Big hat, no cattle!
This is a phrase from The Millionaire Next Door, by Dr. Thomas Stanley referring to the people that put on the millionaire façade. Cars are great examples of that.
In the spirit of transparency, I am a car fanatic. I love them. I enjoy looking at them, washing them, sitting in them, and driving them. This is something that started in high school and I have become progressively more obsessed over the years.
What I had never stopped to do was to calculate the cost of financing a car. Dave Ramsey recently quoted a study that revealed the average American has a $484 monthly car payment that they never get rid of. This means that as soon as it is paid off they go out and buy a new model starting the fun all over again. I became curious what this would cost over a lifetime.
For ease of calculations I have rounded the payment up to $500 month. I have estimated an 8% return on the money if it had been invested instead:
- Over 30 years you would have made $180,000 in car payments. Had you chosen to invest those monthly payments instead, you would be sitting on a $679,699 asset.
- Over 40 years you would have made $240,000 in car payments. Had you chosen to invest those monthly payments instead, you would be sitting on a $1,554,339 investment.
Needless to say, our car is for sale. For $1,554,339 I can learn to enjoy a used car smell!
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