up (condensation), so you can be introducing moiture into your house (risk of mold) if you do a huge setback while on vacation. Most people don't seem too worried about the mold and I haven't heard any horror stories, but it's something I hadn't thought of.
2) I came across a great slide show that compares the impact of different energy saving activities. Things like setting back your thermostat, insulating your attic, all the way down to keeping your fridge full (even with water jugs when low on food) so it's not cooling so much air. I like to do as many as I can but I don't stress about it if I don't have time to do some of the lower impact ones like keeping the fridge full of water jugs, especially now that I see how little of an impact it has.
Click here for the slides
Here's a link to the site I found it on
p.s. I came across one more interesting thing, studies showed that most people didn't use the features of their programable thermostat when those became popular because they were too complicated to set. Hopefully the default settings of these new smart thermostats do a bit better of a job and make a bit of an impact. I found the Ecobee to have many more settings and features than I thought it would, but the final state of it is not far off the default settings, 1 degree setback for when I'm sleeping or when it notices no one is home.
1. Get a no fee bank account
2. Get the best rewards credit card you can
3. Set up an investment account (use low fee index funds to start)
These might not sound like much but they are some easy first steps to ensure you're not wasting money, missing opportunities to gain money, and to start saving for the future.
When it comes to money there are only two categories of things you can do:
a) Spend Less
b) Earn More
These three steps will help you do this but to be successful at this or at anything you'll have to keep at it, all day everyday. This is hard for two reasons:
a) We think about motivation totally wrong
b) There are legions of people spending trillions of dollars trying to make us make bad decisions that benefit them rather than ourselves
I'm not anti-capitalism I'm all for it, but for it to work we the consumers need to make more of an effort to make good decisions. Literally, in order for a market economy to function, in order for the best products to succeed it requires the consumers to make the best decisions possible, but we don't have the capacity to process all of the information (see Homo economicus). And I'm not saying I'm the only person that has cracked the code on human motivation, there's just a lot of research out there with counterintuitive findings that haven't made their way into our general knowledge yet.
So the goal of this site is to help everyone with these two issue. The lists of things you can do are intended to turn into resources to let people share what the best solutions to issues they've tried to solve (better decisions). And I'll have a section where we can build a better mental model of why we do what we do. We can use the latest research and all of our experiences to come up with something we can all keep in mind when trying to make decisions or achieve goals, some rules of thumb to help us make better predictions of how to avoid procrastinating or doing things we know are bad for us.
I plan to have a pretty solid start on writing out a summary of all I've found so far on the topic compiled into one concept you can visualize, but for now I'll just talk about the most important factor, Your Reason Why.
This may sound overly simplistic, but this is it, this is the main factor in success or failure. If you have a compelling enough reason why it will help you resist or ignore other distractions, and keep trying. This is the second important factor, the willingness to try and keep trying. You're going to fail, you're going to screw up, no one is going to just achieve something without any slip ups or any problems, you'll need to not get too upset with yourself and just keep trying.
So that's it for this post, the most important things to focus on are your Why and committing to Try.
I wanted you to do the first 3 items before we got here because this is where people can loose interest or go off thinking about their why and never nail it down.
I read something similar to this post 20 years ago, and I didn't think much of it. The advice was in the introduction to an investing course. It was to stop and take the time to figure out exactly what your goals are, exactly what house you want, what car you want, how much money you want to make, the life you want to live, the things you want to be able to do. I thought about it a bit but I skipped the step, I just thought I want to make as much money as possible, and I thought it was something I could come back to. I don't know that the exercise was perfect, but over the last twenty years I've come to see that it is your why that will determine if you stick with something or not. If your reason is not compelling, if it doesn't invoke strong emotions then your drive will tend to fizzle out, your time will be divided. And as I said, there are legions of people spending trillions of dollars and every hour of every day trying to figure out how to make you make bad decisions, decisions that benefit their shareholders rather than you. If you benefit that is irrelevant, they are legally obligated to do everything in their power to benefit their shareholders, even if that mean breaking the law. As long as the fine is less than the profit they are obligated to do it. Think of those Panama Papers where companies do mostly legal tax evasion, some illegal. It's more illegal for them not to try to avoid paying taxes. I don't want to end this on too negative of a note, I just want to let people know that the deck is stacked against them to make bad decisions, and to not beat themselves up over any setbacks. Commit to keep trying.
Click here for a follow up post to these 4 steps with a video.
Here's one of my favourite stories about what you can accomplish is you commit to trying.
1. Was get a no fee bank account - Don't spend money you don't need to
2. Was get the best rewards credit card you can - Get as much money back as you can
Now tonight is about saving, where to save and how much?
3. Set up automatic payments to a low cost index based fund
If you are just starting out I'd say it's more important to get started than to wait until you figure out the perfect investment stratagy. First off no one knows the perfect strategy and secondly it's helpful to be in something to get a sense of how things work.
The general consensus from the best investors to late night talk show hosts is to invest in a low cost index fund. This is investing in the stock market, you're buying shares in the biggest companies in the world through an investment company. When you pick an index fund that means the fund managers aren't picking the stocks to buy they are just trying to keep your investment growth on track with the stock market as a whole. When fund managers try to beat the market rather than track the market they usually do worse so that's why index funds are recommended.
Again Tangerine has some great products. You can get a mutual fund with a 1.07% fee.
Check out Candaian Couch Potato Model Portfolio's site. They seem on track with everything I've read in a number of personal finance books.
When I look at the 20 year history on that site I think the balenced portfolio looks the most appealing.
Now to figure out how much to save.
This is tricky because everyone is in a different situation. In general you want to get thinking of saving. Step 1) make sure you're spending less than your making so that you can save. Step 2) use those savings to pay down debts, the highest interest ones first (try to consolidate debts, that can really speed things up too) Step 3) Even if paying off your debts would save you more money than investing will make you I'd say invest at least $5 a month into an account like a Tangerine.ca mutual fund. It will help you learn about investing and get a feel for it so once you have paid off your debts and have money to invest you will have had some practice. Some people focus paying off their mortgage and then have an extra $1000 or more a month to spend/save and they don't know what to do with it, they don't have any practice and then they might just spend it rather than save it because of this.
Next we'll get into the most important aspect of success... Why?
Saving for the future is usuallly thought of as an obvious thing we know we should do, so we often overlook the specific reasons for it.
While you're waiting for that post sign up for an investment account!
Oh, and here is John Oliver reiterating what I said ...
(you can skip to 17:45 for the summary)
I'm going to recommend books often, to remove any excuses you might have to not getting the book the link below is for a free trial of Audible where you can get 2 free audio books!!
And if you use this link you'll help me pay for this site, no cost to you, which would be much appreciated :)
(the link still goes to Audible but the 2 book deal is over)
2. Get The Best Rewards Credit Card For You
Warning: If you have a credit card it is more than likely you'll spend more money than if you pay for everything in cash. So if you're looking to spend the least amount of money possible consider not using a credit card despite the free cash back programs. If using cash for everything just isn't going to work or if you plan to do that but still want a credit card to help build a credit rating to be able to get a mortgage I recommend putting in a few minutes of effort to find the best card you can. I can't see any reason not to.
Aside from a car or a home I don't recommend ever buying anything you don't have the money to pay for. I think of credit cards as convenience cards, compared to debit cards they have added benefits of cash back rewards, free warranty extensions, and free travel insurance. You may not realize it but everything has an invisible 'credit card tax' on it. Retailers are not allowed to say things cost more if you use a credit card (credit card lobbyists got a law passed to make it illegal) so they have to raise the price of everything by 2% or more in order to cover the transaction fees (interchange fees) they get charged. So you might as well use a credit card to get some of that hidden tax back, unless you want to carry cash around and ask for a cash discount. I'm not talking about tax evasion, I'm saying some retailers will take 2-3% off the price if you pay cash because it saves them money. They are allowed to advertise cash discounts but most don't bother.
If you know you will buy more than you can afford if given credit you can get cards that you have to pre-load, and you can have it on hand for the handful of times when you need a credit card. If you are already in credit card debt problems there are cards with no rewards but low interest which will help you get out of debt much faster.
If you have a card or want a card you might as well spend 10 minutes to figure out the best one for you rather than settle for which ever one the bank happend to give you. When I mention this to my friends they often tell me they love the card they have, and it's gives them so many rewards so they don't want to switch. But when I get the details out of them the card usually gives them a 1% return or less, and they are usually eligible for a 2% cash back card. Meaning, they are getting ripped off! They might get $500 in free groceries, but that could've been $500 in groceries and another $500 to spend on anything else they want, or just $1000 in groceries!
Step 1. Figure out what rewards you are getting, if any
- If these are travel rewards or other merchandise rewards ask yourself if you are redeeming them for things you'd buy anyways. Like, if you get free movies from the card are you going to more movies then you would if they weren't 'free'? If you're using the points for things you wouldn't buy anyways this equates to no reward, sometimes a negative reward because you spend more in the redemption process, like buying popcorn when going to a free movie, or paying for a hotel to go with a 'free' trip. For scenarios where you are using it for things you'd buy anyways try to calculate the % back you are getting. Just take the value of the reward and divide it by the amount of money you spent on the card to get it, then multiply by 100.
Example: Let's say you need to spend $10 to get 1 Air Mile, and you need 95 miles to get something, you spend $950 to get that reward. Let's say the reward is $10 gift card.
So $10 Gift Card divided by $950 spent (10/950) = 0.01, multiply that by 100 to see it is like getting 1% cash back.
Step 2. Compare your card (or other card offers) to these ones
Note: the higher your credit rating and the higher your income the better cards will be available. Unless you're really going to get into this I'd avoid travel cards and I'd stick to cash back cards. Travel cards can make you end up spending more by getting you to go on more trips than you would if you got a cash back card. (Here is a comparison)
A good starter card
This is going to sound odd but Rogers Media has some very good rewards cards, and no websites seem to promote them. They don't have fancy insurance plans, they just give you a lot of cash back.
No Fee FIDO Mastercard 1.5% cash back on everything
$29 Annual Fee Rogers Mastercard 1.75% cash back on everything. If you spend more than $1000 on your credit card per month you'll come out ahead with the Rogers card over the FIDO.
A better card for those who can get it
MBNA Rewards World Elite (owned by TD Bank), you get 2% cash back on everything, and lots of free insurance, like double the warranty on everything you buy, and 90 insurance if anything you buy gets lost stolen or broken. You'll need to spend $
A credit card you can transfer a debt to and get 12 months no interest
MBNA Platinum Plus Mastercard, 0% interest on balence Transfers for 12 months, after that and for all purchases it has the usual 19.99%. Use this for a year to pay it down then move to a better card before you have to start paying the high interest.
A credit card that only lets you use money you have
There is a Visa card available at Petro Canada gas stations that you pre-load with money, but it acts like a Visa incase there are situations where interac won't work.
So how does your card stack up?
MBNA Smart Cash Platinum Plus (owned by TD Bank), you get 2% back on gas and groceries, 1% on everything else. And you get a bunch of features see this chart. There is a limit on the 1% cash back, it stops after you spend $1,250, but try calling to see if you can upgrade to the 'World' version rather than the 'Platinum' version to get unlimited cash back.
Links to Part 1, Part 3, Part 4 and the video
The next few posts are going to focus on things you can do for yourself, then we'll move on to other issues.
I've spent a lot of time reading and thinking about money, budgeting, investing and spending money. Before I lose you to something more interesting, here are the three things you should do.
1. Get A No Fee Bank Account
Everyone seems to want to save but says they can't find the money. If you are currently paying fees on a bank account, switch to one with no fees and then save what you used to pay in fees.
I like Simplii Financial (previously PC Financial) and Tangerine (previously ING Direct). Tangerine has a cash sign up bonus of $50 - $100 (promotions vary) if you have a referral code. If you use mine we both get the cash (Orange Key: 16332442S1).
If you love your bank which has fees first you can ask them if there is a way to reduce your fees. It's better to have an action plan filled with things you are looking forward to rather than one you're dreading. If you're dreading the idea of changing banks, don't. Just make sure you know what fees you are paying, ask if they can be reduced, and then keep it in mind each month and see if it's worth it. If it is and you can afford it, go for it. I love my no fee bank account, so that's why I do it.
It's getting late, I'll continue this tomorrow, while you're waiting work on step 1.
Links to Part 2, Part 3, Part 4, and the video