Celebrating the Win

My wife and I both feel very happy and proud today – our daughter reached her first major financial goal by buying a car and driving it home this morning.

This may not sound like a big deal, especially for a working lady in her late 20s. To us, it is.

It’s not about the physical possession of a material item. It’s a result of patience, discipline, and a few financial habits that we insisted on early.

I used to worry about my (step)daughter after she completed her in-state undergrad and took a gap year to figure out the right career path. Being the youngest in a close-knit group of childhood friends who had already been working for a few years – some in highly paid professions – she wanted to start working right away to join the fun of living independent life.

At the same time, it became clear that she needed additional education to improve both her long-term career prospect and professional interests. By the time she completed those to enter the workforce about two years ago, she already felt behind.

We gave her the option of living with us for a few years, provided she met certain requirements. I had a vested interest in this arrangement: helping her develop a few simple but powerful financial habits and avoid some of the rookie mistakes many of us make with money.

Living at home would require her to contribute maximum annual limits in her employer 401(k). In addition, the money she’d otherwise spend on basic living costs- rent, utilities, food at home and so on- must be saved and invested in a separate account. That fund could only be used for “approved” expenses towards meaningful financial goals– think home down payments, future car purchase and so on.

She took us up on the offer and has been living with us ever since.

We set up an automated investment plan to transfer a set amount from her salary account to a brokerage account and invest in low-cost, diversified ETFs.

After a few initial hiccups, she realized that after taxes, all the “pay-yourself-first” deductions, and her other expenses like gas and phone bills, there isn’t much left for frivolous spending. It took a couple of months to get used to the reverse-budget arrangement and adjust her spending accordingly.

I could tell that she felt constrained at first, but thankfully she adapted quickly to the realities of life without eye-popping salary.

Fast forward two years, and her investment account has grown to a meaningful size, thanks to the tailwind of strong investment returns.

I decided it was time to encourage her to make a major capital purchase from this fund – not only to keep herself motivated, but also to give her something tangible to show for her financial discipline.

The question was: what?

Up to this point, she had been driving our 2003 Honda Odessey and paying for the gas and maintenance. The car is remarkably reliable but lacks most modern features.

When she first started working, she wanted to buy a newer car with a loan. After receiving my routine lecture: “If you can’t buy the car outright and need a loan, you probably can’t afford it” – she gave up on the idea.

Now, with the size of her investment account, she could comfortably buy a low-mileage used car with cash and still afford the additional insurance and ownership costs. She was excited to explore the possibility.

After discussing a reasonable “out-the-door” (OTD) budget, preferred car model and trim, maximum mileage and vehicle age, we began researching used cars

I was surprised by how much prices had risen since last time I went through this process to replace our own cars. She had to adjust the criteria to stay within the OTD budget. Eventually, we shortlisted a few vehicles that met her requirements without stretching her finances.

Last Monday, we set out to go car hunting.

Our first stop was the closest dealer with a good inventory and fair prices. My daughter test drove two different cars and liked the second one.

To avoid a lengthy negotiation with an experienced dealer, we simply stated our maximum out-of-door price upfront and told them that we’d buy immediately if the numbers worked.

Thankfully, the dealer came down substantially without haggling much. From our extensive online research, my daughter and I both felt that the discounted price was reasonable. On top of that, the dealer also included a few extras, such as a couple of complimentary oil services. Overall, the deal looked good-enough.

After reviewing the CarFax report and service records, and examining the vehicle inside out one more time, my daughter signed the paperwork and left a deposit to get the ball rolling.

Today was pickup day.

This time, my wife joined us to be part of the excitement. We all went to the dealership together.

An hour later, my daughter proudly walked to her “new” car and drove it home. She had earned every mile of that drive – and every mile yet to come.