If you’ve been around for a while, you may remember a post I wrote a little over a year ago explaining my car situation. I drove a 2012 Volkswagen Jetta. An incredibly unglamorous vehicle.
And I’m ok with that. I’m not a car person. All I really want from my car is to take me safely from A to B, and for the past 11 years, my Jetta has more or less accomplished that task.
But as I wrote last year, I’ve had issues on and off with it, and as the number on the odometer crept over 200,000 miles, I was prepared for it to break down at some point.
I’m writing in the past tense because this past week, that point arrived. My little Jetta finally decided to give up the ghost.
I was driving down the road when all of a sudden a piece of wood flew onto the road and popped one of my tires. I took the car into a repair shop to get it fixed, and was informed that one of the doors didn’t lock, there was an oil leak, the transmission needed to be replaced, and I needed all new brakes and tires.
It was time to move on.
So, after years of rolling up in a beat-up Jetta, my wife and I decided it was time to upgrade to the coolest, most head-turning car we could find, a Honda Odyssey.
Nothing signals to others that you’ve made it like a minivan.
Despite all of the nice features of the Odyssey that support our growing family, I’m going to miss that old Jetta.
Why?
Because it allowed me to not have a car payment for over a decade—which is quite nice. It did wonders for our budget.
Here’s the deal: cars are kind of expensive.
The cost of a new vehicle in the United States is up 22% since the end of 2019, and used vehicles have experienced higher inflation, up 31% in that time.
According to the Wall Street Journal:
- New cars cost an average of $48,883, with an average loan payment of $745.
- Used cars cost an average of $25,500, with an average loan payment of $521.
These are just averages. More than one in five new vehicles purchased have monthly payments of $1,000 or more.
As we were looking at cars to buy, I couldn’t help but do the math in my head that I could golf twice a week, every week, from April to October for the next 20 years, for the same amount of money as an average $50,000 new car.
Think about that.
For most of us, owning a car is a necessary expense. But I want to point out that cars are an expense, not an investment. Cars do not hold their value.
And since the cost of transportation is typically the second biggest fixed cost in people’s budgets behind housing, how much you choose to spend on a car will have a big impact on your ability to save and invest for retirement.
The Ford F-150 has been the best-selling car every year for over 40 years. We love our trucks in America. And most of the time when I see those trucks on the road, they’re pulling a $100,000 boat as well.
You can buy a new Ford F-150 for around $70,000. Assuming you didn’t put anything down, financing a $70,000 truck at 6% over 5 years would be a monthly payment of $1,353. And that doesn’t include gas, insurance, and maintenance.
Now, let’s say instead of buying a nice, new truck, you decided to go the boring route and get, I don’t know, a Volkswagen Jetta. Financing a 2025 Jetta for $23,000 at 6% over 5 years would be a monthly payment of $445.
By simply choosing to buy a cheaper car, you could save $908 a month.
Let’s say you blew some of those savings on eating out more with your friends and invested the other $800.
If you put that $800 into the stock market every month for 30 years and earned 8% on your investments, at the end of 30 years, you’d have $1,087,518.
That’s over a million dollars in retirement savings just by driving a lower-priced car over time.
I don’t like to do this exercise with every little purchase we make. We should be able to enjoy our money, not just save and invest it. But saving money is hard. And it’s usually not your daily coffee, or eating too much McDonald’s, or getting guac on your burrito that inhibits your ability to save.
More often than not, not being able to save comes down to large fixed expenses, like a car payment.
As I’ve already mentioned, I’m not a car person. Some people love cars way more than I do, and I don’t want to tell people what they should or shouldn’t spend their money on.
But if you’re struggling financially and not able to save as much as you’d like for your future, there’s a fairly simple remedy. Driving an inexpensive car is one of the biggest levers you can pull to free yourself up financially.
Thanks for reading!
Jake Elm, CFP® is a financial advisor at Dentist Advisors. Jake a graduate of Utah Valley University’s nationally ranked Personal Financial Planning program. As a financial advisor at Dentist Advisors, he provides dentists with fiduciary guidance related to investments, debt, savings, taxes, and insurance. Learn more about Jake.