I talk a lot about investing early and often. And for a lot of people it’s hard to figure out where to squeeze a budget in order to get that money to invest. But for so many of us, the SINGLE decision of what car we drive and how we pay for it can make a million dollars or more worth of difference over a career.
SPENDING MONEY to BORROW MONEY to BUY SOMETHING YOU CAN’T AFFORD that PLUMMETS IN VALUE is an AMAZING WAY to stay broke. I die a little bit inside every time I see someone who doesn’t have the cash to buy a car outright take a loan to put themselves into debt for another 5-7 years, burning all that money just so that when they come out on the other side they’re left with nothing but a rusted out old car, and have to repeat the cycle.
You know I often give your primary residence hassle as “not a great investment” for only going up in value about 4% per year. But your car PLUMMETS IN VALUE by 10%+ per year. Putting a lot of money into an asset that plummets in value is a great way to lose money.
So how do you buy a car if you don’t have the cash up front? You have to get out of the vicious cycle. Bike, beg, bus and barter for rides for a couple months and save those car payments until you can afford an absolute beater. Drive that for a year or two until you can afford something decent. If you have enough humility to drive a junker for a few years, you can break the cycle and put those car payments towards your SAVINGS instead of towards a car company or bank’s profits. The difference over the long term can make you a millionaire. You can do this.
As always, reminding you to build wealth by following the two PFC rules: 1.) Live below your means and 2.) Invest early and often.