Updated: Nov 18, 2019
Have you ever seen a new car rolling down the street and thought to yourself, "I want that!". Me too! I probably say that every day. Then, I remember that it will come with a $400+ monthly payment! Yikes!
Cars can be one of the most draining financial mistakes you could make. Not only does it come with that expensive monthly payment, but higher insurance and registration fees. I think I'll stick with my completely paid off and highly economical Scion that gets me from point A to B, without any problems, whatsoever.
If you happen to buy a new vehicle, it will lose a couple thousand dollars as soon as you drive off the lot. It won't stop there, but will continue to lose over 50% of its value within the next 3-4 years! OMG WTF, that's crazy! Check out this great infographic to better illustrate the point.
“he who will not economize will have to agonize” ― Confucius
So you need a newer vehicle huh? Please, look into buying a car that is 3-4 years old. You'll essentially be getting the car for half price. That is one hell of a deal. Let somebody else take the depreciation hit as you sweep in and reap the rewards of knowledge. Your car will be new enough that you shouldn't have very many mechanical issues, if any and whatever you'd have to pay to fix something would be so much cheaper than that high monthly payment.
If you are wild enough and savvier than most, you could get rid of the car altogether. Get a bike, walk, or take public transportation and enjoy the rewards of a healthier commute. Your wallet and health will thank you. I personally haven't take this step, it's a little cold up north, but have taken the steps to minimize my expenses with an economical car and older model (2005). During the warmer months, I'll bike to work, and it almost takes the same amount of time, maybe a minute or two difference.
Now, let's take a look at how much money we could save and therefore invest, growing our net worth, getting us that much closer to FIRE. There are extreme cases (in my mind) of $800 car payments and some as low as $150. Let's use the example of $500 a month, which is not unheard of. We'll take that $500 per month and invest into a low cost broad based index fund. Assuming you get a historically average return of 8% with monthly compounding that $500 a month will become $92,582 in ten years! Talk about getting to FIRE! Just by driving an older vehicle.
I'm telling you this, only because I do exactly this. I drive older vehicles, so I can invest the money I save, bringing me closer and closer to FIRE each month. Combine this with house hacking and you have a sureFIRE way retire early and live the life you want. Thanks for reading and I hope to hear from you in the comment section. When you go out into the world, remember to be FireMinded.