Podcast Episode Summary
- ChooseFI: The Ultimate Guide to the True Cost of Car Ownership
- Your car payment is a terrible way to spend your hard earned money
- We’ll present two different perspectives: Brad will show the long-term compounded cost of buying/leasing new cars continually versus holding a car for 15 years while Jonathan is going to present the yearly cost of your car
- Brad wanted to see what it was costing someone to constantly “manage their car payments” at a set number forever by buying/leasing new cars
- This example is too conservative so a FI person would actually save even more money!
- In Brad’s example the FI person is buying a new car every 15 years. They have payments for the first 5 years and $0 car payments the final 10 years. Person B is constantly paying $300 per month. This is a 45 year study, so Person A bought 3 new cars in the 45 year period
- At the end of the 45 year period, Person A’s savings compounded to be worth $742,000 versus Person B who was constantly paying $300 per month.
- Takeaways: Don’t buy new cars and continue to drive your car as long as possible with no car payment!
- Most people can’t truly afford an expensive car and house even on a large salary. This is a true key to FI
- Astounding that $300 per month for 30 out of 45 years are ending up with $742,000 while most people don’t have anywhere near that much money after a lifetime of working and “saving.” That also shows how little money most people are saving
- Jonathan’s bad track record with buying cars in his life
The True Cost of Car Ownership Calculator
- Jonathan’s example for yearly car cost compared a new car for $30,000, a 5 year old car for $15,000, and a 10 year old car for $5,000
- Went through yearly depreciation calculation for Jonathan’s three examples
- Went through a calculation of annual opportunity cost of the year-by-year amount lost at 8% annual return if you would have invested based on these 3 examples
- Calculation of maintenance, insurance, taxes, inspections, etc.
- Also calculate the cost of gas each year depending on the type of car
- The 20 year difference from having a used car versus a new car is almost $250,000
- Jonathan’s determination is you should buy a ‘gas sipper’ that’s at least 5 or 10 years old
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