Buying a car that's more than, say, $30,000 is such a laughably poor decision. Cars depreciate rapidly unlike real estate where you actually maintain some equity. If you're in your 20s and looking to pump your new RSU wealth into something, almost anything is a better choice than an expensive car.
You can buy excellent cars that will last a long time for far less than $500 a month. $500 a month for much more car than you need is a very poor decision because you can get by with much less and invest the rest.
The problem is the opportunity cost. That money you used to splurge on a car is NOT being invested. Having a nice car now could literally cost you hundreds of thousands of dollars of compounded retirement money in missed stock/bond gains.
Let's say for sake of simplicity you spend $500/month on a nice car instead of $200/month on a basic car. The difference of $300/month invested for 30 years at a 6% return is a whopping $292,353.89
IMO a better strategy is to change your values. Becoming the kind of person who doesn't value a nice car could be a very valuable asset.
I found buying new cars is an excellent waste of money. Young cars repossessed or returned early from a lease are good value, as are cars that are about 5 years old with a hair over 100K miles on them. That psychological 100K is enough to knock a good bit off the value.
Spending on a car is not an investment. It's no joke that a new car loses 30% of its value when you drive it off the lot. Essentially all cars lose value constantly, and that's not even counting the finance costs.
Sure, but I think the point here is that given the option to maximize investment in a depreciating asset (buy fancy car) or minimize that investment (buy an inexpensive car) and invest the difference elsewhere, it's better to do the latter.
Buying brand new cars is not good financial advice either. Instant depreciation, no time for problems to blow up in someone else's face first, tiny longevity gain over buying a 2-3 year old car for drastically less.
Don't buy an expensive car. After a while all cars become a means that takes you from place A to place B. Save that money and invest it wisely somewhere else.
Keeping your expenses low is absolutely a wise financial decision and will leave in you in a better place, all else being equal. But a person making say $10,000 with $9,000 of expenses is not better off than a person making $20,000 with $15,000 of expenses. You can't take your money with you, so balancing between long-term and short-term decision making is crucial.
Short-term thinking is common, but blanket statements like this are way too simplistic.
The author also misses the major point that buying a car is not lighting money on fire. Yes, it does depreciate, but you also get value of out it in the form of transportation, pleasure, and other utility.
That doesn't mean you should blow all your money on a car, it just means you should live within your means, and that you should be sure you are getting good value out of your car for how you spend.
Is that really a common thing? Cars depreciate rapidly and buying one that costs more than your early salary sounds like a complete disaster to me. Maybe the people I know are just unusually financially responsible?
As someone who wasted a large amount of money on cars in his younger years...
The problem with buying a $50k (or whatever the vehicle you want) car, is that you will probably grow bored with it and want another one in two years.
And chances are that $50k car is going to depreciate like a rock. And be expensive to insure. And you'll also have the bad habit of spending even more money on modifications/customizations etc.
Buying a brand new, expensive vehicle isn't the worst idea if you keep it for ten years, drive it every day, etc. But if it's a thing you drive a few times a month, is impractical, and you get rid of it in 1-3 years for the newest model, it's financial suicide.
I never got $35k of 'enjoyment' out of a new car purchase. And they aren't brand new for very long.
Owning an expensive car is actually not as bad as the author suggests. Once you get beyond around $80K cars depreciate at a much slower rate than other cheaper cars. One reason for this is that the more exotic a car is the lower the mileage it is likely to carry becomes. Another strong factor is that when you are paying more than $80K for a car you are paying a lot for the brand of the car and this is likely to be evaluated later at an emotional rather than mechanical level. A 5 year old Aston Martin is still an Aston Martin, whereas a 5 year old Honda is basically a commodity to be evaluated on its mechanical merits.
In terms of this argument the worst car to buy would be something like a BMW 5 Series - its not expensive or rare enough to ensure it would be evaluated on its emotional appeal when you are selling it - but it is still pretty expensive.
Additionally, if you're in the market to buy a $850,000 car as an investment then you probably have better assets to use as leverage (Property, stocks, etc) which are less prone to suddenly becoming worthless, as a car would be in the event of a major accident.
People buy cars that are worth more than their yearly salary and it's a common thing. Spend 100% of your yearly effort on a thing that will be worth 25% less in twelve months. Plus it costs probably about $5,000 per year to own and operate a vehicle.
As a "Generation X" near the Boomer boundary, I just can't stop being shocked by "average car is $47k". When I was a teen, my parents did rental investing, owned about a dozen properties, and had never paid more than $30k for a property. I'm a well-compensated tech worker, and have no shame in driving my 2004 Volvo that I bought used 16 years ago. Had a second car for a while. A 2005 Camry that I bought for $5000 in 2017. Sold it last year for $5000.
Advice to younger generation: forego that shiny toy and invest your hard-earned money.
That isn't even true of many cars. 20-30 year old luxury cars sell for tens of thousands -- which might be cheap or comparable to new low-end car, if you don't consider cost of ownership
It’s relative to whatever else you want to spend your money on. I spent $90k on my recent car because I love cars, and this was a relative deal (it was worth $110k) with decent resale value.
I have friends that have spent $140k on their Tesla model X, or $190k on their Porsche 911 Turbo. That seems too high for me. Shrug. Everyone is different in their priorities. Most of these are leases where they’re paying maybe $5k a month. When you make $300-400k a year or more with current low rates it’s not terrible.
The article includes two anecdotal examples. I suspect that my income exceeds both. I would never pay as much as they did for a car. Cars are terrible investments. Most should be purchased as the bare minimum cost to get back and forth to work.
I particularly dislike the common refrain, "the cost to repair it is more than the car is worth." It's the wrong mindset. The repair cost is always far less than the replacement cost. My old 150k beater that needs $1k of repairs every year is still much less expensive than the $25k+ it would cost to replace. I have no car payment (thus no interest), and property taxes are cheaper.
And people keep buying brand new cars. Why? Our culture doesn't properly identify brand new cars as luxury items. We should publish a new rule of thumb. Nobody should be buying new cars who can't already afford to fund an IRA.
Buying a new car makes sense IFF: 1) you don't get a luxury car. 2) you actually keep it until repairs are costing you $3000 per year. 3) you can actually buy it without doing financial harm to yourself.
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