My car’s hood is peeling, the driver’s side mirror is screwed in and taped on, I can only open the trunk from a latch inside the car, and I just broke my interior door handle. Last weekend, I had lunch with my best friends. They asked when I was planning to get rid of my junker and get a new one. We had a good laugh, but my answer was Ideally never. I wouldn’t want to buy a new car until I drive this one into the ground. Why?
1. My Current Ride Is Reliable and Low Cost
I drive a 2000 Toyota Camry Solara SLE V6. I purchased it at the very end of 2015 for $2,000 with 143,000 miles on it.
These cars have a history of running well beyond 200,000 miles if it is well maintained.
Currently, it has 164,000 miles. I’m hoping to hit the high mile club when the odometer hits 300,000. At my current rate, it’ll take 4-5 years.
So far, this car has only cost me around $1800 in repairs for the last 33 months. That’s around $115/month, not including oil changes, inspection, registration, and insurance of course. I could add it all up, but it’s really too much math for one night.
2. My Used Car Is Functional
It gets me from point A to point B safely and quickly. Most of my damages are cosmetic at best and annoying at worst.
In my eyes, these damages are battle scars rather than imperfections that need to be fixed. My co-workers and my patients have never asked about my beater car. Even if they did, all I’d have to say is that it’s my work car. Besides, who would want to drive a brand new anything in my line of work only to worry about it getting scratched and dinged while parked in various small neighborhoods.
3. Owning My Used Car Is Financially Savvy
My car cost $2000 and I own it free and clear. I have never made a car payment and never plan to. If my car breaks down, I would buy another used one for a few thousand dollars and I would do it with cold hard cash.
Actually, I would do it by churning credit cards for flyer miles and cash rewards, then use my cash to pay off those cards.
Buying a new car is a personal decision, but also a costly one. The average monthly car payment in the U.S. is around $500/mo for 5 years according to this Forbes article. It might not seem like much at first, but let’s dig into some math.
How A $30,000 Car Can Cost You Over $400,000
Let’s meet Adam who is a 25 years old graduate that decided to sign up for a $500/month car payment for 5 years. By the 5th year, whether or not he pays off his car note, his car may be worth only 40% of its original value. Meaning that his $30,000 car may only be worth $12,000, 5 years later. This asset he owns will continue to depreciate until it dies on the road or he decides to sell it for what it’s worth.
According to carfax.com, a car loses 10% of its value when you drive it off the lot. It will lose an additional 10% by year’s end and 10% each subsequent year.
If Adam instead invested that $500/month in a low-cost index fund for the next 5 years, he would grow his wealth to $36,005.26 assuming a 7% annual return by the end of the 5th year.
Even if he were to never add or withdraw another penny to this account, he would have $414,281.99 by age 65.
The typical millionaire spends less than $29,000 on a motor vehicle purchase. This equates to less than 1% of their net worth… On average, American consumers buy new motor vehicles at 30% their net worth.The Millionaire Next Door, by Thomas J. Stanley, Ph.D. & William D. Danko, Ph.D.
4. My Wife and I Want To Have The Option To Retire Early
Remember that even if you save 15% of your income, it guarantees that you have to work for another 35.3 years.
There are only 2 ways to increase your savings rate:
You can earn more or spend less.
We are fortunate that our jobs start us out at around $60,000, but therapists in our area generally hit a ceiling of $80,000 no matter how much experience they have.
We don’t have too much control with how much we earn, but we have direct control of how much we spend.
Learn More About Financial Independence
Toggle through to learn what Financial Independence (FI) means and the VITAL role it plays in allowing you to live your best life.