I used to have a car payment. Several different ones over the course of my life, in fact. Now that I think about it, I had a monthly car payment of some sort for 13 years non-stop, beginning when I was 20. I went from a Honda…to a Mazda…then a Toyota…then another Honda…then a Ford…then another Mazda…and finally a Mercedes.
And until we paid off the Mercedes a few years ago, I had never driven a car that was debt-free. EVER. It had never occurred to me to just keep the same car.
Cars have their appeal, I get that. They once appealed to me enough to hand over hundreds of dollars a month for the simple task of moving my behind from Point “A” to Point “B”. But to what end? We all know what happens. It’s the law of diminishing returns. The first few months in a new (or new-to-you) car feel exhilarating. The pungent aroma of fresh pleather/leather/plastic/vinyl fills our nostrils, causing the pleasure sensors in our brains to light up like the 4th of July. (That smell is so desirable, you can actually buy one of those little dangly air fresheners in the scent “New Car Smell”. Wow.)
Anyway, as the months and years pass…you trade it in…accepting less than it’s market value just to “get ‘er done”…buy another hunk of steel and rubber to move yourself around…the months and years pass…are you sensing a pattern here? Ok, good. I thought it was just me.
I used to be that person. I was stuck in the cycle until I figured out that if I want to reach my financial goals, I need my money working FOR me, not AGAINST me. So I did a rough calculation. How much money did I throw away on car payments during those 13 years? (Do I really want to know? No. But for the sake of illustration? Yes.)
13 Years x $400 average monthly payment = $62,400
Oh, how that number pains me. Really, it does.
But if you take into consideration the opportunity cost of throwing that money away, the numbers get worse. So let’s continue the self-deprecating fun with numbers, shall we?
If I had saved that same $400 a month for the first 2 years (25 months), I would have had $10,000 to buy a well-made, fuel-efficient, no-one-would-laugh-at-me car, with CASH. That car would be driven (and maintained!) for at least 10…15…maybe even 20 years. (Stay with me, we’re not done yet.)
So I now have my $10,000 car, paid for with cash, but I continue to save that same $400 I would normally be paying in car payments, for the remaining 11 years. Do you know how much I would have at the end of the same 13 years? If I had invested that additional money, with an average 9% return, I would have a PAID-FOR car AND…
Seriously! The math doesn’t lie. But this is so depressingly fun, let’s take it one step further.
Sadly, since many people consider a car payment as “part of life” and have one (or more) for much of their working lives, let’s say that I continued to save that $400 each month, as if I had a car payment, for a full 35 years. Do you realize how much I would have?…at the age of 57?
AHHHHHHHH!!! Let’s go bang our heads against a wall, because that, my friends, is what we miss out on when we decide to jump in to the buy/trade-in/buy/trade-in/buy cycle.
Can you imagine your life without a car payment? What would that mean to your finances?
Do the math. If you were investing your car payment(s) instead of sending it to the CEO of Ford Motors every month, what would you have in 5…10…20…35 years? Seriously, do it. Find a simple savings calculator online, like this one at Bankrate.com, and put in your monthly car payment(s) as the monthly deposit. Set the Annual Interest at 9%, and play with the number of years. WARNING: The results may depress and/or inspire you.
So get off the merry-go-round already. Sell your car, pay off your car, whatever you have to do to get rid of those ridiculously dumb car payments.
But be sure to take a good l-o-o-o-o-o-o-n-g whiff of that new car scent every few years…you’ll need it to drown out the smell of your million dollars going up in flames.