Why That New Car is Bad For Your Financial Health

They’re bright, they’re shiny, and they smell so good! Yes, I’m talking about new cars. Unfortunately, many people pass up buying a used car for a brand, spanking new one. Why? “Because everyone will be so jealous!” and then once that makes you look ridiculous you follow it with, “because it’s just more reliable than buying a used car!”

car photo

I get it. I used to be infatuated with them as well. Always checking the latest models to see which one I would love to drive. I graduated college with all A’s, and even got a real job! I deserve it, right? I actually believed these lies I was telling myself so much that I almost bought a new car about 2 years ago. I went into the dealership wanting a shiny new toy to drive to work. Once I was told the payments would be about $370 a month, which I couldn’t afford, the salesman started telling me that leasing would be my best option. As I sat there with the dealer who was throwing offers at me, I knew something was not right.

I remembered the day my mom went to the car dealership and had to buy herself out of a lease. I was probably 8 or 9 at the time. She was raving mad after she realized how much it was going to cost her. As we pulled out of the dealers lot, she looked at me and said “don’t you ever, ever lease a car.” I will never forget that day. I could hear the pain and anger in her voice, and that was the first time I remember seeing my mom look defeated. If such a strong woman could be broken down by these evil people, I did not want to ever give them my money. In all honesty, I had forgotten about that experience until I was sitting in the middle of the dealership after having take a nice, sporty car for a test drive.

Now my mom has not always given me the most sound financial advice, but that day she was spot on. While leases are great for those people who are looking to have a car payment for the rest of their lives (sarcasm), I wouldn’t recommend them to anyone. I also don’t believe it’s a good idea to buy a new car either, but if you must have a new one, it’s better to buy than lease for most people.  But new cars depreciate so fast and end up costing you more than buying a used car and dealing with the repairs if and when they are needed. The idea is to have a car that gets you from point A to point B with minimal trouble, not to put yourself into even more debt than you already have.

Still not getting through to you? Let me put car payments into perspective. Let’s say the average lease/car payment is $300 each month. Instead of using it towards your shiny, new car, that money could be going towards any of the following:

Paying down your debts. With $60k of debt, adding $300 to your payments each month will shave 3 full years off of your payoff date.

Saving it for an emergency or other expense. If you don’t have much debt, putting that money into a savings account can be a good choice depending on your future goals. That’s $3,600 a year, or a pretty stellar family vacation fund if you ask me.

But my favorite way to use that money?

Put it into a retirement account – Putting just $300 per month into a retirement account would be approximately $651,396.30 after 30 years, at a 10% average annual return. Even if you just took $100 each month and invested it, you would have about $217,132.10 after 30 years. But you’re probably in your 20s, so what if you left it alone for 40 years? That $300 a month would be a cool $1,752,666.44.

Did you understand that? You put in $144,000 over the course of 40 years ($300 a month), and you will practically be a multi-millionaire after 40 years. Compounding interest rocks, doesn’t it?!? Now of course there are risks here, but buying a new car is a surefire way to lose money.

Unless you’re rich and can pay $35,000 in cash without it hurting your financial well-being, go with a used car. And remember, you will be a millionaire by investing, not spending your money on a bright, shiny toy. Heck, I’m even upset with myself for buying a $9k used car last year because that seems too expensive to me. I could have used that money to pay off a large chunk of my debt.

So you decide: shiny new car with a $300 payment until you’re old and grumpy, or $1.7 million waiting for you at retirement? It’s your choice, make the right one. 

 

But remember, money doesn’t grow on debt.

 

 

Photo by NRMA New Cars
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Chenell

I am Chenell Tull and so far, I've had a pretty rough time with my student loan debt. Recently, I've figured out a more productive "get out of debt" plan and the goal is to pay off over $60k in just 36 months. If you want to learn more, subscribe to the mailing list and get FREE updates on my successes and failures on this journey out of debt.