Let's start off with some quick numbers for a frame of reference for you.
In 2019, the average new car cost $40,000 and have an average monthly payment of $550. If you wanted to include things like gas, insurance, and maintenance AAA and Kelley Blue Book calculated it as below.
If you want to try looking into this on your own you can use Edmunds' calculating tool to find the car you want to see how they break it down.
Okay, so we've established that a new car payment can be expensive but now let's talk about depreciation. The moment you buy a car it immediately begins to lose value. It is estimated a new car loses 9-11% the moment you drive it off the lot. Let that sink in. Your brand new $20,000 car is now worth only $18,000. Instantly! In only three years that vehicle is worth almost half of what you bought it for. Which might be a great range to buy that car... I bought a 2008 Camry in 2012.
We've established that a brand new car is going to have expensive payments and will instantly lose value. But it'll save on repairs!
Well AAA data shows that a new car costs you 8.94 cents per mile. If you drive 12,00 miles a year it'll cost you $1,073.80 per year. This coincides with the U.S. Bureau of Labor Statistics number that in 2018 people spend $890 a year on car repairs and maintenance for all ages of cars. If you want to take a peak for yourself you can use this calculator.
Okay, what we've established so far is that new cars have expensive payments and lose their value instantly after you buy them.
Let's say you saved your money and were able to buy your car in cash. If you started at the age of 21 and just put that $600 "car payment" into an investment account in 38 years when you could pull it out you'd have 1.3 million dollars. If you wanted until you retired at 65 you'd have over 2.3 million. This is assuming you get a market average 8% return.
Maybe being a multi millionaire doesn't appeal to you. Maybe you'd still want a fancy car or wouldn't be able to save up to pay in cash - I sure didn't when I bought mine. Let's say you cut that $600 payment down to $300. You'd then have almost 800,000 in 38 years or over 1.3 millions in 45 years.
If you don't trust my calculations you can do your own here.
Summary
Although you might feel you 'deserve' or 'want' a new car just try and think about the long game. Would you rather have a brand new car or be a millionaire? Because that is the decision you'll be making.
I can already hear the argument though of what if I can do both? If that is what you want to do with you money, buy something that will lose half it's value in 3 years then do it but your money can be used in a much better way!
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HELLO AND WELCOME!
I'm Jake, a dude interested in personal finance and travel creating the life I choose. In 5 years I went from living in a basement with Craigslist roommates to paying off 90k of debt, backpacking 3 continents, getting a house for myself and 5 rental units. Read my story in the about me section. All photos on the blog are from my travels
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