# WSJ: America's Middle Class Can't Afford Their Cars



## Autoputzer (Mar 16, 2014)

https://www.msn.com/en-us/money/mar...-afford-their-cars/ar-AAI7hUT?ocid=spartandhp

I was taught to have one car loan in life, for a first safe, reliable, appliance car. After that, "If ya' ain't got the money, that means ya' can't afford it" applies.


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## MoparJim (Dec 3, 2014)

I tend to agree, BUT if it weren't for others overextending to buy new then used cars would be more expensive. I'm all for OTHER PEOPLE buying new cars so that I can afford what I want.


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## Autoputzer (Mar 16, 2014)

MoparJim said:


> I tend to agree, BUT if it weren't for others overextending to buy new then used cars would be more expensive. I'm all for OTHER PEOPLE buying new cars so that I can afford what I want.


That's especially true of BMW's, because about 55% of them are leased and the sweet spot for a lease is three years. After three years and 34k miles, my 535i was worth 46% of MSRP (KBB private sale, average of excellent very good conditions).

The catch is that the only person I trust enough to buy a used BMW from is... well... me. So, I buy new and keep them a long time and a lot of miles.


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## namelessman (Dec 23, 2004)

Autoputzer said:


> The catch is that the only person I trust enough to buy a used BMW from is... well... me. So, I buy new and keep them along time and a lot of miles.


The best kept secret is that BMWNA front loads the lease end RV haircut(due to inflated RV versus FMV) on to MSRP/invoice, so the cash/finance customers also subsidize lessees!

All my speculation of course.


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## Autoputzer (Mar 16, 2014)

namelessman said:


> The best kept secret is that BMWNA front loads the lease end RV haircut(due to inflated RV versus FMV) on to MSRP/invoice, so the cash/finance customers also subsidize lessees!
> 
> All my speculation of course.


That's BMW car salesman talk. Other such nonsense includes:

"Never own a depreciating asset."

"Never own a BMW out of warranty."

My all time favorite BMW car salesman bull *** line, posted by a BF'er a few months ago, was:

*"You need to trade in your BMW while it still has some value in it."*

Yes, BMW accepted a lower profit margin on leases for a long time. That was part of their "strategery' to increase production and sales volume. BMW AG's smaller than their main competitors: Daimler AG, VW Group, and Toyota. BMW AG needed to grow to have the economies of scale needed to compete with those other manufacturers. That strategery was successful, and BMW AG has grown substantially in the last few decades.

Yes, having 55+ percent of new BMW's back on the used car market after three years lowers the value of three-year old BMW's. But, new BMW's being sold instead of leased are also highly discounted. We got 12% off of MSRP on our 2018 X3 without even trying, and that was at the beginning of the model year and on a factory-ordered car. I could have got 15% if I'd wanted to switch dealerships.

If you're going to replace a BMW every three, four, or maybe five years, yes, leasing is cheaper. The average new car sold in the U.S. is kept somewhere between seven and eight years.

I've known three people who leased. One of them let his wife with an associate's degree in finance make the decision to lease. Near the end of the second lease, he put his foot down, bought the car, and kept it another nine years. The other two leasers I know made over $100k/year, and lived paycheck-to-paycheck, barely... and sometimes not... making ends meet. They leased cars because they couldn't afford the higher monthly payment of buying them. The problem is that they were locked into perpetual car payments, and they'll be that way until they break their BMW and new car addictions, and start living more within their means.


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## gkr778 (Feb 8, 2013)

Autoputzer said:


> I've known three people who leased. One of them let his wife with an associate's degree in finance make the decision to lease. Near the end of the second lease, he put his foot down, bought the car, and kept it another nine years.


Did this gentleman and his wife own a business? Was the BMW used for business?



Autoputzer said:


> The other two leasers I know made over $100k/year, and lived paycheck-to-paycheck, barely... and sometimes not... making ends meet. They leased cars because they couldn't afford the higher monthly payment of buying them. The problem is that they were locked into perpetual car payments, and they'll be that way until they break their BMW and new car addictions, and start living more within their means.


That anecdote is in concordance with the situation described in the WSJ article linked in the OP.

Time to remind everyone of Financial Samurai's rules for Car Buying:


The 1/10th Rule For Car Buying Everyone Must Follow: no more than 10% of gross annual income on the purchase of a car (or cap cost for a car lease)
The Net Worth Rule For Car Buying Guideline: no more than 5% of net worth spent on purchasing a car (or cap cost for a car lease)


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## namelessman (Dec 23, 2004)

Autoputzer said:


> Yes, BMW *accepted a lower profit margin on leases* for a long time. That was part of their "strategery' to increase production and sales volume ...


It is doubtful to me that BMWAG accepts lowered profit margin on leases. My assertion is that the cost of leases to BMWNA is spread among all units(lease/finance/cash), hence the speculation any "loss" from lease return is actually padded upfront into invoice/MSRP of the unit.

It is analogous to MT being a non-cost option these days. AT boxes for sure are more expensive than MT, but in US market AT and MT are same prices(non-US markets charge at least $1500 for AT options).

Do note the 15-20% off MSRP for new cars has been common to both purchase and lease. One speculation is that BMWAG imports to US at 50-60% of US listed MSRP, so there is 40-50% margin to fund US HQ, stair steps, AVPs, incentives, RV haircut, difference of MSRP versus invoice, etc, etc. Do note BMWAG already books its 8%-ish profit on its declared import customs value, so the 40-50% is solely for US sales support(so to speak).


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## Autoputzer (Mar 16, 2014)

gkr778 said:


> Did this gentleman and his wife own a business? Was the BMW used for business?
> 
> That anecdote is in concordance with the situation described in the WSJ article linked in the OP.
> 
> ...


The couple were employees. So, no tax write-off for a car. The flaw in the wife's logic was comparing a three-year lease to owing a car for three years. When you compare multiple three year leases to owning a car five, six, seven, or more years, it's a different story.

My doctor leases a car, either a BMW or an M-B. But, he's making probably $300k/year. So, the IRS is effectively paying about a third of his lease payment. He used to buy them the at the end of the lease, as cars for his wife or kids. But, BMW FS's putting the kabash on buying your own least turn-in from the dealer for FMV will put an end to that, and maybe cause him to replace his 740i with an M-B the next time.

Yeah, leasing or financing a car makes sense for a business, especially one that is conserving capital. Financial institutions would rather finance a car than some odd piece of commercial equipment or inventory. That's because it's a whole lot easier to sell a repossessed car than a truck load of bicycle spokes or a machine that assembles bicycle wheels. (A friend of mine had a business that assembled and sold bicycle wheels.)

Leasing can also makes sense if you have high annual mileage, and having a newer, more reliable car is of critical importance.

The Financial Samurai is full of crap. A lot of these on-line financial guru's advice is bad, because what's right for one person is not right for everybody.

I had lunch today with three friends and former co-workers. None of them followed the FS's rules. They all make between $100k and maybe $115k/year. Two are in their mid-50's, and one is in his mid-30's. None of them are "car people," and they're all three cheapskates.

The two 50-somethings drive used Japanese SUV's that are twelve years old, and cost $13k and $22k when they bought them, still violating FS's 10% (of income) rule. The 30-something drives a used V6 Mustang that cost him less than $20k. That violated FS's 10% (of income) rule and the 5% (of net worth) rule.

The two 50-somethings are millionaires (and ordered water to save $2 at lunch). The 30-something will be a millionaire by the time he retires at age 58.

My first new car bought as an adult was a 1992 Nissan Sentra SE-R (sort of the M3 of Nissan Sentra's). I paid around $15k for it. I was making probably about $35k/year at the time. But, I kept it four years and 104k miles. When I drove that new, financed SE-R home, it probably represented about 50% of my net worth at the time. I drove a lot for my job and was reimbursed at the IRS/GSA mileage rate. That often made my monthly car payments. I went through another SE-R, six years and 127k miles, before I finally scratched my BMW itch.

After a lot of thought, I've decided the most realistic way to look at car purchases and ownership costs is to consider the depreciation, maintenance costs, capital costs (interest) when deciding when to replace a car and what to replace it with.

I write down everything I spend, and I make Frau Putzer do the same (if she want's spending money for the next month). So far, we have about 1500 spending transactions for 2019. At the beginning of the year, I estimate the annual and therefore monthly deprecation on each of our cars. I use an annual depreciation rule-of-thumb:

25% down form MSRP the first year.

20% down from the book value the years the car goes out of warranty, becomes seven model years old, and goes over 100k miles. (Financial institutions don't like financing used cars that old or with that many miles, and that affects their value.)

15% the remaining years.

With the great deal we got on the X3, our first year's deprecation was only 18.9%, instead of the rule-of-thumb 25% of MSRP. For my 2014 535i, the fist year's deprecation was 26.9%, though.

I plug those monthly deprecation amounts into our spending when I make the household budget for the year. At the end of the year I look up the KBB values of our cars and adjust the monthly spending amounts accordingly. (I am the Emir of Excel.)

Here's the first year's actual and future years' projected deprecation on Frau Putzer's X3. The average monthly depreciation on the X3 in the first year was about $840/month. Using the rule-of-thumb rates, the average monthly deprecation in the fifth year will be about $310/month. The average monthly deprecation in the sixth year will be about $270/month.

So, when Frau Putzer's X3 is paid off, she might think about getting a new one. But, looking at the difference in average monthly deprecation ($840/month vs. $270/month) will even make her not want a new one. We'll have to spend some money on the X3 then: tires, spark plugs, maybe brakes. But, those maintenance and even unexpected repair costs will be nothing near $570/month.

With our realistic look at what new and used cars cost, the last four cars we sold were ten, twelve, and 12.5 years old, with 104k, 115k, and 147k miles on them, respectively. I currently have a 12.5 year old, 123k mile Cobalt in a storage shed.

Many people see the end of their car payment as the time to buy a new car. That's the trap that a lot of consumers fall into. For consumers who drive normal annual mileage, a lease is even a worse trap.

Part of that good deal we got on our X3 was due to financing the car though BMW FS, at 1.9% for 60 months. That was less than the after-tax interest I'd get on a 60-month CD. So, I technically broke the rule about only financing a first, appliance car. I moved the $50k from checking into a CD the next day. Although I violated the "first appliance car" rule, the "If ya' ain't got the money, that means ya' can't afford it." rule did not apply.

I financed $50k and put the remaining $5k on a credit car (earning 4% rebates). I literally signed and drove for a new BMW. Frau Putzer brought her 20-something hottie friend along when we went to pick up the X3. The hottie was impressed with our sign-and-drive stunt.... the last time I will likely ever impress a 20-something hottie.

The percent of net worth one should have in cars varies greatly with one's age and other factors. My 50% with my Nissan Sentra SE-R was healthy... at my age at the time. As you get older, that number should go lower. The portion of your expected living expenses in retirement covered by pensions is a big factor on how much wealth you need to accumulate. Our pensions suck, not even covering our restaurant and grocery costs. So, we needed to accumulate wealth before retiring.

One of my "fun" financial metrics is "Vehicle Book Values/Net Worth." I was BMW-less for a while, between BMW #2 being involved in an unfortunate mishap and factory-ordered BMW #3 arriving. I got my fun metric down to less than 1% for a month or two. My two 50-something lunch buddies "live" below 1% while working and will be somewhere around 3% or 4% when they do buy their new "retirement cars" in a few years.

One of my leasing buddies who makes $100k/year is currently leasing an M240i, replacing a M235i. He stopped by shortly after getting the M240i. He said he really liked the color (different than the M235i), the new iDrive (BFD), and the increase power (maybe 30 h.p. at 6000 RPM... BFD). What he was really doing was trying to justify to himself (more than to me) that his perpetual car payment wasn't stupid.


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## DBU (Dec 15, 2005)

I didn't bother reading the article, but here is my take/actual experience: I have never, ever made regular car payments. If I cannot pay for my passion with cash, I cannot have it. And I have been driving for over 50 years. The early cars were cheap, used DIY transportation appliances. Then I was fortunate enough to have company cars for many years. We bought a brand new minivan for my wife and children by refinancing our first mortgage (getting out of PMI anyway) and taking cash out. I purchased the last two company cars from my employer (for dirt cheap) and eventually passed them on to my (now grown) children. I developed the BMW itch late in life and was then able to "pay upfront" for new cars. These days, I fly many more miles each year than I drive. A common thread with all my cars is that I keep them a long time and/or until the odometer is in six digits.
Not sure how many of the rules I have broken, but it works for me.


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## Autoputzer (Mar 16, 2014)

It was more fun to hit 100k miles when cars had mechanical odometers. The 9's in the ones and tens digits were just about gone before the 1 in the 100,000 digit came up. It was even more fun when odometers only had five digits, or six digits but with the first digit being 1/10th of a mile, and rolled over back to "00000.0." "Hey, look ever'body***8230;.. my car just made itself new." The Carter administration made the regulation that cars sold in the U.S. have 1,000,000 odometers.

I had a 1976 VW Rabbit that I kept eleven years and 155k miles. VW's and Audi's of that era were notorious for their poor durability. I remember giving a co-worker a ride home, him looking at my odometer, and saying "this car sure is beat up for having only 45k miles on it."


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## zod (Jan 8, 2019)

Autoputzer said:


> It was more fun to hit 100k miles when cars had mechanical odometers. The 9's in the ones and tens digits were just about gone before the 1 in the 100,000 digit came up. It was even more fun when odometers only had five digits, or six digits but with the first digit being 1/10th of a mile, and rolled over back to "00000.0." "Hey, look ever'body&#8230;... my car just made itself new." The Carter administration made the regulation that cars sold in the U.S. have 1,000,000 odometers.
> 
> I had a 1976 VW Rabbit that I kept eleven years and 155k miles. VW's and Audi's of that era were notorious for their poor durability. I remember giving a co-worker a ride home, him looking at my odometer, and saying "this car sure is beat up for having only 45k miles on it."


In order, I was doing a 74 Nova SS, 69 Corvette 427/390, 75 350 Corvette, 77 Z-28 and a 69 350/350 Corvette beginning in those days. BMW seduced me with an 87 535is in 2001, so I'm new to this European game. This was an interesting update of the game state: https://www.netflix.com/title/80119379


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## Autoputzer (Mar 16, 2014)

When I was about eleven years old I sat in this Jag'. It probably wasn't running, though. I don't remember going for a ride in it. Jeff Carlisi's parents were friends of my aunt an uncle in Jacksonville.

https://www.tmz.com/2016/03/03/38-special-jaguar-auction/

I've never been interested in American cars since.

My cousin-in-law had a 1972 BMW 2002 that he'd let me drive when I was a teenager. That's when my BMW itch started. Back in 2003 or so, BMW Classic built a "new" 2002tii from a shell and new parts sold by BMW Classic. It cost about $150k to build. If my office lottery pool ever hits Mega Millions or Power Ball, BMW Classic is going to build another one.

I saw a 535is in a parking lot last year. It was in bad shape, not worth restoring. But, it was still interesting. I have a theory that one's automotive tastes are formed in the teenage years.


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## zod (Jan 8, 2019)

I don't think that is completely accurate. I eyeballed my share of XKE's, but nobody could keep them on the road. I had one come up on left with the 427 once. We eased up to 90 before he decided to quit. I was just getting started on 3rd gear. This kind of stuff grows on you over time

https://germancarsforsaleblog.com/wp-content/uploads/2012/07/Picture-13.png


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## Autoputzer (Mar 16, 2014)

I had a few drag races in my E46 M3, but nothing too serious. They were friendly and safe. One was with a cop in a brand new, back-and-white Charger. We took it up to about 55 in a 45 zone. I came out in the middle of a of VW club convoy exiting a toll plaza on the NJTP. I blasted through them, and they were cheering me on.

My big trick now is this intersection. Almost everybody making the left turn is going to take the offramp. So, the middle lane stacks up. If I take the left lane, I can get ahead of several cars before getting over in the right lane to take the offramp, and do so without cutting anybody off because taking the left turn on the outside is a longer path. But, occasionally somebody gets mad and the race is on.


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## Autoputzer (Mar 16, 2014)

zod said:


> I don't think that is completely accurate. I eyeballed my share of XKE's,* but nobody could keep them on the road*. I had one come up on left with the 427 once. We eased up to 90 before he decided to quit. I was just getting started on 3rd gear. This kind of stuff grows on you over time
> 
> https://germancarsforsaleblog.com/wp-content/uploads/2012/07/Picture-13.png


I'm still scared of British cars. Although, there are rumblings that Tata Motors is in trouble and might sell Jaguar-Land Rover, and that BMW would be the most likely buyer. BMW's already doing some engine development work for them.

I'm not in love with how BMW X's look, even though we have one. But, BMW parts in a Range Rover body would be great.


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## zod (Jan 8, 2019)

Autoputzer said:


> I had a few drag races in my E46 M3, but nothing too serious. They were friendly and safe. One was with a cop in a brand new, back-and-white Charger. We took it up to about 55 in a 45 zone. I came out in the middle of a of VW club convoy exiting a toll plaza on the NJTP. I blasted through them, and they were cheering me on.
> 
> My big trick now is this intersection. Almost everybody making the left turn is going to take the offramp. So, the middle lane stacks up. If I take the left lane, I can get ahead of several cars before getting over in the right lane to take the offramp, and do so without cutting anybody off because taking the left turn on the outside is a longer path. But, occasionally somebody gets mad and the race is on.


I don't mind getting sporty with folks that need getting sporty with. You might nab me for 93 in a 55, but you will never catch me racing on city streets. I mostly always put my hands up when a cop shows up. Standard cop routine is to assume you'll turn right if they lose sight of you. It's left turns and don't leave rubber in your maneuvers or so I am told. Left right left always worked for me.


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## MoparJim (Dec 3, 2014)

Given the percent of net worth, etc. what does it say when my two non-running cars ('68 Dodge GTS convertible, '67 Barracuda convertible) are worth quite a bit more (EACH) than either of our two daily drivers (the '04 330Ci convertoble and 2000 Durango)? We've had the occasional car payment (three cars, one new) over our 37 years of marriage and only own the BMW because of two accidents where our vehicles were totaled. That included the Durango which I repaired for a lot less than the check I got from AAA.


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## Autoputzer (Mar 16, 2014)

MoparJim said:


> Given the percent of net worth, etc. what does it say when my two *non-running cars* ('68 Dodge GTS convertible, '67 Barracuda convertible) are worth quite a bit more (EACH) than either of our two daily drivers (the '04 330Ci convertoble and 2000 Durango)? We've had the occasional car payment (three cars, one new) over our 37 years of marriage and only own the BMW because of two accidents where our vehicles were totaled. That included the Durango which I repaired for a lot less than the check I got from AAA.


You have expensive "furniture."

My 2007 Cobalt is becoming furniture more and more. Three of the four power window motors are broken (all four have already been replaced once), and a headlight is out. The connector to the headlight is bad, and part of a ~20" long cable. The cable is not available by itself, only coming with a full headlight assembly ($200). I'm waffling with buying the assembly or seeing if a junkyard will let me cut the headlight end of the cable off. So, if I'm driving after dark, I take the BMW.

The Cobalt's going away next March or April, when the tires get six years old (~30k miles, and still ~5/32nds inch of tread). I'll have my max' points on my GM MasterCard toward a new Cruz or Soinic.


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## MoparJim (Dec 3, 2014)

Autoputzer said:


> You have expensive "furniture."


Yes, I do. But, does it count as furniture when one of them doesn't have any seat bolted in?

Actually I'd love to see your financial analysis on my Durango. Purchased for $750 8 years ago (not running). Total cost to get it back on the road was $2,000 (including the purchase price and back DMV fees). Totaled two years later (guy high on meth ran a red light). Damages were estimated at $4k so AAA totaled it. Then they valued it. I got a check for $6,300 PLUS the truck back. Parts Durango cost me $1k and I used what I needed and sold $2k in parts. So, I figure $8,300 minus $3,000 is what I have been PAID for a vehicle that I still own and drive. And the $2k I originally put into it was what I got for my old '79 Power Wagon that I had about $2k in, including purchase price.

I'm driving that sucker for *less than free* until it dies. Gotta love it. All told we have well under $10,000 in our two old cars. And most of that has been spent over the course of 36 years on the '68. The BMW cost about $10,000, but that included the transmission overhaul right after we bought it. I love cars, but I don't love having tons of money tied up in them...


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## Autoputzer (Mar 16, 2014)

MoparJim said:


> Yes, I do. But, does it count as furniture when one of them doesn't have any seat bolted in?
> 
> Actually I'd love to see your financial analysis on my Durango. Purchased for $750 8 years ago (not running). Total cost to get it back on the road was $2,000 (including the purchase price and back DMV fees). Totaled two years later (guy high on meth ran a red light). Damages were estimated at $4k so AAA totaled it. Then they valued it. I got a check for $6,300 PLUS the truck back. Parts Durango cost me $1k and I used what I needed and sold $2k in parts. So, I figure $8,300 minus $3,000 is what I have been PAID for a vehicle that I still own and drive. And the $2k I originally put into it was what I got for my old '79 Power Wagon that I had about $2k in, including purchase price.
> 
> I'm driving that sucker for *less than free* until it dies. Gotta love it. All told we have well under $10,000 in our two old cars. And most of that has been spent over the course of 36 years on the '68. The BMW cost about $10,000, but that included the transmission overhaul right after we bought it. I love cars, but I don't love having tons of money tied up in them...


You've done the analysis. All my analysis is just arithmetic: addition, subtraction, multiplication, and division.

My back, knees, eyes, and brain are deteriorating with age. My current garage hits 110F in the summers. That's another demotivator. So, my wrench turning is pretty much limited to oil changes, rotating tires, and brakes... and I drive gently, planning my stops to hopefully avoid having to do brakes. My first BMW had the original brakes when I sold it at 115k miles.

My biggest scam to reduce my automotive costs was to drive my car on business trips and get reimbursed by my employer. The vicious rumor at work was that I was afraid to fly. But, what I was really afraid of was making car payments with my own money. With one of my credit card scams, I get $4k off of a GM car (lease or buy) every eight years. That makes it practical to have a bought-new GM car as my beater.

When I bought my first BMW, my boss at my government job was pissed. He asked what my (monthly) payments were on the car. I told him "Payment, singular... $58k." He got more pissed. He said I was over paid. I agreed, not that I was overpaid, but that a person with my salary shouldn't be buying a new, $58k car. But, I also told him that I had other income outside of work. He got more pissed. Then I told him that another reason I can afford to write a check for a $58k car was that I paid for most of my two previous cars by driving them on business trips. Then, he got really pissed. I was transferred away from him shortly thereafter, at the direction of a special prosecutor investigating his boss. But after that, he never let anybody who worked for him drive their own cars on business trips.

A lot of people do things they enjoy as a hobby or "jobby," to either save money or make money. Yours is fixing cars.

One of my friends, an engineer, has a land clearing business. It's an excuse to own a big-ass tractor, chain saws, pick-up truck, etc. He loves it. He also used to sell Yeti knock-off's made in China. Dealing with the supplier became more difficult, so he moved on. (They're probably just as good as a Yeti, but I don't buy stuff made in China if I can help it.)

A friend of Frau Putzer was a high-level executive, but in retirement got ordained by the Holy Church Of The Internet, and now does weddings.

I made $5k last week by clicking my mouse a few times, buying and selling a mutual fund with my 401(k) money.

Both pairs of my grandparents had massive gardens.

My current "jobby" is writing a book... "The World According To Autoputzer," or "TWATA" for short. I have two relatives who are successful authors. So, I hope part of it is genetic.


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