Tuesday, January 16, 2007

The Biggest Money Saver for Bootstrappers

A good article today on MSN Money about The Reason You Are Broke comes at the intersection of two of my interests, budgeting and used cars. It's amazing to me how much people spend on new cars these days. Your typical mid-sized family sedan costs around $25k brand new. If you are planning on bootstrapping your own mISV, I see this as one of the biggest money savers around. Increase sales by 5% or Decrease expenses by 10%, sometimes the latter is easier.

Most people I know that buy new cars tell me the number one reason is they know that if something breaks, it will be fixed under warranty. These people most likely had a used Ford or Mitsubishi 15 years ago and remembered being stuck on the highway one too many times. Others just like that new car smell.

They make air fresheners for the latter, but for the former, that concern is largely illogical these days. Let's assume being budget minded I bought a brand new Honda Civic. They run about $16k. Over a 5-year loan, the payment would be about $350 a month. A few years ago (2002) I sold my Audi A6 and bought a 1991 Honda Civic for $1,200 with 120,000 miles on it. Over the next 2.5 years I put 80,000 miles on that car, selling it just shy of 200k miles. I sold it for $1,700. My monthly payment worked out to be a profit of $20 a month. Ok, but the new Honda Civic would have had repairs paid for out of warranty. How much did I pay for repairs on that junker? A grand total of ~$600. Let's assume though that the engine died, and I needed a new engine 3 times. At $2k a pop, in the end I still would have only paid a third of what it would have cost me for the new car.

What's my point? Sometimes the best way to increase your money made, is to decrease your expenses. Look at how much you are actually spending on things like cars and clothes and decide if the "look" or the "convenience" is actually worth the money spent, and figure out how much harder you have to work on your ISV to get to that level.


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