As I departed my previous employer, I had the option to cash out the Roth portion of my 401k without incurring any taxes, but it wasn't really so much an option as a necessity. Since my new job paid less salary, it was necessary to cut down the monthly expenses so that we could afford to trade money for time (an investment which has paid huge dividends and which I could never regret).
The largest and easiest expense to slash was the monthly car payment. I'm think we should consider changing this term to car-tithing instead of payment because we seem to worship new cars as a society (or new anything for that matter) and because the term payment makes it sound like you'll be done making them some day.
For today's debt-enslaved common man, it looks to me like the most you can hope for is the ability to scrounge just enough of your income from the grasp of debtors to enjoy a tiny bit of freedom in the last five years before you die. To those who feel the same, this is my slice of light, not at the end of the tunnel, but the wealth of light you can bathe and soak in by finding the nearest exit and leaving the tunnel all-together.
"Yes there are two paths you can go by, but in the long run, there's still time to change the road you're on."
-Stairway to Heaven, Led Zeppelin
Let's skip to the core of the story; We were about to have a second child and already had two dogs. We take road trips at least once a year, sometimes twice, we frequently browse second hand stores for furniture and other supplies, so flexible space was absolutely required. We live in the Pacific Northwest, home to rain, mud, black ice and (twice a year) formidable snowfall, with wonderful opportunities to go camping, making it a necessity to have a 4x4 or AWD vehicle. I do most of my own mechanical work, so part availability and engine design were also large factors.
This left a large number of options to consider, even within our planned ceiling of less than $5,000, but the only thing we really new for certain was that our beloved Subaru Legacy was no longer going to work. When we bought it we were a couple with two dogs and plans to have two children, but none so far. We were basically buying a car for what we thought would help us the most, but had no clue what that really was. I find that most people shop this way and I believe that it's frankly impossible to get things like this right on the first (or sometimes second or third) try when you haven't been through the thing for which you are trying to prepare. I can't say enough good things about Subaru, they are very well engineered vehicles with engineering principles that everyone could learn from, but that would be an entirely different story, instead I think it's sufficient to say that we had to take a different road this time.
Sometimes when I think about it, I still feel a slight flash of heat through my veins when I consider the way things fall into place sometimes and the way that choices stand right in front of us and nag until we finally see them. At that point we realize that the choice was always there, all we had to do was recognize the choice and make it. After using the cash from my retirement to pay off the car, I saw it in front of me as if I had finally taken a step back to see this more clearly. I could make less money, pay off all of my debt, put a new roof on my house and also get a vehicle that would better serve my family's needs for the current time. All I had to do was step away from the "common sense" that I had given in to a few years earlier.
To be specific, I never thought I would buy a new car, everyone is well aware of how quickly cars depreciate immediately after their initial purchase and for several years there-after, but when we bought our first Subaru Legacy in 2005 we considered it a good buy since the used cars which met our qualifications were priced within a few thousand dollars of the new cars that met our standards. Even now, I think it was the right choice for the time, especially considering that we had planned to use this car for pretty much the rest of our lives. In that situation, knowing that you've owned and maintained the car properly can make this a justifiable expense. Two years later, however, the Subaru dealership offered to pay off our 2006 Legacy and give us a 2008 for the same price, which was also a great deal, but three years later and I was already looking at other options again.
If you are an excellent negotiator, you can definitely buy a new car every two to four years and end up paying pennies per mile (in the case of our two new cars, a net cost of 17 cents per mile is pretty good), but it requires you to dedicate a portion of your monthly income to indefinite debt. The alternative philosophy which I previously and currently utilize works from the other end of the spectrum, where you buy a vehicle that has already depreciated, but still has many miles to offer you with a few repairs along the way. The social philosophy about vehicles in general seems to be that you should avoid repairs at any cost and that a vehicle which requires repairs, or might require them (especially expensive ones) is not a good buy and should be avoided. The new vehicle (or anything for that matter) philosophy is patently backwards because it expects a complex machine to operate flawlessly, which is like betting on black and red at a roullete table. Eventually the ball has to land on zero and the more time you play, the more likely it is to happen.
I've illustrated that this can work at the expense of perpetual debt, now let's talk about the freedom that the inverse strategy offers. It requires discipline both in building cash savings to start with and in spending that cash savings on expensive repairs when the time comes. The idea is simple, you don't have to drive a pile of junk, just find a reasonable car that is in wide use (part availability and price advantage) and which is easy to work on (labor costs advantage). It will work with a car that you haven't selected for these qualities, but the more effort you put into selecting the best vehicle, the more you save, buy this vehicle outright, or if you have to finance it, you need to be able to make the payments while you save up for the next inevitable failure(Paying in cash also gives you flexibility with your insurance, since most cars, even new ones, aren't worth what full coverage insurance costs vs. the events they will pay for, it's an easy way to save).
Assuming you now have your car, stop and envision your car as what it is, a complex machine that has parts which will break down, some faster than others. Don't panic! Just breathe, all of these parts will not fail at the same time, most of these parts will last longer than the life of the vehicle, some of them will have to be rebuilt or replaced, it's alright, your car is not a ticking time bomb, just a machine. If you don't know about motors yourself, spend some time finding a mechanic shop that you are comfortable with. Despite what many people believe, most mechanics are completely honest and fair, but they get a bad reputation from people who don't understand the technical complexities and assume they must be getting scammed. You will have to define your own level of comfort and expectations, but unless you plan to do the repairs yourself (which I applaud), you need to build a working relationship with a shop you like.
Now that you have come to accept and understand that your vehicle will require maintenance and repairs you need to start saving money for these events. This seems to be one of the hardest parts for many individuals, but it should be easy to do. You used to pay $350 a month for a car with modest luxury options, saving $150 or $200 each month should be painless in comparison, especially since you get to keep the money until/when/if you need it. I personally use a separate savings account that is only for vehicle maintenance and I write that amount into my budget as a planned expense. Not only does this make cash readily available for unexpected repairs, it makes it easier to justify to myself when I need to do an oil change or a brake job. I know many people who put off regular maintenance like this to hold on to their precious dollars, but then end up paying more later to repair serious problems, or buy a new car. Ironically they usually feel as though their car has betrayed them, when the opposite is true and they should appreciate that their car was able to run so miraculously well without clean lubrication for five years (true stories). If you acknowledge this need up front and set aside money for that specific purpose, it may be easier for you to come to terms with.
In the end, after looking at different vehicles for a few months, we selected a 2000 Dodge Durango since it matched all of our criteria and had the bonus of being an (mostly) American made product. It also has the same motor that my Dodge Ram 1500 has, which raises my level of familiarity and makes buying certain parts very simple. The more time we have it, the more I like it, it's kind of like someone took a Jeep and put a station wagon on top of it and for all the extra room inside, it is only 16 inches longer and four inches wider than our Subaru was, so it fits right in our garage. It seats 8 if you use the front and middle center seats, so six adults fit very comfortably. The rear and middle seats fold down flush for cargo hauling, offering more interior hauling space than a small Ford Ranger with a canopy. Roof racks and a class 3 trailer hitch are standard as well, in case it wasn't utilitarian enough already.
It came with one big draw-back that turns many people away and that is fuel economy, we average about 15mpg in town and for general use. We haven't taken any long trips yet, but expect to get around 20mpg when we do since that's what the truck gets. This is enough for most people to disqualify it immediately and that's fair, but for us, it works fine. If I was commuting to Tacoma daily, I'd obviously be broke, but we rarely leave the county as is and I generally take my motorcycle as often as humanly possible, so we don't even notice. It is also noteworthy that many smaller SUV's with smaller and newer engines get the same mileage. The Jeep Cherokee, Nissan Xterra, Jeep Wrangler, Chevy Suburban and Ford explorer, for example, all ring in with similar or even worse mileage. Even among the more compact SUV's of the world, like the Subaru Forester, Ford Escape and Toyota CRV, the mileage is only a little better (at a big sacrifice for space).
As a cost comparison, if we were driving our Subaru to Arcata to visit Brandy's family, we would have to pack very carefully, cram every last bit of luggage in and still wouldn't be able to take the dogs for a $30 fuel savings each way. That's fairly easy to justify for the comfort and versatility we get in exchange.
Now back to the cost of repairs. The single biggest repair expenses that could come up could cost as much as $3,000, which is about what we paid for the vehicle, but what we paid or what it is worth is irrelevant in this scenario, it is about how many miles you will get out of the repair you make. A new transmission or one properly rebuilt should give you 100,000 miles of service, which translates to $.03 per mile. At minimum, it's safe to assume that you won't be paying $3,000 every year, more like a few hundred most years with the occasional $3,000, that's a bargain compared to the $4,200 you would pay every year for that modest new car which didn't need any repairs. Even if you did spend $3,000 a year on repairs (which is pretty much impossible, even if you drive a very rare and hard to fix vehicle), you would still be saving money without adding to our consumer waste problem.
Aside from all of these benefits, the one I like the most is the freedom from indebtedness. Until you experience it for yourself, it's hard to understand, but to put it simply, it is a healthy load off my mind to know that I could sell this vehicle and buy another, or smash it into a tree without being on the hook for a single dime. I would say that this is the kind of freedom that money can't buy, but it wouldn't be true, because well spent money can absolutely buy this freedom.
The first step is a desire to get out of the mouse wheel and stop caring about the reward, then you'll see that the reward was an illusion all along and you will be ready to begin looking for the real and attainable things in life.