Sure, You Totally Deserve That Shiny New Car (But Let's Talk About It)
The allure of the brand-new car: that intoxicating new-car smell, the smooth handling, and the sleek, polished exterior that catches the eye of every pedestrian and envious commuter. It’s a siren song that lures countless people into car dealerships, all with the promise of freedom, luxury, and maybe a little bit of envy from your peers. But before you sign on the dotted line and commit to five to seven years of monthly payments, let's take a moment to explore whether you really need that shiny new set of wheels. Spoiler alert: you probably don’t.
Debt 101: Good Debt vs. Bad Debt
In the realm of personal finance, debt comes in two flavors: good and bad. Good debt is an investment that increases in value or generates long-term income, like a business loan or a mortgage. Business loans, when used wisely, can help you expand your enterprise, hire more employees, and ultimately grow your profits. A mortgage allows you to build equity in a property over time, potentially providing a stable source of future wealth. You can write off the interest on these debts when filing your taxes, and they can significantly impact your future earnings in a positive way by boosting your net worth.
On the other hand, bad debt is a financial parasite that drains your resources and adds no real value to your net worth. Credit card balances, payday loans, and car loans are all prime examples of bad debt that can quickly spiral out of control if not managed properly. Enter the car loan—a classic culprit. Unlike a mortgage or a business loan, you can't write off car payments when filing taxes. Moreover, car payments should ideally be 0 to 10% of your net income, but many people find themselves stretching far beyond that, often taking on loans they can barely afford. This overextension leads to financial strain, leaving little room for savings or investment.
Adding insult to injury, cars are notorious for their rapid depreciation. Most new cars lose 20% of their value within the first year and up to 60% over five years. This means that by the time you're done paying off that shiny new vehicle, it could be worth only a fraction of what you originally paid. And let's not forget about the additional costs that come with car ownership: insurance premiums, maintenance fees, fuel expenses, and registration costs can easily add up to thousands of dollars annually.
It's clear that a brand-new car is not exactly an appreciating asset. Instead, it's more like a status symbol that, for many, serves as a financial ball and chain. By opting for a used or more affordable vehicle, you can significantly reduce your monthly expenses and free up more money to pay down other debts or invest in assets that can actually grow your wealth. In the grand scheme of things, practicality trumps prestige every time.
Why You Shouldn't Buy That EXPENSIVE New Car
If you're young, have a limited income, and don't own many assets that generate income, buying a new car is financial folly. Let me tell you about my own misguided attempt at vehicular splendor. At 21, I was making $1,800 a month and decided I needed a brand-new BMW. Well, my ex-partner was the one who pushed me into it, but that’s a topic for another day. The monthly payments came out to a cool $679—a small fortune on my modest income. After realizing that I was left with less than $200 a month of disposable income after the car payments, I had no choice but to return it to the bank. I then opted for a Honda Fit with a far more reasonable $221 monthly payment.
The lesson here is simple: you don’t need that new car, especially if it means stretching your finances to the brink. A used or inexpensive new vehicle that gets you from point A to point B will suffice, leaving more room in your budget for investing, saving, or even the occasional splurge.
Why saddle yourself with a financial ball and chain for the sake of appearances? Sure, driving a new BMW may boost your (My ex-partner’s?) ego or impress the neighbors, but what happens when those monthly payments devour your disposable income? You'll find yourself worrying about affording everyday essentials and sacrificing opportunities to build a stable financial future. Additionally, with car insurance, maintenance, and the ever-rising gas prices, you’re looking at a total cost that’s well beyond the sticker price.
Instead of blowing your budget on a depreciating asset, consider the benefits of a cheaper, reliable car. You'll still have the freedom of personal transportation without the stress of excessive debt. Plus, you'll have extra cash to save, invest, or spend on something that truly brings you joy—like that dream vacation or starting your own business. Don't let flashy marketing or social pressure fool you into thinking you need that expensive new car. Trust me, your future self will thank you.
The Reality of Buying an Expensive Car
Like I mentioned, buying an expensive car that you can barely afford may give you a temporary ego boost or fulfill your desire to show off, but that feeling won’t last long. The dopamine rush of owning a BMW barely lasted as long as an anime episode for me. You’ll quickly realize that high monthly payments, coupled with insurance and maintenance costs, will leave you financially strapped. Instead of splurging on a luxury vehicle, consider the following reasons to buy a cheaper car:
Depreciation: New cars, especially luxury cars, depreciate rapidly, losing up to 60% of their value in five years. A used car with reasonable mileage has already taken the bulk of that hit.
Insurance Costs: Insurance rates are significantly lower for cheaper, older vehicles.
Maintenance and Repairs: While some luxury cars require premium fuel and expensive maintenance, budget-friendly vehicles are generally cheaper to service. You can even do it at home with some DIY guides from Youtube.
Opportunity Cost: Money saved by opting for a cheaper car can be invested or used to pay down existing debts, providing greater financial flexibility in the long run.
Something to Think About
Instead of taking on the financial burden of a shiny new car, consider this: How many investments have you missed out on because you were too busy paying off an overpriced status symbol? A car that eats up a large chunk of your monthly income is just a roadblock to achieving real financial freedom. It's hard to save for a down payment on a house, build an emergency fund, or invest in your retirement when you're funneling money into an expensive hunk of metal that loses value faster than a politician breaks campaign promises. So, before you let the dealership’s sales pitch sway you into making a poor financial decision, think about the long-term impact of that purchase on your wealth-building journey.
