Your Million-Dollar Car

From looking at the marketing advertisements on television and in magazines, it would seem that  Having It All means:

  • A big house with a huge yard in a an affluent neighborhood
  • Having the latest and greatest technological gadget
  • Taking vacations to exotic locations
  • A new sports car or truck
  • A new boat
  • New …

For those who pursue the above items, exclusively, they will have a life of consumption and little else to show for their hard work. If you want to be wealthy, then you cannot allow your income to define your spending, even when your income increases. The greatest tool for building wealth is your income.  Consequently, the greatest destructive force to building wealth is consumption.

Let’s take the purchase of a new vehicle, for instance.  Here’s a look at the numbers for the average new car purchase in the United States:

Purchase Price(New)      Interest Payments         Total Loan Payments

2007 Honda Accord:         $24,800         +         $3,300                =        $28,100

Loan Length:                                    5 years
Interest Rate:                                   5.00%
Monthly Payment:                           $468

2007accordPurchased in 2007, that Honda Accord is now worth only about $14,000, five years out from the date of sale. That is a loss of$14,100 in only 5 years! The buyer spent $468 a month for five years to invest in an object that rapidly decreases in value.  If instead, we invest $468 per month at 5% interest for 5 years we would have $31,900 cash in the bank. In light of that alternative, the decision to drive a new car actually costs the average buyer$17,900 in lost investment opportunity.

What does that mean to your financial future?

By investing the amount of an average vehicle payment of $468 from age 30 to age 60–with a 10 percent rate of return–you could have one million dollars before you retire.  Did you catch that?  That is $1,000,000! I really hope you like driving a new car enough to give up a million bucks!

The Millionaire Next Door (Affiliate Link) research shows that 81% of millionaires pay cash for their vehicles, and the typical millionaire paid less than $25,000 for their most recent vehicle. The research also identified that over 53% of the millionaires purchased vehicles that were at least 2 years old.

So the next time you are tempted to buy a new vehicle ask yourself:

Do I want to end up selling my car (at a loss) to a millionaire, or do I want to be the millionaire?