Why I Don’t Want To Buy A New Car

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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?

Table of Contents

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

I have talked about how your savings rate will determine how quickly you achieve financial independence.

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.

Financial independence (FI) is described as when your assets generate enough passive income to pay for your necessary and discretionary expenses without having to be employed or dependent on others.

These assets are usually in the form of stocks, bonds, real estate or other businesses

FI allows you enough financial security where you can retire and have your expenses covered by the income generated by your assets.

If you’re like most people, you are planning to retire or semi-retire at some point in your life, but even if you plan to work for as long as you can, I am sure you would prefer to do so out of enjoyment rather than necessity. Nearly everyone is working towards financial independence whether they know it or not.

Ultimately, FI allows you to have more options and freedom. It allows you to be free from worry about how you would pay for your bills if you lost your job, got injured, or needed to care for your family.

It would also allow you to travel, spend more time with loved ones, explore hobbies, give back to your community, or sit on the beach without worrying about needing to go back to work.

SOUNDS GREAT RIGHT?

Now, what if I told you you could have this level of freedom before you are too old and wrinkly to enjoy it?

Most people wait until they can claim social security because they haven’t saved enough money, but there is a community of individuals who are way ahead of the curve. They have achieved financial independence decades ahead of their peers.

If you want to learn how to do the same, keep on reading!

If you haven’t heard of the 4% rule, you will today. It is a popular method to determine how large your portfolio needs to before you retire. Nearly everyone in the FI community starts at the 4% rule to determine their FI number.

The 4% rule is a rule of thumb used to determine how much a retiree should withdraw from a retirement account each year. This rule seeks to provide a steady income stream to the retiree while also maintaining an account balance that keeps income flowing through retirement.
– Investopedia

For Instance, if you have $1,000,000 properly invested, you should be able to withdraw $40,000 ( inflation-adjusted) per year without drawing down from your principal.

That means your lifestyle does not exceed $40,000 during the first year of retirement.

After the first year, you adjust for inflation each subsequent year.

If we assume a 3% inflation rate, you can withdraw $41,200 ($40,000 * 1.03) in the 2nd year and $42,436 ($41,200 *1.03) for the 3rd year.

To calculate your FI number we need to use the inverse of 4%, which is 25.

It took me a while to get it, so here is the math:

4% = 4/100 , Inverse = 100/4 = 25

Now let’s say you’re a nerd and kept a budget for the last year. You know exactly how much you spent in each category and you add up the total to be $60,000.

Use the inverse of 4% (25) to calculate how much you need by the time you retire.

$60,000 x 25 = $1,500,000

So you need $1.5 million to retire based on the above example.

All of the above comes from research called the Trinity study.

Our plan:

For us, the 4% rule was a great place to start, but everyone is a little different and we wanted to be more conservative.

Therefore, we are now using a 3% safe withdrawal rate (SWR) which means we have to save 33x our projected annual expenses. Some may argue this is too conservative, but we’re comfortable working a little longer for some extra security.

Using this method is not perfect, but it is a great place to start.

If your number looks TOO HIGH and you believe there is no possible way you can accumulate that amount of money even if you invested aggressively:

Check if you included recurring expenses that you do not plan to keep during retirement. These are typically any debts you owe or children that you will no longer need to support. If you find them, remove them from your FI number as you do not need to draw down from your portfolio to fund these expenses.

Maybe you’re just getting around to saving your first $1,000, $10,000, or even $100,000. It gets easier and more possible the more you save. Don’t let your belief’s limit your potential.

Maybe your current lifestyle is way too inflated and you do not intend to downgrade during retirement. If so, you need to be realistic about what is possible. It’s likely you either have to cut back now or cut back later.

If your number looks TOO LOW and you feel it is not enough for retirement:

This may be the case depending on where you are in life. This equation becomes more accurate the closer you are to retirement because you have a better idea of your current and projected expenses.

Maybe you’re used to seeing results from those retirement calculators that estimate how much you’ll need based on a percentage of your income. Those are usually pretty inflated because they usually aim for you to need 70% of your income to live. For instance, if you make $100,000, they will project your retirement to need 70k per year. For me, that is much more than I need to live on per year, but to each their own.

If you want to start your own path towards financial independence, sign up for my resource list so you don’t have to spend months doing your own deep dive and potentially get overwhelmed or turned off some life-changing information.