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Cars

Want to become a millionare? All you have to do is 1. not buy a car and 2. invest that money instead. Let me show you why.

(Unless you live in countries with massive fuel subsidies like Saudi Arabia, you can convert US dollars below into your home currency. Cars are also more affordable in the US than most other places, so your losses from car payments will probably be even higher if you live elsewhere)

Stupid car payments

Let’s discuss two dangerous things: averages and cars. The

average American⁠

spent $644 per month on new car loans in 2022.

As before, money isn’t just about what you can do with it (“Hey, I have $650 a month, let me get a car loan for a shiny piece of metal that the bank can own!”) but what else you can do with it (“Hey, what’s the fastest way to early retirement?”)

An alternative

If you took $644 per month (say, from age 18 to 53) and you invested it in an S&P 500 ETF, instead of making car payments, you can expect to have $1,060,357. Hey, in 35 years you became a millionaire. Well done, you’re done.

Buuuut, car payments in 35 years won’t be $644 per month (due to inflation). So let’s assume inflation will be 4% (it’s closer to 9% right now, so who knows), and say you’ll keep investing the amount that the average American spends into car payments (4% more each year) instead, and you’ll end up with a cool $1.4 million.

And five years more of invest-rather-than-car-clowning? $2.6 million. Compound interest at work for you, you’re welcome.

⁠

But wait, there’s less!

Sadly, I’m not done driving (!) my point, since the car payments are the bare minimum of what you’re spending on a vehicle. Don’t forget about fuel, registration, taxes, maintenance, repairs, parking, and fines. Oh, and depreciation! The “nicer” and more expensive your car is, the more you will pay.

As I said before, averages are dangerous (since things will depend on where you live, how much you drive, your loan rate, and so on) but you can expect to pay an average of $700 - $900 per month, for these things.

This all really means, the average American, who are paying the average rate of new car ownership, driving their car an average amount, could become multi-millionaires by investing rather than paying car loans.

OK, I can hear you angrily typing out comments: “You don’t understand, I need to have a car where I live”. Don’t get me wrong: I’m not saying what you should and shouldn’t do. It’s your life and your money.

But let me propose some alternatives.

Figuring it out

I compulsively tracked the money I spent on my cars (all fuel-efficient, affordable, reliable, and bought with cash, usually after some negotiating), and in each instance, no matter how good the deal, no matter how good my planning, there were hidden costs and I ended up paying more than I thought I would. Even being frugal me and obsessing over these things, I’m sure there are still costs that slipped me by.

But you know who has a good grip on the true cost of car ownership? Car rental companies and Uber drivers.

You see, in both industries, the profit margins are actually really small. You might balk at the cost of your Uber trip to the supermarket or to work, but in reality, it is very close to the true cost of taking that trip. Or put another way: if you live in a big city and it costs you an average of $25 per trip to take an Uber to work, it should cost you close to $25 per trip to go to work in your own vehicle, after factoring in all those costs. If it costs you $300 a week to rent a car, it should cost you close to $300 a week to own that same car. (Of course, I’m not pricing convenience into the equation)

So, here is another question: do you rent the luxury class of vehicles when you rent a car on vacation? If you’re like most people, probably not. You decide that it’s just not worth it and you’ll make do with a sensible economy or compact.

If you must buy a car, you have to use the same logic: get the same cars that rental agencies use (entry-level, affordable, fuel-efficient, used).

Car ownership decision-making:

Are you retired and financially independent? If so, great, go ahead and buy what you want and what you can afford (you’ll already know, since you have your black belt), if not:

Do you absolutely need a car? Spend weeks thinking and sweating over this, and if you’re still okay with delaying retirement and washing years of your life away you should:

Sell your old car or some other nonsense you have lying around and save up the rest to:

Buy the best 3-15 year old car you can, cash, but only after you’ve:

Done extensive research into the crash-test ratings, reliability, fuel efficiency, estimated repair and insurance costs and then continue to:

Drive it as little as possible for short trips, opting to walk or cycle instead whenever possible until you are financially independent.