Freight Recession, Lessons Learned, and a New Budget
Introduction
In 2021, I embarked on a trucking career during a robust freight boom cycle, witnessing ample gross and net revenues per month. My propensity for saving, coupled with these elevated earnings, instilled a sense of financial security that initially led me to adopt a somewhat lax approach to budgeting. It seemed unnecessary, as my savings comfortably covered my expenses, and my bank balances steadily swelled. However, the landscape took a dramatic turn with the onset of the 2022 freight recession, causing a substantial decline in my revenues and nearly halving my net profit. Simultaneously, I learned a few lessons from challenges I faced in 2023 that served as a wake-up call, prompting me to adopt a more vigilant approach to financial management. I recognized the imperative of creating a tighter budget to secure the future of my company and ensure a comfortable retirement.
Lesson 1: Purchasing a Truck Every 4 Years is the Most Profitable Way to Run
During the first half of 2023, I spent $40,000 on repairs, with the vast majority of this cost related to truck repairs. This realization spurred me to more closely analyze the way I was operating. My analysis revealed that the smartest, most profitable way to operate is to buy a new truck approximately every 4 years. Buying every 4 years when the truck has about 400,000 to 450,000 miles would allow me to avoid spending lots of money repairing the truck just prior to trading it in for a new one.
Lesson 2: I Cannot Rely on Banks for Truck Financing
Because I am not mechanically inclined, paying cash for a new truck is the most profitable way for me to replace my equipment. When I purchased my truck, I had just enough money saved to pay cash for the truck but I wanted a loan as insurance since my bank account balance would be less than $1000 after the purchase. However, I was denied a loan from my bank because banks view the trucking industry as very risky due to the fact that 90% of new trucking companies fail. Being denied the loan taught me that I cannot rely on banks when it’s time to buy a new truck.
Lesson 3: Purchase a Trailer Every 10 Years to Stay Broker Compliant
In addition to purchasing a new truck every 4 years, I would also like to purchase a new trailer every 10 years. There are a couple of reasons I chose the 10-year timeframe for purchasing a trailer. First, my current trailer is almost 10 years old and I think in terms of reliability, its current condition is on the fringe of what I personally find acceptable. Second, and probably most important, is that many of the digital brokers I use specify that your trailer must not be over 10 years of age. I book enough loads that specifically require this so I would not want to be limited in this regard.
Lesson 4: Save for Retirement Like a Business Owner, not a Worker
I love trucking because it seems like play and not like work and I hope and plan to be able to drive into the sunset. But just in case something unforeseen happens that prevents me from trucking until the day that I die, I want to save enough money to have an enjoyable retirement. This desire to save for retirement is a great goal to have, but I learned that I needed to do it in a smarter way. I almost didn’t have the cash available to buy the truck because during my first year I still had a worker mentality instead of a business owner mentality regarding saving money. I put a lot of excess savings in a self-employed 401K retirement plan that I would not be able to access penalty-free until retirement. Later, I regretted this when I needed that money for the truck purchase and to take advantage of other business opportunities. Thus, going forward, I will save for retirement outside retirement accounts.
Saving $6500 Monthly Will Safeguard My Company and My Retirement
Truck Budget Calculation
My monthly drive typically spans around 10,000 miles, which translates to roughly 120,000 miles each year. Over four years, that amounts to a staggering 480,000 miles. It’s worth noting that most of the costly repairs on my old truck arose when it had clocked in between 400,000 and 458,000 miles. To ensure my current truck remains in peak condition, I’m committed to conscientious practices, including no idling, maintaining a steady 58 mph, and avoiding potholes like supertruckers dodge weigh stations. With this diligence, I aim to reach the 480,000-mile mark.
Upon trading in my old truck, I received $27,000 from the dealer. For the sake of budgeting, I’ll conservatively estimate the trade-in value for my current truck at $30,000. Simultaneously, I’m eyeing a new truck with an anticipated purchase price of $200,000. Consequently, I’ve calculated that I need to accumulate $170,000 in savings over four years, or 48 months. This equates to a monthly savings target of approximately $3,542.
However, it’s important to note that I’m also planning to acquire a new trailer. This means that I’m essentially starting my savings plan six months later than ideal, giving me a shorter window of 42 months to save. Consequently, my adjusted monthly savings goal rises to approximately $4,050. To help meet my goal, I intend to use a Lending Club high-interest savings account, with a 4.5% interest rate, although I won’t factor the interest earned into my calculations to err on the side of caution.
Trailer Budget Calculation
I am assuming a $50,000 purchase price for my new dry van trailer. I may receive money for my but, for my calculation, I am assuming a zero trade-in value. Therefore, to save $50,000 in 10 years or 120 months, I will need to save approximately $420/mo.
Retirement Calculation
For my retirement nest egg goal, I chose a million dollars. I am not going to go into detail about how I derived that number because I am planning to do a separate blog post on that. However, to save $1,000,000 in 20 years assuming a 7% interest rate, I need to save $2000 monthly.
Conclusion
The significance of the monthly budget allocation for new equipment and retirement cannot be overstated. Since the inception of my trucking company, I’ve found my true calling, making it difficult to envision myself pursuing any other profession. The prospect of my company facing adversity or closure would be a profound setback, emphasizing the paramount importance of budgeting to ensure its longevity.
To attain my objectives of acquiring new trucks every four years, trailers every ten years, and amassing one million dollars for retirement within two decades, I’ve calculated the need to set aside approximately $6,500 each month. Despite the truck recession, the initial five months of new truck operations saw a net income ranging from $7,000 to $14,000 before factoring in living expenses, so it’s evident that there may be months when I cannot save the full amount. Nevertheless, I remain hopeful that surpluses in some months will offset any shortfalls, allowing me to remain on track and fulfill these critical financial goals.