Needs vs Wants

My first used car -  1973 Lincoln Contintental

My first used car – 1973 Lincoln Continental

I have been looking forward to writing a post about needs vs wants for some time, but didn’t know how to start, until I received a comment from a reader on my article about buying a car in medical school.  The comment was so well thought out, and deserving of the best response, that it provides the perfect introduction for this topic.  I appreciate the reader’s honesty, and hope that my answer is sufficient.  Here is the comment:

Great advice, I agree with you on pretty much everything, though I find myself in an interesting predicament that might cause me to deviate from the logical and financially sound thing to do.

I’m a 27 year old MS-2 who is interested in pursuing an IM subspecialty so by the time I’m finished with my training, I’ll probably be about 35. I am driving a 99 Toyota that I took my driving test in when I was 16 that is pushing 220,000 miles. It is our family clunker and it will not last me until I’m 35.

I am in love with 4Runners and want to pull the trigger on a brand new 2015 model with a 6 year warranty. Prior to coming to medical school, I drove a 97 4WD 4runner that I bought with 107,000 miles for below KBB at 9,500$ while I was in high school. I did all of the maintenance and repairs on it myself and it lasted me another 10 years before the transmission gave out at 215,000 miles. Every Toyota my family has ever owned (4), has lasted 15 years or more from new. Sure, cars depreciate but Toyotas, and particularly 4runners, hold their value exceptionally well, and are rated by KBB as top tier in this regard as well as in reliability. A 2-3 year old 4runner with 30-40k miles only depreciates about 4,000. They are also relatively difficult to find because people don’t want to get rid of them!

To counter your point of buying a used car, while MOST cars depreciate significantly in their first few years, this does not hold true for specialty vehicles like the 4Runner. Some Subaru models also are like this and retain their value exceptionally well. An 8 or 9 year old 4WD 4runner with over 100k miles will still run you over 20,000$ in good to excellent condition, while this is about the time when many cars begin to have catastrophic problems (my roommates 2005 PT Cruiser has a ton of gasket problems).

The second point – is that buying a clunker is not always worth it due to the cost of the maintenance, and the longevity expected of the vehicle. Even if I opted for a 20,000$ used 4runner instead of a new one for 37,000$, if it’s already 8 or 9 years old with 110K miles on it, can I expect it to reliably last me another 10 years? Probably, but I don’t have the time to do maintenance and repairs on it like I did when I was in high school and college. Plus I get no maintenance or warranty, and 20,000$ is still a significant amount of money to spend on a car. It becomes evident that some specialty cars have a price floor, and the floor can be so disproportionately high even compared to the mechanical value and reliability of that car that buying an older clunker is a bad idea depending on how long you need it to last. While this is a rare case and only applies to certain cars, buyers who are considering these types of vehicles should be aware.

The next thing you would logically ask is… why do I even NEED a 4runner so badly? Admittedly, the answer has to do with lifestyle. First of all, I’m from CA and I go to school in AZ. I drive home quite a bit due to family matters, and often transport large things (surfboards, bicycles, etc.) that currently don’t fit in my sedan. I also spend a lot of time outdoors, with this being my default way to relax and unwind when I have a free day or weekend. This aspect of my life is really important to me, and in the past few months, my car hasn’t been able to make it to several campgrounds I have tried to get to so we had to turn back and find a different place to camp, or ditch my car and have another person with a 4×4 pick us up. My lifestyle does not call for exorbitant luxury (arguably), regular expensive meals, trendy clothing or other big purchases. As a result, the 4runner may be a bigger part of of my lifestyle than cars are for the average person because it enables me to do what I would chose to do in my spare time.

I realize the argument that I’m using to convince myself to do something stupid is rooted in a deep, materialistic want. I keep telling myself to save up by living below my budget and maybe in my 4th year I can pull the trigger. I have this impression than once in residency and fellowship, its even more difficult to buy a car on a resident/fellow salary because loans come out of deferment and it is highly advised to begin paying on them to keep the interest out of control, as payments are scaled by income (Pay as You Earn and Income Based Repayment).

If I pulled the trigger with “extra” student loan money that I have been saving up for over the past 4 years, the interest would be kept under control as it would be rolled into my payments adjusted by PAYE/IBR. Sure in the end I might pay a significantly higher amount for the car, but the 4runner is no Mercedes. It’s not THAT expensive of a car, though it is certainly not cheap. A few extra thousand to finance the car and have a reliable car that I can do everything I need it to during the most difficult times of my training might just be worth it.

So help steer me off this financially insensible track and explain to me: how do residents and fellows afford to buy a good car when they need one?

What is your plan with your clunkers when they begin to have serious problems like gasket problems and transmission problems, or cooling problems? Will you just continue to sink money into them?

Thank you!”

For the sake of readability, I will refer to the commentator as Steve.  Steve is experiencing the dilemma of living rich or being rich.   Let’s break this down.

Steve needs a car that can:

  • Go from point A to point B around town
  • Drive from AZ to CA to attend family matters.

These two needs can be easily met for the tune of $5,000 by buying a used car with roughly 100,000 miles on it.  I’m basing this off of my own recent experience of buying a 2001 Toyota Camry in good condition.

Steve wants a car that can:

  • Transport large items such as a surfboard or bike
  • Access more remote terrain for camping

He is considering obtaining these two wants by purchasing a $37,000 brand new 4-runner.  In other words, if his needs can be met with $5,000, he is unconsciously valuing these two wants at $32,000!  The real crazy thing is that this is something we do ALL THE TIME!

So what can Steve do?  I would first suggest finding cheaper ways to meet your wants.  The first one is easy.  I share Steve’s love of the outdoors, and used to drive a Toyota T100.  I loved the freedom of having a truck, and could easily transport my mountain bikes, skis, and camping gear.  Since switching to my $5,000 Camry, I have learned to work around the transporting inconvenience.  It is amazing what you can fit in a car with a little ingenuity.  Mrs. DA and I regularly fit both our mountain bikes and all our camping gear in our trusty Camry.  We even drove to Maine last summer for a biking/camping trip!  Sure, it’s a pain to pull off the wheels and seat every time, but it’s certainly worth the $32,000 I’m saving!  To be fair, the grind of disassembling my bikes every time I transport them is getting old, so I am saving my pennies for a roof rack.  A solid roof rack for $600 solves Steve’s first want.  For a mere $5,600 he can travel from point A to point B, drive to California, and transport his bike and surfboard.

Now let’s address his second want; being able to access remote camping places.  At this point in our analysis, if Steve still buys the new 4-runner he is valuing the ability to reach remote camping places at $31,400.  Steve has a very busy 8 years ahead of him.  Let’s imagine that in the next 8 years Steve camps 16 times in a place that is completely inaccessible to a sedan.  This places each outing at $1,962.50 for the transportation alone.  That means a single camping expedition is more expensive than a round trip ticket to almost anywhere in the world!  Saving $31,400 at this stage in Steve’s career is definitely worth hitching rides to hard-to-reach campsites.

Steve also asked an important question about repairs.  This is a common excuse that people use when buying new cars.  First off, buying a used car does not have to be synonymous with buying a clunker.  Our used car is in very good shape, and we make sure to keep it in tip top condition.  Second off, the beauty of a cheap used car is that you’re less tempted to pour a ton of money into repairs.  In other words, if there ever comes a time that the motor falls out of my car, I can scrap the whole thing and buy another $5,000 car.  Heck, if my used cars completely die every 5 years, I can still replace them for 35 years before I spend the same amount that Steve is thinking about dropping on a new 4-runner.  In reality, I expect our used Camry to last at least until the end of residency without too much trouble.

Steve, I hope this has been an adequate response.  Please let me know.  The best part of this lesson is that if we can control our wants through medical school, residency, and the first 5 years after residency, we will then have the ability to indulge in occasional large wants; guilt-free.  I personally love 4runners, and hope to see Mrs. DA drive one on her mountain expeditions in the future.  But until that time, we’re rocking the roof rack on the Camry and learning to be happy with what we can actually afford.

Hope med school is treating you well!

6 comments on “Needs vs Wants”

  1. Leslie Reply

    This post caused me to reflect on my own car history.

    My father began med school January 1961, when I was two months old. We moved from the quanset huts of married student housing (now the law school parking lot) at BYU to University Village at the U. We had one car. My brother was born a year later. Then my sister — she had Downs and a hole in her heart– a two years after him. She lived four months. Dad graduated when I was 4-1/2. We had the same car.

    We moved to Orange, CA for a one-year internship at Orange County General (now UC Irvine). Upon completion, he had an opportunity for an extra three-month pediatric internship at LA County General. We moved in with my maternal grandparents as Dad also prepared for Enlistment into the Air Force. My grandparents were killed in a plane crash. Their estate was probated for a year or two. .

    We traded in the used sedan for another, but newer, used sedan and the four of us drove to Minot, North Dakota. Dad was asked to be the based pediatrician because he had the most pediatric experience.

    Mom added two more children to the family. The bill was $14 each and she knew a bargain. We visited family twice driving to Ohio/ Washington DC once and Minneapolis/Ohio once — both times in the sedan. The estate was settled.

    In 1968, after four kids, two years of base living, shopping at the BX/PX and Sears Caralog, freezing winters and hot-wind storm summers, we traded in our glorious North Dakota years and sedan They bought a new gold station wagon and drove to Hollywood/Los Angeles, CA. Dad began his pediatric fellowship at LA Children’s Hospital. We lived across the street in 100-year-old residency housing. It was also situated across the residential street from the Shamrock Bar and next to a used car lot. After a year, they tore down the duplexes to build a resident apartment complex. We moved to Glendale. At this point, about 1969-1970, my father bought an Opal GT. Orange. Only one other person could comfortably ride in it. Two could squish in the back. No eating allowed.

    As dad traversed the freeways each day, we lived in an even bigger apartment complex with many other residents and we walked next door to school.

    At the end of residency, my folks bought a house and Dad joined a practice in the San Fernando Valley.

    The Opal GT stayed for a couple of years until dad was continually called into YMs. He traded it for another but new station wagon.

    What I learned from this was only taught by example.
    • Driving a used car is totally acceptable and expected.
    • You don’t need a second car until you have a stable job.
    • Live in a place that allows you use of one car. Dad stressed you live in and support the community in which you work. He frowned on the docs that lived in Beverly Hills but worked in the Valley.
    • Walk.
    • Schedule family activities so that one car is sufficient. Chances are if it doesn’t work, the family is over-scheduled.

    After an additional 30 years I can add:
    • Don’t buy a second new car until the first is paid. Debt stress is needlessly exhausting.
    • Even though you may make more, live like you may lose your job at any moment. Could you sustain your debt load on a job at McDonald’s until you found another?
    • The financial patterns you create now will be imprinted upon your children — regardless of whether they are even born. . The photos and memories you will share, and they will observe, will imprint and cause them to believe that this, too, is their norm.
    • You are creating future attitudes based on your current spending patterns.

    And that is my version of why a med student should not buy a new car.

    We drove back to California

    • Mr. DebtAnatomy Reply

      Thanks for sharing! It’s great to learn from other people’s experiences. I especially loved these two lessons:
      “Driving a used car is totally acceptable and expected” – YES YES YES!

      and “You are creating future attitudes based on your current spending patterns” – This nails the message of debt anatomy! I not only want students to curb their spending habits, but to develop a sensible economic mindset that will benefit them long after residency. If current students can master their current spending patterns, they will better utilize their future incomes to pay off debt, invest, and bless those around them.

      Thanks again!

  2. Big Spender Reply

    Most of what you say is spot on, but the one thing that you’re missing out on in your calculations is the residual value of the 4Runner. If Steve’s numbers are correct then he can drive the car for 9 years and still sell it for $20,000. So, not factoring in interest and assuming a residual value of $1,000 on the used Camry after another 9 years, which is far from a sure thing, the total cost for Steve’s wants in addition to his needs would be $12,400. Or looking at it differently, $1,378 per year or $775 per hypothetical camping trip.

    The biggest risk with these numbers is the 4 years out of the 9 year period where the 4Runner is out of warranty. These numbers assume that you would spend at least as much money on repairs for the Camry as you would for the 4Runner and while that’s likely it’s certainly not a guarantee as you’ve pointed out.

    I don’t think that there’s a case to be made for the 4Runner being the cheaper car over the 9 year period, but if it’s important enough to Steve, $1,400 per year certainly isn’t a ludicrous amount of money to pay for wants and could be partially compensated by sacrifices in other categories.

    • Mr. DebtAnatomy Reply

      Thanks for catching that. My post made the assumption that the cars would be driven until they died, but this is not often the case. I do believe that $20,000 is a little optimistic. Kelly Blue Book values a nine-year old 2006 Toyota 4runner SR5 Sport Utility 4D with 114,693 miles in very good condition at $11,459. Admittedly, Steve requested that I steer him off track from buying a new 4runner, so I used an extreme example to shine light on a new way to consider needs vs wants. In reality, if Steve is still set on buying a 4runner, the better route might be to buy a 2006 model in very good condition. This should most likely last him through residency and provide both his needs and wants at a much lower cost than $37,000. But you are absolutely right: A high resale value could allow Steve to enjoy the fruits of a newer 4runner in the short term for a smaller (though still large) cost than I used in the post, assuming it retains high value and he sells it at the right time. Thanks for bringing it up!

  3. Stupid MS2 (now MS3) Reply

    Mr. DA (soon to be Dr. DA),

    I’m the MS2 (now MS3) who wrote the original comment that this article is based on. Thank you very much to you and all the commenters here who considered my argument and provided advice. I think your analysis of my situation was great, and is a good way to quantitatively valuate needs versus wants to illustrate how much wants can really cost. I ended up holding off on purchasing anything (my current 99 Toyota sedan is still cruising for now), and have made the decision to just continue driving it for as long as I can. Once it does go out, I will find a preowned 4runner and consider devaluation, vehicle price, age, reliability, and how much I am willing to spend/sacrifice on my wants to decide how much I should spend/what year I should get. It will likely be 5-10 years old and strike a balance between utility, reliability, while still satisfying all my needs and my wants just enough that I can justify the cost.

    • Mr. DebtAnatomy Reply

      Thank you so much for giving us an update! Your plan sounds absolutely solid!! May your 99 Toyota Sedan last many more years, and may you find an amazing used 4runner when the time comes! Incidentally, Mrs. DA has her eyes on a used 4runner when one of our old Camry’s decides to bite the dust 🙂 Best wishes for 3rd year! Have you decided what residency you are going to apply to?

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