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Courier MBA Day 20: Avoid being blindsided by car expenses.

I'm constantly amazed by the people I see who are bewildered when their car wears out.

Especially people who drive 500 to a thousand miles a week. Their tires went bald and now they can't afford to replace them.

Who knew that was going to happen? Who woulda thunk it?

Excuse the sarcasm. But this is why I preach knowing how much your car costs. You drive your car for deliveries, you wear your car out. Especially for those of us who do this full time.

We drive a lot of miles. They are not car friendly miles. There's a lot of starting and stopping, and that kind of thing takes a toll. It's the kind of driving that speeds up how often you need the big ticket repairs.

It's not a question of if you'll have some major car expenses, it's when.

Automobile Repairs: An illustration related to the expense and hassle of owning and maintaining an automobile.

One of two things are going to happen when you pour so many miles into your car:

  1. You'll have some big ticket repairs or maintenance.
  2. You'll replace your car before you get to that point.

Both cost a lot of money.

Think back to day 18 when you walked through the actual cost of your car. How much less was your car worth because of the extra miles? When you sell or trade it in now to get something new, that's where you pay that price.

Where's the money coming from? Do you have a plan?

Let's talk about how to prepare for that.

Five steps to prepare for those costs (and help fund the eventual replacement).

Save for it.

Seems easy. But I'm going to suggest a system. Follow these steps.

1. Create a separate account for your operational expenses (namely, your car)

In fact, I recommend getting several accounts. My credit union has a nice feature where I can get sub-accounts. I have four that are set up for my business. One is my deposit account – I have all my earnings sent to that instead of my personal checking. One is for operation expenses (basically my car). The others are for taxes and paid time off (we'll get into both of those).

Each week I get my money deposited into the deposit account. Only after I've transferred my money for those other three things do I move the rest into my checking.

2. Figure out what your car costs per mile.

If you walked through that exercise on Day 18, you've already done this. If you haven't done that yet, go back to day 18 and walk through the questions.

3. Calculate your expenses for the past week.

How many miles did you drive last week? Multiply that by your cost per mile for your car.

My care I've estimated about 27 cents per mile – I just round that up to 30. So if I drove 500 miles, I'm calculating that my expenses were $150 for the week.

4. Before you touch a penny of your earnings, move your expense money into your operational fund.

This is why I have my money deposited into a different account in the first place. I can't touch it until I move something into checking.

In the example I gave, the first thing I do is move $150 into my operations account. As I mentioned, I also have two other accounts, and I fund those as well. Only then do I move the rest of my money into my checking. That's my version of take home pay.

5. Pay your car expenses out of your operations fund.

I have a gas card that's linked to my operations account. When I buy gas it comes out of that account.

Because I have a bundled insurance policy, insurance for my car is just a portion of that payment. So we just pay that payment out of our checking and I reimburse the checking account for my insurance portion. Car repairs or registration, either pay it out of the operations account or reimburse my checking.

Why is this important to do?

There are a few things that this does.

It makes the true cost of operating your car very real.

It's not theoretical now.

You're taking the money out for those expenses now instead of waiting for the big ticket expenses to happen.

And if you're taking care of this along with your taxes BEFORE you touch the money you earn, that money that's left over gives you a very real idea what you are making.

When you work a traditional job, you don't get your total pay. Your paycheck is called your take home pay. It's what's left after taxes and possibly some benefits. That take home pay is what you have to live on, and you pretty much know if it's enough.

If you take your taxes, expenses and benefits out of the money you get from Doordash, Uber Eats and all the others BEFORE you touch the money, you're creating a version of take home pay for yourself.

And if you do that, you get a better picture of if what you're earning is enough.

If it's not enough, you have the same choices as if you have a job: Find a way to make more, or move on to something that IS enough.

It makes the money available for those big ticket items.

By doing this, you're putting money into your operations fund faster than what it's going to come out. I gave the example of 500 miles and setting aside $150. I'm maybe getting 50 to 60 dollars of gas. The rest is going to sit there.

It only takes a few weeks of that before you've got the money to cover a new set of tires.

It only takes a few months doing that and you've got the money to cover that timing belt replacement that happens at 100,000 miles or so.

This process makes up for the lost value of your car that happens as a result of your miles.

If you went through the Kelley Blue Book exercise on Day 18, you know your car will sell for less than it would have if we hadn't put so many miles on the car. You need to find a way to make up for that.

Sure, you can just get a car loan. But think about it. You have to take out more on the loan than you would have. You're still paying later for the miles you put on today.

Why pay money several years later for the work you did today? It doesn't make sense.

Granted, I don't feel like a car loan makes sense either. I like Dave Ramsey's approach to paying for your car. It works. You can read more on that here.

I bought my old Buick for $2600. I sold it for $1400 two and a half years later. The extreme number of miles I put on the thing ended up costing me about $1200. However, because I was taking money out per mile, I had more in the bank than that when it was time to upgrade my car. Between what I saved up doing this, some ‘car payments' I made to myself, and what I sold the Buick for, I was able to pay cash for a much newer car.

It helps create a more business mindset.

You're treating your expenses as expenses when they happen.

There's something about this that gets you a bit more into a profit and loss mindset. You're paying closer attention to what your profits really are.

A lot of you talked about wanting to move into other areas of running your own business. When you create a pattern now of handling your expenses this way, it really does set you up for approaching any new ventures in the same way.

Creating a sinking fund.

I'm not sure this is quite meant like a sinking fund, but when you're relying on equipment for your business, the long term cost of using that equipment is a lot like money going down the drain

Businesses that own property will often create a sinking fund.

If you own a building and the roof has to be replaced every twenty years, they get proactive about that roof replacement. What does it cost to replace that roof? Each year they add 1/20 of the cost into the sinking fund.

If you own equipment for your business and you know the equipment will wear out, you're actively setting money aside for replacement of the equipment when it happens.

This is what you're doing with this concept.

What happens to your ability to earn if your car is unavailable?

Could this help someone else? Please share it.