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13 December 2019

What price a dream

Sonnie Bailey

Consider this article a personal allegory. At a superficial level, it’s about my desire to own a Porsche Cayman.

At a deeper level, it’s about having a clear-eyed perspective in relation to your goals. Understand the costs associated with these goals, and whether you’re prepared to make the necessary trade-offs.

A love letter to the Porsche Cayman

It’s no secret that I have something of an obsession with the Porsche Cayman. I first wrote about the car on this blog in April 2017, but my love affair began many years before that.

Very few desires have endured for me over such a long time. Nor has it abated: if anything my desire to own a Porsche Cayman has strengthened over the years. In fact, I’ve felt a renewed urgency to own one in the last month or so.

Why do I love the Cayman in particular? Why is it my car?

I can’t tell you exactly. We all have our kinks, and the Cayman is one of mine.

(Okay, okay, okay. I’ll try to tell you: of all of the car marques, Porsche appeals to me the most: it has a certain cachet and history, and you don’t find Ferraris, Lamborghinis or Aston Martins with several hundred thousand kilometres on the odometer. Sure, the Cayman isn’t a 911 but to my mind it’s what a 911 should be: mid-engine rather than rear-engine; a genuine 2-seater rather than a 2-seater pretending to be a 4-seater; all about balance and handling rather than power. I love the look of the Cayman. It consistently gets glowing reviews as one of the most fun, best handling, sports cars around.)

I don’t feel a need to buy a brand new 918 Cayman. In fact, my favourite Cayman is the first-generation 987, dating back to 2006 and beyond.

The best thing of all about 987 Caymans: they’re getting cheap. In some cases you can get them for under $30,000.

Of course, this comes down to your definition of cheap. But $30,000 for a dream car? It could be worse.

What is the real cost?

For most people, $30,000 is a lot of money. From my perspective it’s a lot of money. That’s a lot of gadgets, clothes, holidays, and peace of mind I could buy instead.

One thing to keep in mind, however, is that the cost isn’t actually $30,000. Let’s try to translate this one-off capital expense into an annual cost of ownership:

  • Let’s say I buy a $30,000 car and own it for 5 years. Let’s say that I sell it for $15,000. That translates to $15,000 of deprecation over 5 years, or $3,000 per year.
  • Registration and insurance is likely to be around $1,500 per year.
  • I’m unlikely to drive more than I am now, but perhaps this car will use more petrol than the car I normally drive. If I budget an extra $30 per week in petrol, this is roughly $1,500 per year.
  • The cost of servicing and maintenance is a big question mark. Let’s estimate $2,000 per year.
  • Even if I buy the car out of my own funds, there will be opportunity costs associated with the $30,000: it could be invested elsewhere. Let’s use a high discount rate of 10%, meaning the cost of having $30,000 tied up in a car rather than elsewhere (such as an investment fund that might generate a high return) is $3,000 per year.

The total annual cost of ownership is likely to be $3,000 + $1,500 + $1,500 + $2,000 + $3,000 = $11,000 per year. That’s about $210 per week.

Even if I’m more optimistic and assume $1,000 for rego and insurance, $500 for petrol, $1,000 for servicing and maintenance, and a more realistic discount rate of 5% ($1,500 for opportunity costs), and add $3,000 per year in depreciation, the cost is $7,000 per year, or $135 per week.

Depending on your situation, that might be quite a lot of money. I’m still in a position where that makes me think twice.

To run a counterfactual, would I prefer to have a Cayman in my driveway, or to be able to spend $135 to $210 per week on gadgets and clothes and alcohol and dinners out without feeling guilty, and without the additional risks I mention below?

Which would be a greater dream?

Or: think about saving an extra $10,000 or so each year over 20 years. That’s $200,000 before factoring in compound interest. If I assume a real rate of return of 3% (ie, after tax and after inflation, compounding annually), that comes to $287,000 in today’s dollars. At 4% that’s $320,000 and at 5% that’s $357,000.

Those are big sums of money. That’s a lot of holidays, or home, or buffer, or assistance I can provide loved ones or causes I care about about over the long-run.

But what about if that’s unlikely to move the needle in terms of whether I can comfortably enjoy a high quality lifestyle over the course of my working life and retirement? What about if I can still provide a good level of assistance to loved ones and causes I care about?

That’s the price of the dream.

We only live once. And some dreams are worth it.

The jury is still out on whether (and when) the price for this dream is right for me, and when I’ll buy a Cayman. Maybe I’ll wake up one day and I’ll have a different dream. Weirder things have happened. Either way, at least I’ll have a clear idea of the costs and trade-offs.

(For reference, I ran the numbers on a $90,000 car. If I assume 50% depreciation over 5 years and 10% discount rate while keeping other figures the same, annual costs go up to $23,000 per year, or about $440 per week. Assuming a 5% discount rate, that changes to $18,500 per year or $355 per week.

Another thing worth noting is that I am assuming that this will be an additional car, and I won’t be replacing the car with another. If this was the case, a lot of these unique expenses (such as rego, insurance, servicing) are effectively sunk costs and would make the cost of ownership lower. If only my kink was for the 4-seater Porsche Panamera, which could replace my current car!)

Addendum: other risks

Of course, there are other risks associated with buying a Cayman:

  • This could be a gateway Porsche. In my experience, many Porsche owners don’t end up with just one. There would be a chance that it would be the start of a very expensive hobby.
  • There could be major costs associated with the purchase. There are some known issues with a small portion of early 987 Caymans, like IMS bearing failures. I might be unlucky enough to buy a car with that. Porsches aren’t cheap to service and source replacement parts. (As the saying goes: “you don’t buy a budget Porsche, you only have a budget for a Porsche”, or “there’s nothing more expensive than a cheap Porsche”.)
  • Locking funds away in a car reduces cash available. Yes, that relates to having less cash available for emergencies. But it also relates to having less available to take advantage of opportunities, which at this point in my life is a big deal. (As Mark Cuban says: “The first step to getting rich is having cash available. You aren’t saving for retirement. You are saving for the moment you need cash.”)
  • It’s totally impractical! I have two young children. What place does a two-seater have in our portfolio of vehicles???!!! This would not replace either of our current cars. It would be an extra car for our garage or driveway. (The flip side is that I’ve only wanted a sports car since having children. I have a feeling I want what it represents rather than what it actually offers: a sense of autonomy and freedom! If I can’t have genuine autonomy and freedom in the foreseeable future, I can at least have something orthogonal…)

Some rationalisations!

  • It could be an investment in the broadest sense of the term??!
    • It might provide some social cachet. The counterpoint is that most people I care about have told me, point blank, that they’d think less of me for owning a Porsche. “My people” don’t tend to be impressed by conspicuous consumption.
    • It might convey “success” and help attract clients. The counterpoint is that many clients probably don’t want to see their financial adviser turning up to their home in a Porsche; they will probably think they’re being charged too much. Also, it might attract the “wrong” type of clients: most of my clients aren’t the type to be impressed by fancy cars. (Unless that car is a Tesla. Quite a few of my clients end up buying Teslas.)
    • It might be a vote of confidence in myself and my identity, which in turn might increase my confidence and increase my fearlessness to say what I want and take more risks. (“If I’m the sort of person who owns a Porsche, I’m the sort of person who…”)
  • I know the general idea is that you should buy experiences rather than things. But wouldn’t owning a Porsche be a wonderful every-day experience???
  • To my wife, it might be worth paying $135-$210 per week to shut me up. It might also allow me to focus my attention on more important and productive things, and in doing so generate more than $10,000 per year in income.
  • If I’m going to buy a sports car, I need to do it before I get much older. I don’t want people to think I’m having a mid-life crisis!!!

Tags

Cayman, dreams, goals, kinks, Porsche, Porsche Cayman, trade-offs


About the author 

Sonnie Bailey

In his spare time, Sonnie likes telling people that he’s a former Olympic power walker, a lion tamer, or that he is an orthodontist. He is none of those things. In reality, Sonnie is a financial planner based in Christchurch. Through his business, Fairhaven Wealth (www.fairhavenwealth.co.nz), he provides independent, advice-only, fixed-fee financial planning services. Sonnie is a “recovering lawyer”: he has specialised in trusts and personal client work. He has also worked as a financial services lawyer for many years.

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