By Dr. Jim Dahle, WCI FounderOnce every year or two, I like to rant about one of my personal finance pet peeves: the amount of money people spend on their cars and how it keeps them from building wealth. It's actually not that big of a problem among high-income professionals, especially those who care at least a little about their finances (like white coat investors).
In this post, I'm going to talk about a few guidelines that I think are worth following. If you don't like them, I don't care. If you want to break them, I don't care. If you think they're so bad I shouldn't even mention them on this blog, I don't care about that either—but feel free to argue your case in the comments section. This is my rant, and I'm going to tell you what I think.
The Reason You're Poor Is Sitting in Your Driveway
Yes, doctors can often get away with breaking car-related finance rules and still build wealth with their high income, but I am firmly convinced that the reason most middle-class folks don't retire as millionaires is sitting in their driveway. You see, the difference in annual cost (depreciation, repairs, maintenance, insurance, etc.) between churning a nice, new car every three years (whether buying or leasing) and driving gently used economy cars for 15 years is about $5,000 a year. And $5,000 invested at 8% per year for 40 years is $1.3 million. Drive a beater, get rich.
More information here:
My 27-Year-Old Car Will Make Me a Multimillionaire
4 Guidelines for Your Automobiles
Here are four guidelines to which you should pay attention. These rules of thumb might have exceptions, but that doesn't invalidate their usefulness.
#1 Don't Buy New Until You're a Millionaire
It's worth becoming wealthy first in life before you start living like you're wealthy. Front-load your financial life by living like a resident for 2-5 years after finishing your training. However, that advice doesn't change the fact that new cars are awesome. We've bought two in our lives—one in 2016 (when we were multimillionaires) and one in 2023 (when we were financially independent). They smell great and have all the latest features. They will last longer than used cars, and they can be custom-ordered.
However, driving a new car off a lot is a multi-thousand dollar decision. On average, a new car drops in value about 10% the day you take it home. It depreciates by about 40% over the first five years. You get to avoid that when you buy used. If you're not yet a millionaire, that's probably money that you should instead be using to build wealth by paying down debt or investing. There were some weird supply chain issues that disrupted the typical price gap between new and used during the pandemic, but those are pretty much all resolved at this point.
#2 All Things with Motors Should Be Less Than 50% of Gross Income
Like the previous rule, this one is widely promoted by the Ramsey crew, but I think it's a good one. The value of your cars, boats, RVs, dirt bikes, side-by-sides, snowmobiles, and planes should total up to less than 50% of your gross income. Someone making $30,000 a year and driving a $40,000 truck is the very definition of car poor. It's just as bad if a physician household making $300,000 tries to buy and maintain a $120,000 Model S, a $70,000 Sequoia, and a $150,000 wakeboat. Buy a $60,000 used wakeboat instead and pair it with a $30,000 F-150 and a $22,000 minivan.
#3 Never Have a 5-Figure Car Loan
The first rule of personal finance (Finance 101) is not to carry a balance on a credit card—56% of Americans with credit cards (which is 82% of the population) failed this course. The second rule of personal finance (Finance 102) is not to buy cars on credit. Yet the average loan on a USED car is $36,000 to be paid over 68 months. Used! You can buy new cars for less than $36,000. And who wants to be in debt for a depreciating asset for more than five years? I sure don't. I don't even want your medical school loans to last that long.
I ask my kids all the time, “Do you want to earn interest or pay interest?” They get the answer right every time. I'm not sure what other parents are teaching their kids that it seems normal when they become adults to buy cars on credit.
When it comes to a car, your need is generally something like a $10,000 well-used economy car. That will provide reasonably reliable transportation for a few years while you save up for an upgrade. Anything above that is a want. I understand why someone might borrow for something they absolutely need. However, that doesn't mean they should borrow for something they merely want. I know it's hard for some people to distinguish between needs and wants and that yesterday's luxuries have a way of becoming tomorrow's needs. But there's a huge difference between $10,000 and $36,000.
If you have to buy a car on credit, buy something that costs less than $10,000. You'll never have a five-figure car loan, and you can rapidly wipe out any loan you have and then start saving up for the next car.
#4 A Car Loan Is a One-Time Deal
Just like you should never have a five-figure car loan, you should never have a second one. When you pay off that first sub-$10,000 car loan, just keep right on making those payments. But make them to yourself. Start saving up for your next car. If you can make a $500 car payment, you can save $500 a month for your next car. It's the same amount of money, but one of them pays you interest rather than vice versa. Doctors get paid $20,ooo-$50,000 a month. How long should it really take to save up for a new car?
More information here:
Safety Can Be Used to Justify Anything
People will go to amazing lengths to justify breaking the above rules. Perhaps the most common objection is a petition for the additional safety of a newer or nicer car. The problem (or maybe its usefulness) with the safety argument is that it can be used to buy anything. Every year, new cars have a new safety feature that the prior year's model didn't have. It's actually a pretty interesting history. Look at all the features on cars today:
- Wiper blades
- Turn signals
- Rearview mirrors
- Winter tires
- Safety glass
- Seatbelts
- Airbags
- Shoulder straps
- Automatic shoulder straps
- Studded tires
- Collapsible steering columns
- Side marker lights
- Electronic stability control
- Side impact protection
- Antilock brakes
- Third brake light
- Traction control
- Knee airbags
- Blind spot detection
- Lane departure warning
- Automatic braking
- Anti-skid assistance
- OnStar and other telematics
- Window airbags
- LATCH
- Brake assist
- Adaptive cruise control
- Blind spot warning
- Pedestrian warning
- Cross traffic warning
- Back up cameras
- Forward collision warning
- Lane-keeping assist
- Active head restraints
- Automatic high beams
- Diesel engine exhaust braking
- Tire pressure monitors
There will be something new next year too, I assure you. Are you going to justify a new car just to get one or two of these features that your older car didn't have? Seems financially perilous. There is no end to this. You can also get a professional chauffeur, bulletproof glass, and two other vehicles to escort you if you want. Secret Service-style protection can be hired to protect you from road ragers.
Frankly, though, you'd probably be better off getting rid of call and night shifts, doing more telemedicine, driving more defensively, and moving closer to work if you're really serious about reducing the risk of dying in a car accident.
Churning expensive cars isn't an absolute no-no for high-income professionals, but it's still a bad idea for those looking to build wealth. You don't have to drive a 20-year-old Civic your whole career, but minimizing the cost of your transportation can go a long way to helping you reach your financial goals.
What do you think? What do you drive, and why does that make you better than everyone else? Why are Teslas the best way to safeguard your family, save the planet, go fast, and show off at the same time? Which safety features do you think are worth upgrading for?
I have always enjoyed cars but I couldn’t agree with you more. I remember when I first came out of fellowship with my negative net worth and half a million dollar mortgage and was driving my 9 yr old 80,000+ mi car that got me thru training. I drove it for another 1.5 years while I lived like a resident and aggressively paid down my wife and my student debts. I had a bunch of docs gently tease me that I could buy a real car now that I was an attending but some of these folks were the same ones stressing about finances when their children went to college and some of the ones that were in real trouble when covid hit. I would have driven it longer had we not upgraded my wife’s car when we had our first child.
I drive whatever I want now (German luxury performance car) but always pay cash. I was debt free including mortgage by 3 yrs out and now 15 years out am a multimillionaire. There are so many different paths to financial security and independence but I definitely think this post or at least the mindset is key. Best of luck everyone on the journey!
I agree with this post. And I disagree. It’s complicated. I make a decent paycheck. I bought the cheapest house I could find that was livable. It was less than my annual gross pay. It needs to be fixed in many way, and it’s embarrassing to my kids now that they’re older.
I paid it off in 3 years. My student loans were gone, less than 6 years out of my residency.
I out 35k into each of my kids 529 over that time so they can roll it into Roth or use it for school if they want. Then I stopped.
I max out retirement. I put what would have been house payment + more into taxable account.
Then I took it out to put an offer on a bigger house and the market crashed one week later, and the house purchase fell through because it was also a fixer upper and was double my annual gross take home. So I felt it was a bad deal.
Now at 40, broke my arm snowboarding and it hurts all the time, broke my ankle playing soccer and it hurts all the time, I work about 40 hours a week, am finally worth close to 2 million if you count my crappy tiny house in a high cost of living area.
But I’m tired, can’t imagine seeing more than 30 patients a day (feeling a bit burned out), am the solo income, and thinking – why the heck do I even want to be “rich” at some point down the road when I’m too old to even enjoy it and am apparently too old to enjoy doing minor things right now without breaking bones…
My counter argument – you don’t know when life will start to suck. Or if you’ll even make it to a ripe old age where you can be rich in peace and comfort.
Use your money when you’re young. At least a good portion of it. I’ve been living so cheap and working so hard for so long I don’t know how to take time off, and when I do, I’m unhappy because all I know how to do is work. Nobody taught me how to have fun or take time off, they taught me how to work harder and harder and now that’s all I know.
Darned if you do, and darned if you don’t.
I’m sorry to hear of your situation. We all seem to have a blind-spot to our mortality.
The idea is that as a high income professional, with some intentionality, you can really have a nice lifestyle and take care of “future you”. It may involve some adjustments (moving out of the HCOL if possible?) but it can be done.
For those with a love for sports cars, here’s a solution: why not rent nice rides occasionally? TURO allows for this. There’s a luxury car rental in our area and while a Lamborghini rental is ~$1500/day, it still beats owning and servicing the thing long term!
Instead of buying a beater, why not buy a 2-3 year old lightly used car? A good portion of the depreciation hit has been taken, the car has fewer miles and good technology, and you pay less. The design flaws of that particular car model have already been discovered.
Regards,
Psy-FI MD
Thanks, don’t misunderstand me, though. My situation isn’t bad. If you read it, it’s better than I have any right to be. I own a home, have zero debt, have a lot saved up, I did buy a fun, reasonable, car (a fun jeep) a few years ago. My cost of living area is high now, but it’s not NYC or SF. SLC area is overpriced and unaffordable for people moving in now, but it wasn’t for people who moved in 7+ years ago.
Moving to a lower cost of living area isn’t a valid option often for people, I laugh a little when I see that particular advice.
Financial decisions made in a vacuum are easy. They’re hard when you have a spouse, children, extended family. All financial decisions are based on some emotional factors outside of our control.
I would have been fine to move to a very low cost of living area. Then I’d have more tangible goods, and probably still be feeling the same and definitely still be susceptible to burnout and weak joints. Here I have slightly less but still have more than enough, but my wife is close to her extended family social network, which was necessary. Is making more material wealth worth the isolation and discomfort that may be required for a spouse to endure if you drag them there? Or to uproot children who now have a positive social network – especially at an age where peer relationships are more impactful/influential than parent-child relationship?
My main point was that saving money to be “rich” isn’t a recipe for happiness. But that wasn’t the argument of the article anyway. It was just an argument that buying a new car makes it harder to get rich. Which is true.
I agree with both the original post about saving money on cars and the comment on enjoying life when you can. The key is that spending money on a fancy car will not make you happier. I drive a beater, which serve my needs well. I think it is worth spending money on experiences, which is why I do spend money on my ski passes, travel and concert tickets.
Oh man, sorry to hear this. You know, poor health/pain/injury can really make one see things through a darker lens. It’s hard to come to terms with. The saying if you don’t have health you don’t have anything is true. Maybe now that you’ve sacrificed for so long it’s time to reassess going part time or 3/4 time? And maybe your wife could start working depending on how old your kids are? And maybe with more time some other opportunities would open up…. Or at least time to reassess expenses and do some financial housekeeping, etc.
I definitely get where you are coming from with uprooting the family. And you are right, we make decisions for a variety of reasons, including emotional.
I apologize if I gave the impression that the silver bullet was moving to a LCOL. That’s just one potential option for some and it has paid significant dividends for us personally. Others are spending less, working more, retiring much later, or some combination of the 3.
Coincidentally, we are making the decision to move (in part to be closer to family). But, we probably wouldn’t have so much freedom if I was in a HCOL area (for avoidance of the 3 maneuvers mentioned above).
Anyway, I’m glad your situation is not as bad as it originally sounded. Those who responded had good ideas to spend on experiences and maybe downshifting work, especially since it seems like you are in a good financial place. Also, people underestimate the happiness boost that having someone clean your house or take care of your lawn and what that does for your wellbeing (if you don’t like doing those things).
Regards,
Psy-FI MD
I am in same boat – mid 40s, worked hard, saved, paid off debt. But I am relieved that I did it. Would having a mortgage and a car payment right now make your current situation any better? In fact if you “played” harder earlier you may very well have sustained earlier injuries.
I am grateful that I could die tomorrow and my family is mostly set. That is comforting to me. It is about the next generation now, as all of our time here is fleeting. It is natural to have regrets but I suspect that if you hadn’t been so disciplined you actually would have more. Just trying to help you see the silver lining to your situation.
Great post, shocked how often cars are viewed as status instead of knowledge, capability, and morals
In reality I feel the same way, truly. My family doesn’t really have any concerns because of how we did it and that’s a wonderful position to be in. I really don’t have regrets about how I did it. And I wouldn’t do it differently if I had it to do over because it kept us safe, and kept us comfortable. I was just observing that saving money for the sake of it eventually feels weird. And that once you get past a certain point of doing it, it can look a little bit odd in hindsight. Of course it only looks odd in hindsight when things go according to plan. If they don’t, then you’ll be glad you did save money.
Recently retired. Large net worth. Love my 99 Tacoma. I prefer vintage vehicles and always have. My other back up car is a 2005 Buick Lesabre with the legendary 3800 motor. Best car ever. Instead of a new car I invested in a used car dealership. Learned a lot and made money.
My father helped build the LeSabre in Flint MI. The engine was revolutionary when it was designed in the 80s. There was a separate line for the grand national engines at the time.
Side note, when I was interviewing for fellowship positions back in the 2010s, the current fellow picked me up at my hotel. He pulled up in a 1990s LeSabre and I could tell that he was a bit sheepish about driving it. But it could have been a Porsche in my eyes. Thanks for sharing.
My wife and I are both physicians and have high net worth in our mid 40s. We both still work but are essentially financially independent. And neither one of us will ever buy a new vehicle. The juice just isn’t worth the squeeze.
So where is all the money you don’t spend going to go? Children? Charity? Or will your spending go up later? I bet a quick read of Die With Zero would be helpful to you.
thx. I read die with zero a few years ago and it was very helpful. that was part of the reason we decided to reduce our hours at work and take more time off. we aren’t cheap. we spend quite a bit of money actually, just don’t waste it on things like new cars. we have a nice sailboat, a cabin and travel extensively. but our sailboat we bought used and we restored it ourselves. our cabin needed work as well, but has nearly doubled in value over the past 6 years. when we travel we stay in very modest hotels that are clean but not fancy. essentially, we don’t like to waste money or other resources. i try to teach my kids that money symbolizes “life energy” since we traded our time and energy to earn it. we follow the recommendation of die with zero regarding giving money to others when they need it and when we are still alive, so paying for our kids college and lots of educational experiences for them. we will help them with downpayment on a house someday too. we also have sponsored a girl in Ecuador for over 10 years and pay for her schooling, uniforms and school supplies. we don’t plan on leaving a large inheritance to anyone. but, in general we don’t buy expensive things new (like cars) that depreciate in value. our kids buy many of their cool vintage clothes at goodwill. i drive a mazda, my wife drives a ford. we enjoy doing things for ourselves such as cutting down and trimming trees on our 3 acre property. once our kids both graduate high school in a few years, our plan is to sell our home and cabin and buy a low maintenance townhouse, and then cruise the Caribbean and possibly beyond.
Good for you to be living so intentionally. Spend your money on what you care about.
Love this comment. But encourage a little open-mindedness. What’s “waste” to you (new car) might be someone else’s best idea of fun or most desired physical reward. They might say your boat is a waste. But they’d be wrong too since it’s your decision, your finances, your life.
Sure, we each have to define waste for ourselves. It’s probably not the best word to use either, but I said it so let’s run with it. There are some useful principles. In general, I consider large purchases to be wasteful when they depreciate in value over time and when there are alternatives that depreciate less or not at all. I’m not saying that we can’t have a wasteful purchase or two and be financially responsible. Like you said, my boat is wasteful, but I realize that. Call a spade a spade. And instead of buying a new boat and paying people to do everything to maintain it, I bought a used one and learned how to do most of the work myself. As far as anew fancy car – it’s not necessary and wastes money, but it may be worth it overall to some people. But when people lie to themselves and start considering all this wasteful spending necessary or believe they deserve it all, they either go into debt or get locked into the rat race (the so called golden handcuffs). My wife and realized years ago that we can be stupid with one or two purchases, but in general we can’t be wasteful and accomplish our more important goals of being financially independent and maximizing time for family and other passions. And I’ve taken the time to learn how to do a number of things for myself than the majority of my physician colleagues either won’t or can’t do – and the result is that we spend a lot less and thus have invested a lot more, which has compounded and put us way ahead of the pack financially. The other perk of living this way is that I can fix or prevent the majority of expensive problems that life throws at us, which feels really nice. I used to get upset when something broke around the house – now that I’m not overworked and overstressed and have learned how to fix things, I look at it as a challenge and often just fix things myself. To each their own, but this approach works for us and I highly recommend it. Being “work optional” in your 40s is an amazing feeling!
Great article, buying an expensive car is a very personal purchase for some. I think the nice car bit gets a bad rep on WCI, I say that with some bias since I commute and spend almost 2 hours a day in my car, and value my car more than any vacation I’ve ever taken. With that being said, I made the doctor mistake, bought a luxury sedan with a 5 figure loan my first month as an attending with minimum down payment. But my wife and I are both physicians in LCOL location, have since paid off everything, and built up a nice savings 4 years out, with only a 15 year mortgage we choose to have. I’ve since bought 2 Porsche’s with cash, and I will say not having a car payment feels just as nice as when I open up the garage when I get home. For the car lovers, you can also drastically decrease your car insurance premiums by purchasing low mileage liability only coverage on the sports cars, when they’re paid off.
In 2023, we bought a Toyota SUV for cash. It will probably be the last car we own. We are in our 70’s and typically drive a car for about 15 years. We bought new because once we are retired, we don’t want to be blindsided by an expensive repair. What was infuriating about the purchase: since we paid cash, the dealer jacked up the price by $2,000. If we had not been in shock, we would have taken out a loan and then paid it off after the first payment.
True story!
I settled on buying a car in December and wanted to pay cash. After the usual lies and jerking us around, they agreed on our price but forced us to take out a loan we didn’t want. After various delays of paperwork, landing in the bank and so forth, I paid it all off after about 10 days. What a waste of time and paperwork for everybody.
I made the mistake of buying a new EV during my first year as an attending – paid it off in 13 months which felt like a win though. I think anyone can justify buying a car after the delayed gratification experience of medical school and residency. I could lay the case out for why we did it, but I won’t. From a math perspective, the $50k we spent on that car would have grown to about $216k (real return after taxes/inflation of 5%) if it were invested over 30 years.
FV calculation inputs – (0.05, 30,0,-50000)
We are fortunate we had an income of $341k that first year, live in a LCOL area, and have a mortgage that is only about 30% of our gross income. One benefit of a high income, which Jim points out often on the blog and podcast, is that it can cover some financial mistakes, and I see buying a new car as a brand new attending as a mistake. Every situation is going to be different; that is just my view. For early career physicians, driving the paid off or cheaper car and investing the difference, bonuses, etc. can equate to going part-time sooner or a year less of work down the line.
How the world has changed when doctors use the word “only” before talking about a mortgage costing 30% of gross. The housing crisis affects all income brackets doesn’t it?
does make me wonder if “LCOL” is used differently by different people
I moved to an area I consider L/MCOL. I am Internal medicine (so not a super high paying specialty and probably not in top half of full time IM salary) and bought what I consider a “doctor house”, granted on a 30 year, and the mortage is less than 15% of my gross
The mortgage doesn’t “cost” 30% of gross. We have a mortgage of about 90k which has about 10 years left on it. Payments are $873 a month. Add taxes and insurance and it is a little under $1100 a month. The mortgage costs about 4% a month compared to our gross income. Perhaps I should have said our whole mortgage is 0.25-0.3x our gross income.
I see what you’re saying.
oh dang I misunderstood, congrats.
at that point why not just pay it off in a year or so and be done with it?
Bought a used car in December. During price research, became clear that we’re not over the post covid dynamic yet. Used cars aren’t that much cheaper than new cars, at least the ones I was looking at (soccer mom vans).
We’re talking a few hundred less per year of age, scaling pretty linearly.
Good on you to do research and when that’s really what you find, to buy new. I wonder sometimes if people mistakenly conclude that by only shopping for used cars at dealerships though. The real value is in buying from a private party in my opinion. You don’t get the “135 point inspection” but you probably get a substantially larger discount.
People in auto industry probably know that the cars are not safer when they are more expensive. Any mid-tier cars passing safety rating are safe enough and rest of it depends on the driver and how the cars are used.
We aren’t exactly car people, so when we bought a new $39k Subaru outback touring a few years ago, it definitely felt luxurious. I can’t stand car dealers, so I can’t imagine having to do the same song and dance every 2-3 years if I wanted the newest shiny model. What was also funny, however, was the finance guy trying to get us to finance at like 5 or 6%, and how that would definitely “free up money” to pay off our mortgage (2.5% on our house at the time, ha!).
A while back there was a social media trend of car dealerships posting videos asking their employees what they drove and what their car payments were. You could make #2 even more extreme–lots of people were financing $80-100k SUVs and trucks (sometimes multiple vehicles) on what I assume would be an unsustainable income.
Say you’re already a millionaire and you already bought a new car in cash. When is the right time to trade it in for a new one? Do you trade in before the warranty is up to keep maintenance low? Do you keep for 10 years and buy a new one later? Do you drive it into the ground?
When you want a new one. Personally, I’m a 10+ year kind of guy, or at least have been so far in my life. Katie’s car is a 2016, so that one is likely to get replaced before my new truck.
I didn’t realize my 15-year-old car was a total beater (yeah, I know) until a guy in an old truck at my gym parking lot almost opened his door onto my car, but luckily didn’t nick my car. When he got out, he remarked that he was kind of stressed about almost hitting my car, Then said, “but your car is a beater too!” I laughed and realized I did not have any stress about someone scratching up my car or other minor damage to it, which is really nice. Most of my friends drive Teslas and if it gets the tiniest scratch, they are freaking out. No new car anxiety for me!
I’ve had eight cars in my career and never bought a used one. In college in the 1970’s I had friends who had lots of problems with used cars so I gravitated to new. I never kicked that habit. They were all on the cheap side and way less than 50% of my gross. Always paid cash, so at least no loan costs.
Looking back on the costs, I certainly could have invested more of what I spent. Still, we are doing ok and I figure we have enough in the bank to live through retirement.
This is not to argue against Jim’s point. In fact I wish I had an article like this one back in those years. I just didn’t think about how much I was spending and I figured most everyone I knew bought new… Plus I sure like that new car smell…
The last one, about safety, is a hard one as a parent. Fortunely found research by Consumer Reports and Insurance Institue for Highway safety to help guide us. Their list of used cars ranges from $6,000 to $20,000.
https://www.consumerreports.org/cars/teen-driving/best-cars-for-teens-a2115540753/
I have to disagree that the cheapest way to own a car is to drive a beater, at least for most folks who won’t be doing their car repairs themselves. All that matters financially is the monthly cost of ownership: (purchase price + repair costs – resale value) / number of months owned. For our last two older cars, there was a large spike in repair costs beginning in years 6-7 coupled with large drops in resale value. In fact, our 2015 Subaru purchased new for $25,000 had essentially no repairs for the first five years, and over $1,200 on repairs each year for the next five years. Our monthly cost of ownership was lowest at about 7 years, totaling $230/month. With continued high repair costs and dropping resale value, now at 10 years our monthly cost of ownership is actually higher at $280/month. Of course, like the stock market, you cannot predict if each $1,000 repair will be the last one for awhile or whether it will continue to be costly. But after a few years of trending in the wrong direction, it is time for us to fold and admit this car is not the cheapest option. It is also noteworthy that our other car – a five year old minivan purchased new for $34,000 – has a whopping resale value of $24,000 and has had essentially no repairs, bringing the monthly cost of ownership (if I traded it in today) to $170, making this 5 year old car significantly cheaper to drive than the 10 year old one.
I think the high repair costs and dropping resale value of older cars are often mistakenly not considered. I think the total monthly cost of ownership is ultimately all that matters. Yes purchase price is obviously an important part of the math equation here, but it is very possible to spend more per month driving an older car (as I’m currently doing driving this Subaru in years 7-10 for $50 more per month than it would have cost me if I had traded it in at year 7, and $110 more per month than the minivan that is 5 years newer). Perhaps keeping the total monthly cost of ownership to some reasonable amount is actually more important to building wealth than the purchase price, as that alone does not reflect the total cost of ownership.
An older car has almost no resale value to lose. Plus little things don’t get repaired on an old car. You just let them go. And they’re cheaper to insure. I mean, it can’t be just breaking all the time, but there’s a reason poor people drive beaters and it’s not because they’re can’t figure out the cheapest way to drive a car.
At any rate, figuring out the cheapest way to own a car should be a relatively early career thing for white coat investors. After that, they should be able to drive what they want within reason.
My first car, a Toyota Corolla, cost $4k. I had to borrowed a loan from USAA to buy it. Then I drove it from left to right coast reporting to my first job as a Marine officer. Then I drove it back to the left coast a year later before going overseas for my first tour of duty. It was reliable and served me well. Don’t sweat too much on a car; invest in the guy behind the wheels.
I am 15 years into my career and still drive a 1999 Tahoe. It’s a beast. People look down on me for it. I don’t care because I haven’t had a car payment for 18 years. No car payments = a lot of money for bitcoin.
I understand the depreciation factor to consider. However, that applies to people who turn over their vehicles every few years. For those of us that drive our vehicles until they die, we don’t have to consider the depreciation schedule. That’s why I buy new, I know I’ll drive it until it gives up and won’t move. I also have peace of mind not worrying that the previous owner drove like a maniac and put much more wear and tear on the vehicle than the odometer or external aesthetics would indicate. Currently still loving my 14 year old 4Runner with 266K miles.
I just had to share this video that popped up on my youtube homepage today! https://youtu.be/V5tYK1mruHg?si=1dtZ5h_G2bvXiqev
Jim gets his adrenaline fix flying a pack raft through Grand Canyon rapids. I enjoy a spirited sedan with performance suspension and brakes, a 380 HP engine and Apple car play and Tidal for bringing in great tunes. The house is paid off, the offspring is doing great in his career, the retirement is funded…why not enjoy that 40 minutes back and forth to the hospital each day plus some weekend outings? I traded in my old creampuff with 55,000 miles—only one replacement air hose in 12 years—the modern technology, and an upgraded driving experience is a lot of fun and well worth it.
It’s generally a bad idea to be getting an “adrenaline rush” while driving on roads with other drivers. So I hope that isn’t actually happening every day, even if you do enjoy driving the car!
I disagree with this. I bought a new Audi for $33k in 2020 when my net worth was around $400k. Now my net worth is $1.3 million. If I had bought a used car instead and saved $20k or even $30k and invested that instead I’d have what an extra $50k? 4% of my net worth? I’d rather have my new Audi.
Love this. As a general contractor, I drive a 12-year-old paid-off truck. Does it have the latest features? No. Does it get the job done and keep my financial priorities in check? Absolutely.
I’ve seen too many people get buried in vehicle debt trying to “look the part” while sacrificing long-term freedom. My truck may not turn heads—but it’s helped me keep overhead low, invest in my business, and stay cash-flow positive through market ups and downs.
Tools in the back, equity in the bank.
Very good considerations and suggestions. Thank you! I would say that it’s hard to impossible these days to find a “$10,000 well-used economy car.” If you want something reliable like a corolla that is five years old or so, you will have to pay more than that. Closer to $20K nowadays.
There are plenty of reliable $10,000 cars. Whether you’re willing to drive them or not is a different question. My kids are driving a $3,000 civic. It’s plenty reliable. But here’s what you can get for a $10,000 Corolla according to Kelly Blue Book:
https://www.kbb.com/
It’s a Blue 2018 Corolla LE with 80,000 miles on it. $10-11K. Want it under $10K? Get a 2017 with $90,000 miles on it. That’s a car that will still be very reliable for 70,000 more miles and pretty reliable for 30,000 after that.
So yea, if you want a 5 year old Corolla, that costs more than $10K. But why stop there? Why not get a 1 year old Tesla S?