Two Ways That Doing Nothing Makes You Big Money

There are for two ways that doing nothing saves you big money that can make all the difference in your life and retirement.

The first is when you decide not to sell your car and have a new one. Most people will be doing this dozens of times over their lives. We all know someone who buys a new car every year or two, perhaps even the same model in the same color. This is only an expensive habit.

Imagine this hypothetical, nonsensical transaction. Let’s say Bob has a year old blue car (pick your favorite make and model). Let’s assume that Bob would like a red one but is otherwise perfectly happy with the car. So Bob heads down to the dealer to trade his blue car for the red car (let’s assume they have a used red car otherwise identical to him on the lot).

In theory, of course, the two cars are economically indistinguishable and Bob should be in a position to trade one for the other at no charge. That won’t happen. The dealer will offer Bob a warranty of some sort, financing, a fancy place in which to perform the transaction, a welcome cup of coffee and perhaps a hot dog. Bob offers the dealer a used car that may or may not have problems he doesn’t disclose, if only because he doesn’t know they exist. For these and other reasons, Bob will get about 20% less for the trade in than he pays for the car he drives out.

On top of that, he’ll pay registration fees, sales tax on the difference and anything else the dealer and the state can think of to charge him while he’s got his checkbook out. When he leaves, Bob has an economically identical car to the one he drove in with, but he’s giving up 20 to 25% of the value in transaction costs to the dealer. (Bob wouldn’t do much if any better selling his car in the newspaper, on Craigslist, eBay, or parked on the corner.)

Of course, Bob would never make this trade—he’d paint the car instead. However, the hypothetical transaction serves to highlight a key point. The transaction of buying a car is expected to be very costly. By reducing the number of times you buy and sell a car, you are putting money in your wallet. When you buy a car, plan to drive it for at least seven years and preferably for ten or more.
Given that buying a new car costs about $4,000 in transaction related expenses, if you reduce the number of times you do that in your lifetime from 25 to 10, you’ll save $60,000 over your lifetime—by doing nothing.

The extra time when doing nothing pays, is when you get the itch to sell your home and get a new one. Some people move around town in a frantic hopscotch hoping to be able to find the perfect home, the perfect neighborhood or the perfect school. Each purchase and sale costs about 10% of the value of the homes, easily $20,000 today. If you do that twice in your lifetime instead of ten times in your lifetime you’ll easily save $160,000—by doing nothing!