If you have been reading my posts, by now you know I think the worst waste of money by far is a car.
This is my latte factor. I call it the fancy car syndrome. If it’s shiny and new, people want it. Especially, if it’s a car. People can waste a couple hundred-grand just to be able to drive from the corner store and back home. I think people should examine the amounts spent on buying and leasing cars over a lifetime not just over the next 36 to 72 months.
What I drive. I personally own a Ford. I have driven one for over 13 years. My car has over 150,000 miles. It has a dent in the side and costs a minimum of $1500 to fix a year, but I still drive it. Why you ask? It’s simple. I used to spend $450 a month on a car note. Now I don’t. That’s $5400 a year. I was able to direct that money into savings and debt repayment.
Let me give you something to think about it. Two people walk into a car dealership. Customer A decides on a low-cost model car with great gas mileage for $15,000. Customer B goes for the fancy BMW that costs $50,000.
Two customers. Customer A is frugal, cuts expenses and pays off the car in 3 years. The money they were paying per month got rerouted to savings. After 2 years, they save $10,000. This is added to the additional $5000 that was in emergency savings. Approximately, $5000 is used as a down payment on a FHA home loan. They have over $100,000 in a current 401(k). Within a few years, including making extra payments on the mortgage, the home has $15,000 worth of equity. Customer A has a net worth of $125,000.
Customer B likes to live for today, increases expenses, and takes 6 years to pay off their car. No money is going to savings and they have $500 in an emergency fund and $7000 in an old 401(k). The warranty on the BMW runs out as soon as the car is paid for and repairs cost $3500. This expense goes on plastic. After a 2 years, the credit card debt has been repaid. They take out a personal loan to go vacation and pay for additional auto repairs. They have to treat themselves for denying themselves a vacation while paying off the car. Carpe, diem! However, because of high fixed expenses, they continue to rent and are unable to afford to save for a home down payment. Customer B has a net worth of -$10,000.
Over a decade with my Ford. Over the years, a few people have laughed at me for driving an old Ford. Those same people have had money issues for years. Not that I have not had any but because I do not have a car note to worry about my money goes toward other things like vacations, retirement savings or an emergency fund. I have been growing my nest egg for years. While I have watched some of those same people go broke. Now, I’m the one whose laughing, all the way to the bank.
Not only are Ford vehicles affordable, but because they are American made, it is easier to find parts and cheaper to fix. My average repair bill is $500-$700. The lady I knew whose spouse’s BMW was sitting on bricks because he couldn’t afford the repairs had a repair bill of $8000.
Since, my car is relatively inexpensive to fix, I can save more. I also was able to lower my insurance due to not needing full coverage. However, I would not go this route with an expensive car. If the cost of repairs and the value of the car is a high variance, you could end up with a totaled car and still have a balance owed.
Let’s say my Ford had this issue, then I may owe a balance, but it could be more like $1500 I have to pay out of pocket. In contrast, the Beemer might be something like $7000.
My car may be getting older but at least I own it and can afford the repairs without having to go into a ton of debt to fix it. So, if a car salesman walks up to you and tries to push you toward a fancy expensive car, by saying things like just try it out and if you don’t like it you can stop. Just say no. And walk towards the Ford vehicles instead. They may not get as high of a commission, but you get to keep your shirt and the house does not win.