Gas and Taxes
Move Over Death, Gas is Now a Bigger Concern
It seems that people will do anything to pay less for gas and taxes, even if it means spending more money overall. There is a deep psychological distaste for spending money in either of those categories. People will spend thousands on a new hybrid to save hundreds in gas money without really doing the math. If your goal is to buy a hybrid for political, cultural, social or environmental reasons, then by all means go for it, if you can truly afford it. But don’t trick yourself into paying $30,000 for a car to save $200 per month in gas and think you will come out ahead financially. Research the total cost of maintenance and upkeep for a hybrid over a five to eight year period. Compare that to the cost of your current car including the extra you will pay in gas.
I know people who used high gas prices to justify the purchase of a new motorcycle. Notice I said “new.” There are plenty of used motorcycles on the market that cost under $3,000. The motorcycles get great mileage and the insurance is not terribly expensive. Again, one would need to consider all costs including insurance and maintenance and consider how many months out of the year they really get to drive their motorcycle. But most people don’t want that type of motorcycle. They want to spend $15,000 or more on a brand new super-fast or super-large motorcycle. You know the ones with the really high insurance rates and slightly fewer miles per gallon. To compound the issue, they take regular bike rides, just for the sake of riding because they have a motorcycle. Of course these extra rides cost money in gas.
The same mentality is used for mortgages. People will keep their mortgage and not pay it off quickly because they don’t want to lose their mortgage deduction on their taxes. They would rather pay $1,000 in interest to the bank than pay $250 in taxes to the government. Think about that for a minute. If your marginal tax rate is 25%, then for every dollar in interest, you only save 25 cents in taxes. Yet nobody likes to pay taxes, so we stop doing the basic math. Here is the paradox. Everyone gets excited when interest rates drop. Wouldn’t it make more sense for interest rates to be higher? That way even more of your money can go towards interest, so you can pay even less in taxes. If you like interest rates to be lower, then taking that to the extreme, a zero percent interest rate mortgage would be the best deal. Yet you would be paying no interest so you would save no money in taxes.
When you want to make wise financial decisions, then be honest with yourself, seek professional advice, do some research and make the best decision you can. When you want to use gas prices or taxes to justify spending money on play toys and large houses, then at least be honest enough to admit it. Buy the motorcycle or the new hybrid if you have the money, but do it for the right reasons. Stop finding excuses to waste money you don’t have to buy things you don’t need for reasons that aren’t true.