Who Wants a SHINY New Toy? Not Me!

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Even SJC Airport Has One!

The Tesla Model S! It’s EVERYWHERE… and the coolest toy in Silicon Valley today. The hype has spread, and you will now find one on the road literally everyday. I still remember just last year when I first saw one pull into my company’s parking lot. At the time, it was esoteric and unknown. Each day, more and more people would gather around to check it out. When I saw all this buzz, I knew it was only a matter of time before a revolution would arrive.

It Has Arrived

Fast forward one year later, and Tesla has taken the automotive world by storm. The stock is sitting at an all time high, demand is rapidly growing (just wait until China catches on), and the prospects for the company have never been brighter. Couple that with the influx of wealth pouring into the Valley, and this car has become the ultimate status symbol.

If you ever visit Santana Row, you’ll see these cars lined up, side-by-side in the parking garage. Those charging stations used to be mostly unoccupied, but now I’m betting you’d be hard pressed to find an open spot at any time of day. I really can’t even drive to lunch and back without spotting a few…

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On my way to lunch…
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On my way back from lunch…

What It Means

What does all of this mean to me? Well, since the car starts at about $100,000 (premium model, and after all taxes/fees), it sure isn’t cheap! There’s a ton of wealth floating around the Bay these days, and times are good again. I can’t speak for the rest of the country, but the local economy around here has never been better. You can feel it in the atmosphere, easily. It’s almost impossible to go into ANY restaurant during lunch hour without having to fight through crowds and having to wait in long lines.

And all of this has me nervous! Petrified even. When the economy is doing well and others are greedy, I am at my most fearful. As investors, we are all taught this golden rule. I still remember when I started buying stocks and property in 2012… Most people, in my everyday life, just wanted absolutely nothing to do with investing. Everyone was jaded and still recovering from the burns of 2008-2009. Now everyone just wants to buy stocks… Any stock. Because after all, prices are just gonna keep going up, right?

For investors, times were good back then. We could load up on assets and not worry about overpaying. Stock valuations weren’t ridiculous and bidding wars for properties were just getting started up again.

My how times change…

Resist Temptation

Even if I had $100,000 to “drop it like it’s hot”, I still wouldn’t. No way, no how. I don’t believe in lifestyle inflation (for sure not before I reach early FI), and just because times are good, I don’t think it gives you an excuse to be reckless with your spending.

Just watch… All these folks who are “making it rain” today, will be the same ones moaning about how screwed up everything is when the party stops and unemployment runs rampant again.

The thing is, when times are good, you need to be even more cautious with your money. You shouldn’t be out spending all your bonuses, options, RSUs, ESPP, and other windfalls… even on a toy as spectacular as a Model S.

I love Tesla… Or T$LA, as it is most commonly referred to these days. I even loaded up on shares last year and made enough to fund a downpayment on a property. I want the company to succeed long-term.

I just wouldn’t buy one. Not when it’s priced at $100,000 a pop. And definitely not when I know that I can easily invest that money elsewhere, and make financial freedom a more realistic possibility. Let’s say you can locate an investment that will earn you 12% return on your money. That’s $12,000/year, or $1000/month in passive income. For myself, that would be 2/3 of my original passive income target needed to declare early FI!

Yikes! That’s insane… If all of these rich people invested in assets instead of flash, they could probably retire tomorrow! Or at the very least, the day after tomorrow.

But times are fun again. And people just wanna celebrate good times… I personally would rather use that $100,000 in ammo and lock down 4 houses in the Midwest. At $100,000 each, that’s $25,000 for each downpayment.

There you go. 4 houses and $1000/month in cash flow? Or would you rather be the coolest kid on the block?

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SundeepFI FighterDave @ The New York BudgetRefinerrDone by Forty Recent comment authors
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Income Surfer
Guest

I completely agree FI, but that’s because you have new goals and a new focus. Honestly, I’m a car guy…..but I recognize they are a depreciating asset. A reasonable argument could be made they aren’t even an asset, because they are neither required to live, nor throw off cash flow. There aren’t very many of them in my part of Florida, but I bet you’re surrounded by Tesla in San Fran
-Bryan

No Nonsense Landlord
Guest

As always on spot. Some people have a passion for spending. When I make a purchase for myself, I ask myself “would I rather have that or retire XX months earlier”. Even a $5,000 purchase now, in 10 years that money might be $10K. That’s another two months of working.

I always buy new vehicles, and run them into the ground. My truck, F350 Diesel which is a business expense, is a 2002. I sold my 13 year old car and bought a new one, and will have that 13+ years.

When you buy a vehicle, write it off as a business expenses, if you can. I need a truck with the maintenance I do on the rentals. I also plow snow, which I can use it to generate income.

So, spend wisely. Retire early.

writing2reality
Guest

This brings to mind the various means of asking, “What would you do if you stumbled onto $XX.XX one day? For me, the choice is clear, pursue financial freedom. I have no designs for anything but that. A nice combination of real estate, DG stocks, P2P lending, and a few other miscellaneous investments, and I’d be good to go.

Done by Forty
Guest

I recently wrote a post about how I really shouldn’t judge people for spending a lot of money, since everything’s relative. But the idea of dropping $100k on a car really tests my limits.

Like you, I’d much rather drop the money into appreciating assets. Better to be wealthy than to appear wealthy, right?

Refinerr
Guest

I agree – not worth the money. I would, however, not throw it away if they gave it to me but only if it was really shiny! I’d sell the shit out of it after a month (after a test drives) though and invest the proceeds. More than 1 car for our family is unnecessary and I’m a reasonable woman!

Dave @ The New York Budget
Guest

So, similarly, I would never spend $100,000 on a car. I’m just not interested in it. However, I have been toying of the idea of setting up passive income funds and tying them directly to “extra” activities that I want. For instance, when I achieve FI, perhaps I invest in one more rental property or asset of some sort and use that EXTRA money to fund travel. Maybe that would be my way of augmenting any travel hacking that I do. Similarly, if someone really did love cars, then they could set up a fund, above and beyond, to satisfy that interest.

Right now, my interest in becoming FI far outweighs my desire to travel to 2-3 different countries every year, however.

Sundeep
Guest
Sundeep

Hi Dave,

I was recently roaming around the bigger pockets website (its the real estate networking/blog site FiFighter’s mentioned a few times and is a great source of info) and there was a thread where someone brought up toys. The short of it is most people said they’d rather invest the extra money rather than buy some toys, but that if someone did want a toy to still take that money and invest it in a rental property and use that money to fund the toy.

So in the example above, if a tesla cost $100k, take that money like FiFighter mentioned and get it producing $1000 a month and use that money to lease or buy the car…I thought it was an interesting compromise for those who still want their toys.

Obviously a similar thing can be done with travel or something like that. I’m with you and would much rather spend that extra money on experiences.

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