By Dr. Jim Dahle, WCI Founder
This rant started from reading an email sent to me by a doc looking for general financial advice who was several years out of residency and whose medical school was paid for by the military. I was surprised to see that he still had a negative net worth. The main reason was that his family “owned” a year-old car on which $30,000 was still owed and a brand new car on which $29,000 was owed. There was a little educational debt and some retirement and non-retirement savings, but the liabilities far outweighed the assets, despite several years of attending-level compensation and no medical school debt. As you might imagine, I recommended he spend less and save more, starting with his choice of automobiles. I had a similar conversation at about the same time with a nurse who was leasing a car that was worth about her annual salary.
You Aren't What You Drive
In The Millionaire Next Door, Stanley and Danko had an entire chapter entitled “You Aren't What You Drive.” What do rich people drive? The authors noted that only 23.5% of millionaires owned a car from the current model year and only 55% of millionaires owned a car newer than 2 years old. Half of doctors aren't even millionaires. In fact, a large percentage of doctors in their 30s still have a negative net worth. If most millionaires don't drive new cars, why should a doctor? Stanley and Danko write about what buying habits among used-car buyers reveal:
“What factors explain variation in wealth accumulation? Income is a factor. People with higher incomes are expected to have higher levels of wealth. But note again that members of this group of used-vehicle buyers have a significantly lower income than the average for the other groups of millionaires . . . Occupation is another factor. We have noted many times that entrepreneurs account for a disproportionately large share of the millionaires in America. Conversely, most of the other high-income-producing occupations contain disproportionately smaller portions of high-net worth types. These include physicians . . . dentists . . . attorneys . . .
But there are exceptions. For example, each of these non-entrepreneurial occupations is represented in the used vehicle-prone shopper group we are profiling. Used vehicle-prone shoppers are unique even among their millionaire cohorts. Note that, on average, they have the highest score values on all seven measures of frugality. Behind their frugal behavior is a strong set of beliefs. First, they believe in the benefits of being financially independent. Second, they believe that being frugal is the key to achieving independence. They inoculate themselves from heavy spending by constantly reminding themselves that many people who have high-status artifacts—such as expensive clothing, jewelry, cars, and pools—have little wealth.
Being frugal is a major reason members of the used vehicle-prone group are wealthy. Being frugal provides them with a dollar base to invest. In fact, they invest a significantly larger portion of their annual income than do any of the other types of vehicle buyers . . . the used vehicle-prone shopper group also contains the highest percentage of prodigious accumulators of wealth (those with a high net-worth-to-income ratio).
The majority of people do not have the ability to increase their incomes significantly. Yet income is a positive correlate of wealth. What then is our message? If you cannot increase your compensation significantly, become wealthy some other way. Do it defensively . . .They successfully innoculated themselves from contracting the high-consumption lifestyle that many of their neighbors adopted. More than 70% of their neighbors earn as much or more than they earn. But fewer than 50% of their neighbors have a net worth of $1 million or more.”
You can save a lot of money on automobiles in two ways.
#1 Buy a Used Car
New cars cost far more than it takes to maintain a used one.
#2 Drive an Old Car for a Long Time
Even a new car buyer can get a great value if they keep the car for 10 years. Older cars also save you money on insurance and taxes. They can even save you money on maintenance. Who needs to fix a broken electric window or fix a little dent on a car with 150,000 miles? But on your brand-new car, you'll pony up some cash to keep everything working and looking sharp.
More information here:
How Much Can You Save by Driving an Old Car?
Consider this. Physician A buys a $60,000 car. They drive it for three years and then sell it for $25,000 and repeat the process. They will also pay more in sales taxes, registration fees, insurance, possibly maintenance, and most likely finance charges. I'd estimate their cost of car ownership at $10,000 per year, not counting gas.
Physician B buys a $5,000 car. They drive it until it dies in five or 10 years. Then they buy another one. They paid cash for it, didn't fix any of the little things, and paid minimal registration fees and insurance (liability only). I'd estimate their cost of car ownership at $1,000 per year, again not counting gas.
After 30 years, what is the difference between spending $1,000 a year on transportation vs. $10,000? Invest the difference at 8% and you'll get a million dollars. Yes, you read that right. Is driving a new car worth $1 million to you? Most Americans retire with far less than $1 million. Multiply that by two or even three cars, and you'll quickly realize the sum of money available to the frugal driver.
The example might be a little extreme, but run your own numbers and see what you get. I'm convinced that many Americans are kept in the poorhouse simply because of their automobile choices. No consumption item, except a house, will make as much of a difference in your accumulation of wealth.
Now, I realize full well that I'm an extremist on this subject. My parents have only bought two brand new cars in their entire life, and neither was bought during the 18 years I lived at home. I rode in beaters and I drove beaters, including a true Flintstone-Mobile due to a rusted-out floor. But they raised six kids, retired a little early on a middle-class income, and even owned a small floatplane (I did grow up in Alaska, after all).
I learned early on that you're not what you drive (although I confess that, in high school, I was jealous of those guys with the jacked-up little Toyota pickups). My first car was an old Geo Prizm my parents sold to me for $3,000 as a college senior. I was just happy to get an interest-free loan from them. Before that time, I rode a bike or got a ride, so this was a huge upgrade.
I sold it after two years for $2,100, and we got another one for $6,000. I totaled that one after three years, and the insurance company gave us $5,500, which we put toward the next car.
My third car cost $8,000. It was totaled after about three years, and we got about $7,000 for it from the insurance company. Before it was wrecked, we bought a second car for $1,850, which was sold four years later for $1,500. We took the insurance money from the totaled car and added it to our savings to buy the car we really wanted, which we bought at four years old for $18,900.
When I got out of the military, I bought a car for $4,350 and drove it for six years before it died. When it died, we were rich, so we bought a brand-new car. We've bought a few other cars since—one for our daughter to drive, the infamous $800 beater, and, when it died a year or two later, a $5,000 car (I did end up buying a brand-new expensive truck in 2021 that took nearly two years to get to me).
Initially, I thought I was just saving money now so I could drive whatever I wanted later. After a few years of driving beaters, I've realized I no longer care what I drive around in as long as it runs well and is comfortable to sit in and that I can carry what I need to carry and pull what I need to pull. I do like driving a $60,000 car better than the $5,000 car but not 12 times better. I probably won't buy any more cars that cost less than $10,000 for the adults in the house to drive. We simply no longer need to, given that we're already FI and are both still working (I'm still working two jobs). We basically stopped buying cheap used cars when we had no non-mortgage debt, had a good chunk of equity in the home, had started college savings for the kids, and had a portfolio on track to allow for an early retirement.
Can you say the same? Then, what's with the Lexus or Tesla you share with the bank in your driveway? I'd much rather have the ability to walk into a Lexus dealership and pay cash for a brand-new, top-of-the-line Lexus than actually have one in the driveway.
Some complain that they can't drive an inexpensive used car because they need something reliable. I just don't buy it. I spent the vast, vast majority of my life commuting in a car with more than 100,000 miles on it. I've had to get a jump once on a cold morning after a night shift. I replaced the battery that afternoon. When the $4,350 car died, we had it towed to the mechanic (and then to the junkyard). Insurance paid for the tow. That's it. Even if you add on the cost of a AAA membership, you're still not going to get anywhere near the cost of driving new cars. Others worry about the cost of repairs on older vehicles. It's a rare car repair (not a collision) that costs more than $1,000-$2,000. Most are a few hundred dollars. It doesn't take long to pay for that when you don't have a $500 a month (or a $2,000 a month) car payment. Even if you insist on having one nice car for road trips and driving the kids around, you can still buy a cheap commuter as the other car and save thousands.
Who says your car has to be as nice as your spouse's?
More information here:
Frugal vs. Cheap – What’s the Difference? (Plus 11 Tips to Avoid Being Cheap)
10 Frugal Hacks to Automatically Save Money for Busy Professionals
Should I Buy a New or Used Car?
In the end, spend your money on what makes you happy. Do you need to drive $5,000 cars to be financially successful as a physician? Certainly not. But you do need to save and invest 20% of your income a year. If you can't do that AND buy an expensive car, then you'd best line up your habits with your true priorities. Just keep repeating “You aren't what you drive . . . you aren't what you drive” until you believe it.
What do you drive? Do you feel pressure to drive a certain type of vehicle just because you are a physician?
[This updated post was originally published in 2012.]
The purpose of my “beater” may differ a bit from the definition and purpose you are using and perhaps most use. This is not just for transportation, but was purchased to be a large utility vehicle to use for ski trips, Home Depot runs, taking the dog to the groomer, as well as some basic transportation duties. Dirty work and large item and large passenger load hauling that our other vehicles are not appropriate for. And as a third/backup car in a 2-driver household. To me, it was worth putting in some money up front to get what I wanted and what was impossible or very difficult to find on the used market. I am actually happy with this sub-$10,000 vehicle and it’s been reliable and served its purposes overall so far.
You need to pay sales tax even if you buy a car from a private individual with cash. You can probably get away with cheating, but it’s clearly illegal and unethical.
Most of the time, it’s collected when you register the car the first time.
In Arizona, sales tax is collected only when a used car is purchased from a car dealer. If the car is purchased from an individual, no sales tax needs to be paid.
Funny how much that varies by state. In many states, you pay the sales tax when you register it so people often lie about how much they paid for it so now many states simply charge a certain amount based on the age of the car.
I have never heard of a state that waives transfer taxes when something is bought for cash. Sounds more like tax fraud.
Based on what research I could do I concluded that the sweet spot for me was 3-4 years old coming off lease. There are a lot of cars in that group so pricing is competitive. They have up to date safety features but not the newest. Problem with the newest features: because they are new there are no data about how well they improve safety. Once a model has been out for a few years there are data on it’s real world safety performance and the safety contributions of the individual features.
Once upon a time there was so much excitement about day time running lights that some municipalities made them mandatory. As more cars in the road had them the data accumulated and it turned out they were useless as safety features.
I only buy cars that are top safety picks.
I also care about time and hassle getting a car repaired. I drove my previous car for 20 years. But as it aged I spent more and more time shopping for parts. To say nothing of the time invested in taking it to the shop.
I think that the combination of safety, good repair and reliability argues against buying a beater. My last purchase was 3.5 years old, off lease and paid less than half the cost of a new model of the same car. I paid the taxes.
Doing more repairs yourself might save some money for many people. If you are a doc it is likely that your time is worth more than that of the repair people. Even after tax you would probably come out ahead by letting them change your oil while you work another hour at your day job.
Did no one catch that WCI totaled two cars in a span of 3 years? Been reading this blog for years and have learned so much but I may not taking driving lessons from you. : )
While I actually am one of those rare people who believes they’re a below average driver, neither of those two wrecks was my fault. I have yet to total a car in an accident that was my fault. Plenty of wrecks though.
Yes! I totally agree. I even had an experience a few months ago where someone just assumed my 2011 Toyota was a “nicer” luxury car when they saw it just because they knew I was a plastic surgeon. So just get the more financially friendly car and let people assume what they will!
We decided after an epic failure with used jeep purchase (it had one job- get our boat to new duty station- and it failed) that we aren’t competent mechanically to get used cars (although we did do so in England for our short 4 year stint, without problems). Sheez, if I could repair tractors I’d have become a farmer by now.
So we drive new ones long term. And luckily given my gardening habits have a spare always- the pickup truck with 9 years and 20,000 on it- though when it’s time to buy another car based on continuing repair needs it always takes a little too long to get the next car, used OR new if you don’t accept what’s on the lot. Was very hesitant that the youngest wanted to keep our then 13 year old sports car (her dad finally willing to part with it) including day long drives to college with it. However she prefers the convertible spyder to a new less fun car. When she pays for premium it might remind her not to buy a similar car when we give her the money we’d’ve spent toward a new car, which she’ll presumably top up to get a more comfortable car to get her to her 30s rather than just take the car we were willing to buy for a college kid. (Two kids 7 years apart- always aiming for parity.)
I’m just waiting for the obligatory Tesla owners v. WCI battles. Those are always entertaining. 🙂
Might not be as fun if I ever get around to actually buying a Tesla.
ha yes! I can’t wait for the Tesla and WCI battles, though as Jim says he has nothing against a Tesla 🙂
I myself after doing some research not only on Jim’s car posts, but also listening to the ChooseFI guys where they did a deep dive a while back, as well as reading Jonathan Clements posts on car buying, I have concluded that the most financially optimal used car that you can get is a 3 year old used Honda or Toyota with super low mileage, given after 3 years the depreciation is maximal so that’s gone, and the low mileage means the car will hope last as long as possible.
Armed with this knowledge, bought a 2016 Honda Accord off lease in 2019 with 9900 miles. Apparently driven by an old lady who lived next to the Honda dealership, which is also by the Stop and Shop which she drove to for groceries. I freaking scored! Hoping to give this car in 12 years to my son.
I make 500000 a year as a specialist and 400000 a year in my side hustle. I have 7 figure net worth. I drive a brand new 140000 911 carrera s cabriot. It is amazing. I wrote the lease payment and all associated expenses off. Going from home office to work and back. Using car only for work. Don’t be losers. Work harder. Make more. Get a nice car. My next one will be a Ferrari f8 spyder.
Sounds like a fun car. I agree a millionaire making $900K a year does not need to drive a beater to be financially successful. I’m a little skeptical that you can legitimately write off your lease and all associated expenses though. Might want to read the regs on that one. Home to office and back is personal mileage, not business mileage.
My guideline is 25% of gross income in value of cars, so your $140k Porsche easily fits that with a $900k income. Congrats on your success! The Ferrari probably won’t though.
Your tax strategy is questionable in a few ways. First, if there is a tax benefit to leasing a business vehicle over owning one, it’s never been explained well to me. When you own a business vehicle and use it for legitimate business purposes, you can deduct the business portion of expenses, plus depreciate the value. I can’t see how this is any worse than deducting a business percentage of a lease payment, and you avoid the generally inferior value of a lease.
You are only allowed to deduct business trips between work sites, not trips between your home and a work site. You can get around this by establishing a home office, but there are strict requirements for that, and if you fail an audit then you lose the home office deduction AND the vehicle deduction, and pay interest and penalties on both.
Also, while there is no strict dollar limit on the value of business vehicle you can buy, the “ordinary and necessary” standard still applies. One could argue that a Porsche is *not* necessary for getting your keister to the office and back (let alone a Ferrari, if you try to deduct that). My suggestion: enjoy the car as a personal vehicle, drive it whenever you want, and deduct the standard mileage rate for any legitimate business miles. Lets you enjoy the car more without limiting your personal miles, keeps the IRS off your back, and keeps the rest of us from subsidizing a sports car for someone earning almost a million bucks a year.
I think maybe this article needs a re-write. The example provided is either buy a new car every 3 years or buy a beater every 10 years. They acknowledge it is an extreme case…but then why not provide some other examples? What about buying a non-beater ($10-20k) used car and driving it for 8-10 years? Or what about those who choose to lease, but aren’t leasing an expensive BMW, but rather a ~$200/month car?
I think there is a valuable message here, but it comes across as extreme. Maybe showing some more middle of the road examples would improve the content.
Like
Of course, then it would be boring….extremism is far more interesting to read about. 🙂
If it needs a rewrite, it’s because it’s almost impossible to buy cars these days. Can’t get new ones because chips are having supply chain issues and the price of used ones is a bit ridiculous due to shortages.
I live in the deseret. Finally have a one year old used car. Have to say worth it. Its dangerous here to be stuck on side of road in 115 degree weather at 5 PM — happened to me twice last year. Not only that, its so much better ventilated compared to older vehicles that commuting in the hot summer weather is no sweat (excuse the pun). Its made my life considerably better in all ways as I drive a good bit, plus its a pickup so my road trip opportunities are far superior compared to my old sedan. So yes more expensive, but sometimes its worth it.
Desert or Deseret? Or both?
I agree a nicer car is nicer to drive, so long as you can still reach your financial goals.
You know you can have the best of both worlds, and if you’re financially astute you can have a high net worth by following some basic principles of buying used and keeping the vehicles for some time while investing the associated savings. However, you don’t have to live a life of boring or unreliable beaters – you’re physicians for Pete’s sake.
I have 5 toys – a prancing stallion, bimmers, MB’s. Three purchased with <7k miles, the others <25k. The oldest, the stallion is 16 years old with 20k miles, owned now 11+ years.
Total cost of ownership no big deal on my income and a projected NW at retirement $multi-decaM. Kiyosaki famously says don’t say I can’t afford that rather ask how can I afford that.
Then go out and do it courageous entrepreneurs. You only get one chance at life. Live in the fast lane.
a prancing stallion, bimmers, MB’s.
I suppose a car person would know what this means
For me, I WANT a boring car. I want to get from A to B as safely and with as little fanfare as possible. The last thing I want while I am driving is excitement. To me that mean almost getting hit by some aggressive driver. I avoid those drivers as best I can.
I don’t want to live in the fast lane . I never drive in the fast lane because that is where the crazy speeders are busy violating traffic laws.
While a doc is much less likely to have a crummy financial life due to poor car decisions than average Joe, the philosophy that “you’re physicians for Pete’s sake and should live like it” is a dangerous one that has forced many docs to work much harder and longer than they planned and still have a lousy retirement.
I am curious as to what the point is of owning a car for 16 years that you’ve only driven 20K miles. Some sort of show/parade car?
Sounds like you may never have owned an exotic.
You don’t really drive it in rush hour traffic to get from point a to point b, or for groceries/errands.
Where you do drive it: Track time, car shows for charitable purposes, (usually healthcare fundraisers in our area), fellow enthusiast car meets (networking/marketing yourself, many brilliant physicians have had businesses fail because they just don’t get this), etc.
Exotics usually depreciate far slower than beaters, and at times can be an appreciating asset. Even as a depreciating asset, they can be leveraged to make lots of money. I personally have borrowed against my cars several times for cash out to invest in real estate, about $250K. Think about what that $250K will do for me over 30 years between property appreciation, lease income and tax depreciation. There are essentially no closing costs on these cash out loans, and my rates were sub-2% 6=7 year loans. Compound that with the benefits of networking/marketing opportunities, such as best practices discussions with other successful business owners, referrals, etc.
Having the skills to see/create opportunities where others don’t is the reason to rise above conventional wisdom that states a vehicle is a depreciating asset. Using it for purposes of business networking, low cost leverage to accumulate more appreciating assets is unconventional. You can’t do that with a beater.
You may argue why buy it in the first place? Just use the funds to invest in appreciating assets. I’m on a trajectory for a $multi-decaM retirement, and am essentially debt free, it’s like saying why take those fancy vacations? The answer is, in life not doing what moves the soul out of fear, within reason, is essentially missing out on life/opportunities. Things to ponder.
You also can’t repeatedly leverage against cash.
I know this works because I have repeatedly leveraged “assets”, both appreciating and depreciating, to accumulate more appreciating assets or for business growth, This is one of many tools I utilized to get to multiple fold fellow PCP’s in income and NW.
Vroom vroom!
Enjoy your cars.
I gotta be honest, this sounds like a lot of rationalization for what looks to be a simple luxury consumption item. There are plenty of ways to make business connections that don’t require owning a $250k car. My latest business deal was $50M and I can assure you, no one gave a hoot about the car that anyone else was driving. It was all about the details. In fact, if my supplier was showing off a Ferrari to me, that would raise doubts to me about his fiscal responsibility. At the very least, it would cause me to go back over the numbers one more time looking for fat to trim, and think twice about the fee I was paying 🙂
Buying a car and then borrowing out all the equity is fine, except that you pay interest, maintenance/registration/insurance (which I’ve noticed most exotic owners tend to not mention, probably because they are so expensive), and also take on a fixed monthly payment. In my humble opinion, if someone really wants an exotic sports car, treat it like what it is (a discretionary luxury purchase), make sure it fits into your financial plan, save up cash, buy it, and enjoy it.
Completely agree that one should be economical in picking a car. I am with those who buy low mileage coming off a 3-4 year lease. Bypass the big depreciation but still get relatively modern safety features and, if chose the right brand, good reliability.
I disagree that you are not what you drive.
I am what ai drive. Anyone who saw my car would conclude that I am a cheapskate miser who would rather pinch pennies before saving them than put out for a “nice” car. And they would be right.
I just a brand new Model Y. It’s absolutely worth it for my daily commute. YOLO. You never know when you are going to drop dead. Don’t live a boring life full of regrets. Everyone has different things that make them happy. To each his or her own.
I agree you only live once.
I do not see how it follows that one should waste their money on expensive toys.
If I want a toy I can buy a water pistol and save the rest of the cost of a fancy car.
Spending money does not make my life interesting. Reading a good book is interesting. Buying and driving an expensive car would be both boring and pointless.
I certainly will not have regrets because I did not buy a prancing stallion. Is that really a horse? I avoid horses, allergic to them, smell bad and large and dangerous. My life would not be made more interesting by having a horse around. It would just require me to take more antihistamines.
I totally agree with you. As high income individuals we can’t have it all but should be able to do things that makes us happy in this short life…with reason.
I got model X which is terrific. It didn’t change my life but it is nice to drive. I have 70 miles round trip daily commute. If we do certain basic good financial decision like investing in low cost index funds, save as much as possible, maximize our income, have adequate insurance etc…
The only draw back about my new car is I am planning to keep it for at least 7 years and I can’t think about buying Lucid Air anytime soon 🙂
I have seen this theme in WhiteCoatInvestor’s blog posts repeatedly. While the overall advice is worthy, I think he needs to clarify how long of a commute he has had everyday. If you drive 5 miles in city streets a few times a week when you are on shifts, I can see how one can drive a beater. However, if you commute for 40+ miles roundtrip, and you take home call, you cannot rely on a beater. You will get into an accident or kill a patient at some point because the engine does not turn on. Besides, newer cars have so many good safety features such as emergency breaking if a child jumps in front of your car. I think this alone is worth the price tag if it saves one life. This debate is overall getting more ideologic than logical. When people brag about their beaters, they should list how far of a commute they have and under what conditions (city street vs. freeway, diriving in sunny Arizona vs. snowy Minnesota, etc.). Generalization does not work. Again, I agree with the overall message that is to avoid wasting money on cars.
Your points are well made. Thank you!
If your car not getting you to the hospital will result in the death of a patient, why do you live 40+ miles from the hospital? How many people has THAT decision killed?
It’s your life, buy what you want. But consider the cost of ownership and your pathway toward your financial goals.
It may be hard for an EM doc in Utah to believe but that’s the life of many subspecialty surgeons who take home call in large urban areas. To clarify, I said 40+ miles round trip, not one way. Thankfully, no one has been killed so far because I have avoided driving old cars. I bought a Mazda and have been driving it for a few years and it has been very reliable. I appreciate all your advice but this one cannot be generalized to everyone. Not even considering any of this, I refer back to what I said about the new cars’ safety features and being able to avoid one accident or death. I look forward to seeing your commute mileage and settings added to the article. It would make it easier to compare.
It’s your life, drive what you want.
But if you’re truly concerned about safety on the road, reducing exposure by shortening your commute is far more effective than driving a car that is a few years newer. In my experience, those who justify their car purchases with claims of “but it’s safer!” are really just doing that.
Look, if you can afford to drive a nice car and still reach your financial goals, do so. This article is about the least expensive way to get from A to B long term and what happens if you take the savings between that and what most people do and invest it. That’s a million dollars over a lifetime. For most people, that’s “rich”. Thus the title…drive a beater…get rich. I don’t drive a beater (well, I suppose I do in the eyes of many) but I’m also already rich. If you are too, then drive what you want. But if you’re coming out of residency and owe $400K in student loans and you make $160K, I would suggest taking a long hard look at what’s sitting in the driveway.
Driving a beater never appealed to me. Fortunately I was provided free company cars, generally pretty nice ones and free gasoline with unlimited personal use, most of my career. My wife drove new cars we bought with cash but we kept them a long time between replacements. I drove 36,000 miles a year when I was working, and we still drive a lot taking frequent road trips in the 2,000 to 3,500 mile range. I have more money now in retirement so I’ve loosened up my car spending. I bought a $25,000 used sports sedan last year and my wife just bought a brand new baby Bronco for $40,000. We’ll also probably buy a $50,000 big bronco if we can ever get one. She reserved one last year and still can’t order it yet. Those are still cheap cars compared to Range Rover’s and Porsche Cayenne’s but a step up from what we used to drive. I agree holding costs down while you are accumulating is a good idea. Driving a rusty heap of spare parts is not a good idea once you’ve got excess millions, life is too short for that.
When you deem yourself FI what does that mean? Is it a ratio of net worth to annual expenses to target? what is a good target to have? thanks!
FI is generally defined as having assets designated for retirement that are 25X+ your annual spending.
When a deer ran into the side of my 2008 Highlander, I concluded it was time to upgrade. The 08 had fabric interior and zero bells and whistles with 300k miles. I bought an 09 Highlander LIMITED with all of the bells and whistles 2009 had to offer, a roofrack, a set of snow tires, and only 200k miles. Insurance paid 5500, and I paid 8k for the “new” car. I wanted a 35k RAV4 hybrid, but we are doing some work on the house, so cheap it was. I have found myself quite happy with the relative upgrades at a relatively inexpensive price.
There is a world of difference between a beater and an expensive toy.
A 3 year-old Camry will be safe and reliable. At least as safe and more reliable than the toy cars some people buy. It will cost a fraction of a new luxury car, get better gas mileage, be far cheaper to insure and maintain and will get you where you need to go. If snow or mud are issues then get a regular all wheel drive car, like a Subaru. Safe, reliable, practical. A car for an adult.
Ill have to say that I dont believe in this. Im into cars.
I wont drive a beater. And neither will my wife.
I bought a brand new Chevy SS in 2016. Its paid for.
We bought a brand new Sienna in 2018. Its paid for.
I bought a used Tacoma last year to have a truck. Its paid for.
I lease a Volvo S60 T6. Its obviously not paid for.
I just bought a CPO M550i and while we could have paid cash, I put 20k down and 40k that I would have used into alt investments because 1.9% financing.
All this has been done while fully funding our retirement etc. We have more than 1.5mil in our retirement account and 300k in our savings account.
We have no student loan debt and our mortgage is 8k a month. Besides the Volvo, the house, and the BMW we have no other debt.
I have always dreamed of a 911 but with a 7, 5, 3, and 1 year old, I dont think now is the time.
PS: Thanks whitecoat. Its in part because of you!
Wow! Just WOW!!
That is a different approach to consumption.
FIVE cars for two people? Two of the cars financed? An $8,000 per month mortgage? All of this with four kids?
I don’t know what fully funding a retirement account means. $1.5 million does not sound anywhere close to fully funded to me. If I had all the money I would ever need already saved, much more than simply putting in the maximum tax deferred each year, then I would consider that to be fully funded. I still would not have 5 cars.
The next step would to put aside enough money to fully cover college and grad/professional school for all 4 kids. Again, not making systematic investments each year, but done, with the full amount already saved in a low risk portfolio. That is, only required returns to match inflation over the decades to meet those needs.
The 8k mortgage is not something I could consider but I suppose there is a combination of cash flow and low rate at which it might be reasonable, assuming retirement and education were already fully funded. It could happen at combined retirement and taxable savings far above $1.8M. I wouldn’t do that with 5x that in net worth, not just assets.
Given the cost of your mortgage and other debts, is your networth over $1M?
This is living far beyond your means. You are putting your family’s future at risk when you don’t have to.
I wish you good luck but I suggest you focus much more on planning for the future and get over this compulsive consumption.
So let me get this right. The title of this article is drive a Beater…Get Rich.
The argument is drive something that is beaten up by somebody else, out of warranty, regularly breaks down and destroys your productivity – to get rich.
I own 5 toys currently, paid over $300K in acquisition costs for the rides…and now have a NW about $1scoreM ahead of GI screening age. I too have the MTV crib. Driving a beater would have been a very, very bad idea, stealing valuable time from me.
Cookie cutter advice is a tool of the wealthy for the masses to prevent upward mobility. and maintain a constant supply of workers, hence the feeling of spinning your wheels and getting nowhere, relatively speaking. The financial folks know this. What is the cookie cutter advice to the masses? Don’t buy the car you’ll enjoy, rather buy more life and disability insurance, cap your returns by indexing and pay for us to advise you to do that. Rather, I know how much advice I need and how much insurance to carry…and also how to live a life of enjoyment while creating a secure future instead of just spinning my wheels, pun intended.
Interesting perspective. I think I disagree with most of it.
Used cars don’t necessarily break down any more than new ones. Newer cars tend to have more computers and gizmos that are all potential failure points. Repairs are covered under warranty, but you still need to take a trip to the shop. Yes, a $500 rust bucket dragged out of a junkyard I would expect to be unreliable. But I’ve driven a $5,000 car for 10 years and have had one breakdown (water pump). It is important to keep a car (new or used) well-maintained though, and there is a cost to this but worth it in the end.
I usually tell people they should not own more than 25% of gross household income in household value of cars. This may seem restrictive, but the reason is that reliable, comfortable transportation is just not that expensive. Anything spending above that is for luxury value only. Sure, you only live once, some luxury spending is okay, but it must be weighed against other priorities like saving for retirement/long-term care, a rainy day fund, kids’ college funds, etc. I also think that very expensive cars like exotics are extremely diminishing returns for value. Unless you are breaking traffic laws and putting others’ lives at risk, a 600 hp Ferrari has the same speed limit as my 300 hp BMW. If you want to go track driving, great, but there are better/faster/safer/cheaper track car options than exotics. I also don’t like the wealth-flaunting aspect of ultra high-end cars, jewelry, clothes, etc. in the sense that it can become a hedonic treadmill and not a long-term path to happiness. That said, I agree with WCI that if someone can meet their financial goals while buying the car(s) they really want, go for it.
I would have gone exactly the other way with the “tool of the wealthy to keep the ordinary folk down”. If anyone were doing this, wouldn’t it be the execs at car companies, clothing companies, banks, payday lenders, etc who encourage middle class folks to over-spend their hard-earned money on s*** they don’t need, and finance those purchases at above-market interest rates, to delay or prevent them from becoming financially independent? I also don’t understand the swipe at disability and term life insurance*. Even if you did think they are a tool for oppression, are you suggesting that folks who need them *don’t* buy them, and instead rely on the (possible) largess of family/friends/government to support themselves and their dependents if something bad happens? I would encourage you to put some more thought into this area.
The diss against index funds is also curious. In my experience, the biggest reason some people don’t like index funds is ego. They imagine themselves as super-savvy investors who have business insights that others don’t see. A year or two of success may only reinforce this view. Of course, about half of all stock-pickers will beat the index any particular year. Over time though, that number decreases, and about 80% of professional fund managers underperform the index in the long run. WCI has some great content on index/passive investing. If you think you are outperforming an index on an after-tax after-fee basis, then either (a) you aren’t keeping close enough track of your returns, (b) you got lucky, or (c) you really do have a rare ability. If (c) you should be running your own hedge fund and earning 20x what you earn now. Heck, I would even invest in your fund if it came with an index-beating guarantee. I think the first two options are vastly more likely. I also have to say, if I had to pick either the investor-owned Vanguard index fund charging a 0.03% fee, or the “financial advisor” charging sales commissions and 1-2% annual fees as being more oppressive to the working class, it would be the latter.
*Whole life is another animal entirely, and as WCI has covered here so extensively, absolutely IS a tool to fleece money from unsuspecting marks
See a lot of differences and I respect everyone’s opinion.
The timing of this article is ironic because I literally just paid in full for a Tesla model 3 performance today. Taking delivery next week or two. DOH.
Having said this – I’ve driven beaters until they died for the last 27-28 years (current driving a 2004 civic sedan ). I’m in my mid 40s – married with kids. We have saved/invested aggressively after I finished residency and have paid off all debt including mortgage. Kids 529 fully funded. I plan to continue to work/save/invest for another 10-15 years at least.
I am a firm believer in delayed gratification but I made the deliberate decision this year to loosen up the purse strings as WCI has mentioned in another article. I am placing the Tesla in the business so will be writing most of it off in next 5 years. I do not see myself buying a fancy car AFTER I retire and lose the business deductions. Finally, the cost of the Tesla including taxes is less than half of 1% of our net worth so I think we can swing the expense.
For better or worse, hope I made the right call. I wish I can be like some of the others here and keep saving/not spending on any toys until I stop working but hey, each to his own 🙂
2002 Volvo, 2006 Prius. Not a moment of embarrassment.
I bought my last high-safety-rating cars from Hertz and Enterprise car rental. All had high safety ratings, came with warranties, reimbursed me for problems found on my mechanic’s inspection and didn’t require bargaining. I wonder why more people don’t do this.
You’re correct. He can’t write the entire lease off, only the miles driven officially for work. He’s in trouble if the IRS catches on