Buying a Car

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A lot of people ask me questions about buying cars. What they may not recognize is that I'm a bit of an extremist on this topic, and so I'll try to temper that a little bit with the recognition that you do not have to be an extremist on this topic to make a good decision and to be financially successful. A typical doctor these days makes something like $370,000-$500,000 a year. They might be married to somebody else. Their household income might be $500,000 a year, that wouldn't be unusual in the white coat investor community. If you are making $500,000 per year, it doesn't matter what you do with your cars. You pretty much can't go broke buying regular cars, no matter how you do it, no matter how you finance them, etc. Now, if you're going to go buy a bunch of Maseratis and McLarens or something, then sure, you can go broke buying cars. But the advice about cars is very important for lower earners.

I am firmly convinced that the vast majority of people who don't build wealth in this country fail to do so because of something that's sitting in their driveway. The truth is that you can get an extremely reliable car without spending very much money. I used to tell people you get a $2,000-$4,000 car and have it be reliable. Numbers probably gone up in the last few years, cars have just become more expensive. Insurance or inflation seemed to hit it a little bit more than some other areas in our lives. But still, you can get a very reliable car that will get you to work, that will get you the places you need to go, with a relatively low risk of breakdown for something between five and $10,000 because of that, because reliable transportation can be had so inexpensively, especially on a high-income professional income, there's little reason for anybody to ever have a car loan of more than $10,000 A five-figure car loan seems kind of dumb to me. If you need to pay for your car with credit, you should be buying something that costs less than five figures total, and thus you shouldn't have a car loan more than four figures. But the truth of the matter is that it doesn't matter that much for doctors because they earn enough to make a financial mistake or two, and this is a relatively common financial mistake that people make. They just spend too much money on cars, and why do they do that? Well, they do that because they can, because cars are available that cost a lot of money. It's not that hard to go buy a Tesla for $120,000 a nicely equipped pickup truck can run you close to $100,000 There are plenty of cars out there for $40,000, $50,000, or $60,000 So the cars are available. You're driving past them every day, and sometimes that FOMO and desire to keep up with the Joneses causes us to maybe spend more than we otherwise would on cars.

Now, a car is a tool. It's generally a depreciating asset. You know, maybe a few classic cars. That's not the case, but those are the ones you're not really using for transportation anyway. You're just keeping them in your garage and rubbing them with a diaper and pulling them out for a parade a couple of times a year. We're talking about the real cars that you use, that you drive around, that you take to the store, that you take to work, etc. They're depreciating assets. They're tools. You're exchanging money for transportation. And while I get it, it's fun to drive a nicer car with better features that might be slightly more safe than a little bit older car. It is what it is, right? It's just transportation. It's four wheels. It's a hunk of metal. There's another one down the street, so don't get too attached to cars. Remember the lesson that I teach my children: that you are not what you drive.

A lot of white coat investors have discovered they drive a sensible, relatively inexpensive, often previously owned, economical car and park it in the doctor's parking lot, and they walk past a lot of very nice cars on their way into the hospital, and they do that for a few years, and then they realize the people driving the expensive cars are not actually building much wealth, and they start asking them these doctors driving these beaters for for financial advice, so it's not you know wealth is not what you spend, it's not what you earn, it's what you have after you get done earning and spending. So keep that in mind. These are depreciating assets. The less you spend on your car, the more money you can use to build wealth. Now. You don't need to die the richest doctor in the graveyard, but you probably ought to wait until you're wealthy before you try start trying to live like you're wealthy. So, don't spend too much money on a depreciating asset, especially if you're not wealthy yet. Now, if you're a multi-millionaire, fine. Spend a little bit more more money on a car. You know, we drove inexpensive cars for a long time. Now we buy brand new ones, often custom ordered, because we have the money, and it's fine. It's a relatively small part of our financial world.

But if a car is still a big part of your financial world, be very careful how much money you spend on it. And you should generally be buying less car than you can afford. You know, one of the one of the famous people out there said, if you can't buy it twice, don't buy it at all. I think there's some wisdom to that. Just buy less than you can afford. I mean, reliable transportation you can have for five, 810, $1,000 Okay, that doesn't mean you you can never buy a car more than $8,000 but it means you ought to be thinking twice before you you spend a lot more than that on cars. You ought to think: Do I have a better use for my money? Would this be better off going into a college fund for my kid? Would this be better off paying off some debt that I have? Would this be better off being used to max out a retirement account or going toward something we want even more, like a really nice vacation or you know a lake home or something like that? Make sure your money's going toward what you actually care about, rather than just trying to keep up with the Joneses, or, or because of some ridiculous fear about not driving the very safest thing on the road. You know, all cars that have been manufactured in the last 10 years are dramatically safer than all cars that were manufactured 40 years ago. You don't need the 2026 model or the 2029 model. You know when your old car was from the year before, right? Doesn't it's not dramatically safer than whatever you could have bought a year or two or five or even 10 years older than that. It's only a little bit safer, and some of those features don't make all that much difference at all. It's been a long time since they sold a car without any, you know, seatbelts, airbags, you know, anti-lock brakes, those sorts of things.

Consider buying pre-owned or used. You can buy these off a private party, and will often get a better price than you will going to a dealership or going to a car lot, those guys have additional expenses, and they're a little bit more savvy about what cars cost and what people are willing to pay. So they generally charge more. The best deal out there is usually buying from a private party. Now that comes at slightly more risk. Some risk that you'll have to do a little more work to the car. That's generally not that expensive work to make it look a little better, or to update a few things, or just you know bring maintenance up to speed that that dealership would have done for you. But you know when you get the car for $2,000 less, you can afford to put a little bit of money into it. And often a private party has different motivation to sell than that used car lot, and so they'll often give you a much better deal on the car, right? That's often where you get these cars that were driven by grandma to church once a week, and they're 10 years old, but they only have 20,000 miles on them. These kind of cream puff cars-that's that's where you usually get them-is from that sort of a of a private party.

In general, you should pay cash for cars. You should pay cash for everything you can, right? It's a little bit hard for doctors and similar high-income professionals to pay cash for their educations. They don't come from a wealthy family. They're often having to use some student loans, and housing tends to be such a big piece of your financial life that waiting years to buy while saving up cash probably isn't very wise, but when it comes to a car, a typical physician is getting paid $20,000, $30,000, $40,000, or $50,000 a month, and if you can get reliable transportation for eight or $10,000 well, you don't have to save up very long to come up with that cash, right? Certainly within two or three or four, heaven forbid six months, you should be able to save up enough money that you can pay for cash.

If you do have to buy a car with a loan, make it the last one you ever buy with a loan. By after you finish paying it off, continue making those payments into a savings account, so that when it comes time to buy your next car, you already have it paid for, and if you do finance a car, keep in mind that they're selling you loans, right? Yeah, they sold you a car as well, but they often make more money on the loan. They're highly motivated to get you to finance a car. Okay, they want you to buy as much car as you can. They want you to pay for it over as long of a time period as you're willing to, and they want you to pay as high interest as you can. And so, if you're going to finance something, try not to finance it all. Try not to buy as expensive of a. Try not to finance it for very long, right? Paying off a car in three months or six months is not dramatically different from just paying cash for it, but paying it off over seven years sure is. I mean, I hope doctors can get rid of their student loans in less time than that. There's no reason they ought to be dragging out car payments for seven years.

Don't forget about the hidden costs of car ownership. Right, it's not just the price you pay up front. There's going to be some maintenance. Even new cars break down every now and then. Just buying a car with with zero or 20 or 50,000 miles doesn't mean you're never going to have it in the shop. You're never going to have it in the dealership. They break down too, maybe not quite as often as a car with 150 or 200 or 250,000 miles. They certainly do break as well. So focus more on reliability than luxury. Luxury's nice. I get it. I've got some nice cars, and it's nice to have nice stuff, but at the end of the day, the really frustrating thing isn't that your seat is cloth instead of leather. The really frustrating thing is when the car doesn't get you where you need to go. So focus first on reliability. Then, if you have some extra money, feel free to throw in a little bit of luxury.

The bottom line: Anytime you buy anything, whether it's a car or something else, is you need to make sure where you're spending your money aligns with your values, the things you care about most. If what you care about is your child's education, maybe you're better off putting money toward private K through 12 and a college education than spending a bunch of money on an expensive car, or if you value vacations, maybe the money ought to go toward that. Or if you value, you know, having a really nice home, maybe the money ought to go toward that. But on the other hand, if you're a quote unquote car guy, feel free to spend some money on cars. Just make sure it's money you can afford while still reaching all of your financial goals.

The White Coat Investor podcast is for your entertainment and information only, and should not be considered financial, legal, tax, or investment advice. Investing involves risk, including the possible loss of principal. You should consult the appropriate professional for specific advice relating to your situation.