For those of you that have read the previous post, you SO know where this post is going!
So, the average monthly cost of a car loan is about $530 per month … roughly $122 per week. That's a sensible $30K new car at only 6% interest over 5 years (excuse my approximate mental arithmetic).
Now, most folk would say that $122 per week for a brand new car either via a personal loan or via a lease agreement is worthwhile for what you get. Maybe that is correct.
It is also fact that once we take our first car loan, then it is likely that we will always take a car loan for each new car through the rest of our life. Over a working lifetime of 40 years, that's 8 new cars. Reasonable enough.
Let's face it, usually after paying off the car over 5 years it has amassed a lot of miles and looking a bit tatty and well due for an upgrade, so we trade it in on a new one with a new loan - that's fair hey? Or is it?
Here is an alternative thought - as follows:-
Instead of continually buying new cars on credit throughout our life, rather, invest that monthly repayment ($530) into a sensible boring index fund with average returns.
Across a working lifetime (say 20yrs - 60yrs), that $530 per month would have grown inside that index fund to this amount
Inextricably, the total purchase price of the 8 new cars across your working life only amounted to $240,000. (Hear that heavy breathing sound? It's the elephant that has just entered the room)
Choosing a cheap sensible new car every 5 years - compared to - investing the equivalent monthly repayment amount actually diddles you of more than $1.1 million dollars of personal spending money at retirement.
This is stunningly confronting math that many would rather you do not know about.
Also, you can't unknow this concept now that you have read it (sorry, not sorry)
Take care and stay nice