…This wont work for everyone.
…but if it can work for you you’ll be happy you did it.
Having a car is a luxury. Having the flexibility to go anywhere you want whenever you want is absolutely a great freedom to have, I’m not denying that. However you know what a better freedom to me is? Financial flexibility. Having money so I can travel anywhere in the world. I don’t worry about how my next bills will get paid. I am not a slave to my job and bills. Not living my life in debt (read here about how I live completely debt free) gives me flexibility and freedom no car can ever provide me.
Lets do a little scenario guys,
So you need/want a new car? You go to a car dealership and want a mid level SUV with good safety features and good gas mileage (to save money). You talk to the sales guy and he shows you one you like for 23695.00 …well okay, that’s a lot of money but this is a car we are talking about.
Lets break down the costs ABOVE that 23695.00 that you are obligated to pay if you want to bring this car home.
23295.00 MSRP (book price for the car)
1295.00 Freight (what it costs to have the car shipped to the dealership before you even look at it)
600.00 PDI (pre-delivery inspection on a brand new car from the factory)
100.00 Air tax
15.00 Tire Tax
180.00 Registration Fee
106.59 Vendors Feed
75.00 Miscellaneous bank fees
599.00 Administration fee
Add upwards of another 5000.00 If you want an extended warranty or credit protection because lets face it, out of pocket expenses for a car are very inconvenient and credit insurance is good to have right?
And great news! You got an awesome interest rate its 1.99% (They had a promotion going on) and they also let you finance this great new car for the next seven years to keep your payments low. Anyone can afford 211.49 every two weeks! Tack on another 2,582.81 for the cost of borrowing.
So this mid level car that sounds so good at 23295.00 now is going to cost you 38,489.64.
38,489.64!?! That’s almost 40,000.00 dollars guys!?
Oh ya… then add another 200.00 dollars a month in gas to get it out of your driveway, oil changes cost money (synthetic is the expensive stuff and since you have such a nice car you’ll need about 100 dollars for this every three months) and well.. because you had that speeding ticket two years ago your insurance is going to cost you about 247.00 dollars a month. You’ll also need to fork out another 800.00 dollars for winter tires here in Canada, safety is important!
So that’s an additional 8964.00 annually in cost to run the car…. So times that by seven years…. and well… that’s 62,748.00?!?!?!?
38,489.64 Cost of the car
62,748.00 Cost to run the car
So in total owning this car for 7 years is going to cost you 101,237.64.
You agreed to buy this car for 23,295.00 but all said and done Its going to cost you over 100,000.00 dollars. One hundred thousand dollars.
So cool whatever, everyone drives my friends all have cars…. so you go for it anyways and then, six years later you find yourself hating your job, or wishing you could move to a new city, or to pursue your life dreams to open a small business, or contribute more to your retirement party… but you can’t because you are a slave to your bi-weekly payments.
The selling point on this new car you wanted so bad was freedom and flexibility but instead somewhere along the way that’s exactly what you lost.
Pro Tip: If you invested your 101,237.64 for the seven years instead of having a car. And say you gain a modest 3% interest. You will have made 23,271.89 in compound interest income. (Almost enough to afford the book price of 23,295.00 for the car you bought).
More on investing and compounding interest here.
Here is a fun little post about how I get around without a car in a city with bad public transport!
Like I said, for some people having a car is a necessity. For your job.. or for your kids or for your own sanity and that’s fine. This is what works for me!