Financial Analysis

After out third child was born and we returned from living in Singapore, my husband and I bought a minivan. All three of our children were under the age of six and I was homeschooling, so the kids and I went everywhere together. My husband had a small car for his commute to and from work, but our family car was the minivan. I was thrilled to have a car that could fit all my children without any one of them having to sit directly next to one of their siblings. As I have a low tolerance for car noise, this was important to me.

When we moved from Southern California to Oregon, we sold our small commuter car and brought just the minivan. We did need another family car here, so we decided to buy a used Pontiac Aztec. This small SUV fits our whole family and has a large cargo compartment which allows the vehicle to be used for our catering business. We have actually used this vehicle for our catering business many times over the past 2 1/2 years.

Recently, I drove to Portland to pick up my sister at the airport and I drove the minivan. On the way there, I was thinking about the amount of gas I was using and what a waste it was to take a car that seats 7 when I only needed room for 2. I also thought about how rare it is that I actually use all 7, or even 5, of the seats in my minivan and how much more sense it would make if we had a smaller car.  I was also thinking about some of the conversations my husband and I had about the high cost of using gasoline.  My husband, Ken, had been researching biodiesel for a few months and was interested in making it himself. We had talked a few times about our desire to reduce our family’s reliance on fossil fuels and how having a car that runs on biodiesel would be a step in the right direction. In our commitment to be more environmentally conscious, we agreed that all of our future vehicles would run on alternative energy sources.

When I returned home from my trip to Portland, I talked to Ken about my desire to get a small car with better fuel efficiency. Now that our kids are older and are involved in separate activities, most of our vehicle trips involve only 2 or 3 family members. If we had a small car that seated 5, we would be able to take our entire family on very short trips but would be using much less fuel when only a few of us needed to go someplace. I decided to research cars that would provide us with better gas mileage than our current ones and would do less damage to the environment. In her article “Buying an Eco-Friendly Car,” Becky Worley discusses the pros and cons of many different types of alternative fuel vehicles. While I am attracted to the fuel efficiency of a hybrid, the high price is a problem for me. One of our family goals is to live as debt-free as possible. We do have a car payment currently on the Aztec, but my goal is to eliminate that debt and not replace it with another payment. Based on the factors listed in that article and our personal values, my husband and I decided that buying a used, diesel fueled small car is the right choice for us.

There were many factors that affected this decision. One is the fairly large selection of affordable, used diesel cars in the area. I have been looking online at Craigslist and The Green Car Co.. I have also called a few car dealerships here in Corvallis. It looks like I can get a used diesel Volkswagon (Jetta or Golf) for around $10,000 if it has over 100,000 miles or more money with fewer miles. There are a few used diesel Volvo’s around and some Mercedes as well, but they tend to be older or more expensive than I can afford for the newer models. If I buy a car that was built after 1992, we can run the car on biodiesel without making any modifications. In fact, biodiesel is actually good for diesel engines due to its increased lubricating properties. Cars that run on biodiesel have been known to run for over 500,000 miles. There is a station here in Corvallis that has biodiesel, so it is readily available. However, if we are driving out of town where there are no biodiesel stations, we can use regular diesel without any problems. A biodiesel engine creates 78% less carbon dioxide than a vehicle running on regular, petroleum-based diesel (which already produces 30% less CO2 than a gasoline engine). Driving a car that runs on biodiesel will drastically reduce our family’s contribution to greenhouse gasses.

The main barrier to my dream of owning a small, biodiesel vehicle right now is money. We do not have any savings available to purchase another car. It is important that any purchase I make be in cash, so the only way I can afford to get a new (to us) car is to wait until I have saved enough money or sell some of the vehicles we currently own. I would like to reduce our family’s overall monthly vehicle expense by eliminating our car payment and reducing our car insurance bill. For me, as a small business owner, my family’s finances are very tied into the financial state of my business. My income varies from month-to-month depending on the income generated by my catering business. This spreadsheet shows my family’s current budget on the left and a model of what it would look like if we had no car payment, a smaller insurance bill and less gasoline to buy. Overall, this adjustment doesn’t make much of a difference in our bottom line because this change would also result in a reduction in the vehicle reimbursement that I get from my business. Right now, when I use one of my personal vehicles for a business-related trip I am reimbursed $0.375 for each mile. This adds up to $300 most months.Galardi Family Budget

The best way for me to make my dream a reality at this point is to sell a few vehicles. My business owns 2 trucks and a large van. Personally, my husband and I own a minivan and a small SUV. The only debt on these vehicles is $5000 owed on the Aztec. We have evaluated which vehicles we really need, both for the business and personally. The two large trucks are hardly used and it would not make an impact on our business to get rid of them. I am currently listing them both for sale on Craigslist, the larger one for $5000 and the smaller one for $3000. The larger truck is a mobile kitchen and may be hard to sell because it would only be valuable to someone in the food business. However, if I sold both of these vehicles for the asking price I would have $8000 available in my business account. I have looked up the Kelley Blue Book value of both of my personal cars. The Aztec is worth $5100 as a trade-in and $6400 if I sell it privately. Since I owe $5000 on that car, the best thing would be for me to sell it privately and pay off the loan. That would leave me around $1400 to put towards another car. If I sell my minivan privately, I can expect to get approximately $6500. I do need another car for the catering business and the minivan has a lot of cargo space, so the best thing to do would probably be to sell the van to the business. With the money made from the sale of the trucks, the business can afford to buy the van from me. This would leave me a total of $7900 available. If my business is doing well financially, I can afford to take out some money as a stockholder distribution. Adding $2000 or more to my personal car sales income would give me enough to purchase a used diesel car outright.

Doing this project has been very interesting and has allowed my husband and I to evaluate our personal financial situation. By creating an Excel spreadsheet of our family’s budget, I was able to see exactly where our money goes every month. Our commitment to trying to live debt-free (except for our mortgage) gives me a clear directive whenever we need to make a major purchase. If we can’t afford to pay cash, we don’t buy it! We have also committed to simplifying our lives as much as possible, physically and financially.By looking for ways to achieve my goal of owning a small, used car I have been forced to think about which of the vehicles I have I really need and which ones are just cluttering my driveway and costing me higher insurance premiums. I feel really excited about the prospect of owning fewer vehicles and having one that makes less of an impact on my checkbook and the planet!

There are a number of websites for people who are trying to live debt-free and more simply. Simple Debt Free Living offers tips for many ways to reduce personal debt and live more simply. The Finance for Families website has an article about why it is best NOT to finance the purchase of a used car. This personal essay from LifeRemix is titled “10 Ideas for Living a Life without Credit or Debt” and idea number five is “Buy a car on cash.” For specific biodiesel car information, the Ask MetaFilter site offers an opinion thread titled “Tips for buying and using a car with biodiesel” that has comments from a few different people about their experiences purchasing a biodiesel car. Biodiesel.org, biodieselnow.com and biodieselamerica.org are all good websites for gathering general biodiesel information.

BIBLIOGRAPHY

Biodiesel.org. (2007). Retrieved August 18, 2007, from http://www.biodiesel.org/markets/pas/

freedom CAR and vehicle technologies program. (2003, August). U.S. Department of Energy, Office of Energy Efficiency and Renewable Energy. Retrieved August 22, 2007, from http://www1.eere.energy.gov/vehiclesandfuels/pdfs/basics/jtb_biodiesel.pdf

Kelley Blue Book. (2007). Retrieved August 18, 2007, from http://www.kbb.com

Worley, B. (2006, March 13). Buying an Eco-Friendly Car. ABC News. Retrieved August 21, 2007, from http://abcnews.go.com/Technology/Story?id=1718746&page=2

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