What if someone told you they had an investment that was going to lose 20-30% in one year with a guaranteed loss of 60% over the next five years? You’ll need to put up $30K to get in on it though. Don’t have $30K? Not a problem, they’ll loan you it and charge you interest so you can get in on the action.
What would your reaction be? I’d tell you to fly a kite.
Here’s the crazy thing… When you walk into a car dealership that’s exactly what they’re selling you.
Car culture is one of the most deeply ingrained parts of the military. We’ve all seen the parking lot full of expensive trucks and sports cars. Here at MoneyGouge we want to challenge you to not get lured into one of the worst financial decisions you can make just because everyone else is doing it.
I’ve made this mistake myself so I’m speaking from experience here.
I loved this bad boy but I knew the car payments were directly inhibiting my financial life and adding years back to how long I would need to work. Although it was really hard to do, I am glad I was able to part with my Kia Stinger when I did. Not having car payments on deployment allowed me to save a ton of money. It also dramatically reduces insurance and maintenance.
And yes, sometimes I am driving on an empty highway and really miss that car. Supposedly you can set cruise control at 130. As fun as it was, here is the reality and lessons I learned from owning a nice car.
No One Cares What Car You Drive
In case you didn’t realize, people only care about themselves. I promise you will buy a new car and in less than a week no one will care. Realizing this early on allows you to buy the simplest most fuel efficient car that you can. Going from a Kia Stinger to a base level Toyota Corolla changed nothing except that I didn’t have to be careful about where I parked.
Paying For A Car While On Deployment Is Really Dumb
You’re literally paying for a piece of metal that is sitting in a garage. I don’t know about you, but I don’t find deployments fun enough that it’s worth blowing my hard earned money on that. I’d much rather come back to a nice number in my bank account. You can come back with a lot more money by mimizing your car payment.
Money Gouge Tip
If your car will not be driven while you are away then reduce your insurance to the bare minimum before you go on deployment. This is easier than cancelling and will still save you hundreds of dollars. A lot of companies like USAA and Geico are very easy to do this with. For example, on the Geico app you can change your car insurance coverage in real time.
You’re Paying For Stuff You Don’t Need
Let’s be real, no one in their early 20’s needs a car that can do 0-60 in 3 seconds or easily hit three figure speeds. The temptation is going to be there and the arrest (or accident) that follows will torpedo your career. You also don’t need to pay top dollar for a Ford Raptor (I know they’re sweet). Literally any AWD or 4X4 vehicle will be able to go off road to the extent that you will actually need. But you will be the jackass paying more than $200 a month on insurance for the sports car or gas for that giant truck.
Get it When You’re Older
There’s a way to get everything you want. If you use your money to invest, build a TSP that’s at least one and a half years salary, buy a house and have rotated into a billet where you will not be deploying, then it might be time to enjoy a nicer car. There’s nothing wrong with this but you need to do everything in the right order. It’s like the order of operations (remember PEMDAS from math?).
The Total Costs
Factor in all of these to better estimate the costs to you:
- Price of Car
- Price of interest for loan (ask the dealer or use this calculator just put the car loan you want in for mortgage values)
- Sales Tax: You can search state by state here.
- Maintenance: often free for new cars for a limited amount of miles.
- Costs of the tires: Sports cars and trucks will absolutely kill you here. The staggered Michelin Pilot 4S on my Kia Stinger cost $900 to replace, were summer only and almost no one carried them.
- Dealer Fees: the money they make for selling you a car. Don’t worry you can finance it and pay interest on top of that.
- Gas Costs: Premium or trucks will be a lot.
- Insurance: Good luck if you’re under 25. This is probably the worst expense because even if you have a perfect driving record you will pay more for a nice car and/or because you are young. Shop around and don’t be afraid to change to a company that is offering you a lower rate.
- Registration: Tags and title. Some states can be really high.
Don’t blow a lot of money on a car to learn these lessons. Follow the advice below and watch your Robinhood account grow, instead of paying $900 for a tire change.
Ideally, buy a simple used car from a reliable brand that is fuel efficient. I could run examples all day but the numbers don’t lie. Consider buying something at least 5 years old because most of the depreciation is gone (60%) and there’s not a major difference between 2016 and 2021 as far as technology and design. If you save up and buy a car like this in cash, that’s even better because you won’t be burdened by a car payment. Either way, the payment and insurance will be much lower than a brand new car and if it was well maintained there should not be any issues.
Interest rates are currently super low. However, this only applies to those with good credit. So you might find you can get a new base level car for less per month and with lower interest than a used car. Be careful to buy the absolute minimum car you need if you’re going this route. Advantages of a new car may be increased fuel efficiency and self driving highway cruise etc. If you have a decent amount of cash on hand, buy the used car and put all or alot down. No car payment is always better.
If you have bought a new car and want to lower your interest payment, Navy Federal will give you $200 to refinance and may lower your rate too. Only refinance if it lowers your rate!
And With The Money You Save….
Realize that you will be saving hundreds of dollars per month between the two decisions. Those are the types of numbers that will enable you to do what you want for a living instead of having to work.
When you consider the total cost of a new car verse a used one, the difference is easily hundreds of dollar a month.
Lets say it was $300. If you bought the used car, held it for 10 years and invested the difference ($300/ month) what would it be worth?
If you put $300 a month in the S &P 500 (10% annual return) for ten years it would be worth: $58,152.85.
By limiting how much money you sink monthly into your car and investing the difference you are able to build serious wealth.
Today, this is as simple as opening a Robin Hood account and using their buy over time feature to automate that whole process for you.
So which investment out of the two would you take? A money pit or a money multiplier? Walking away from the shiny new car is a conscious choice towards brightening your financial future and buying cooler things like houses or stocks. Things that get better with time, not worse.
Questions about buying a car? Contact us, we’re here to for you!