The more you use it, the less it’s worth. We all know a car is a depreciating asset.
BUT, what if you could flip that script?
Paying cash for a car is a waste of money. Only slightly better is getting a car loan.
Why?
If I save up to pay cash for a car, that’s money I’m not investing.
So even if I don’t have a car payment, it still costs me 10% in missed market returns for the price of the car.
If I get a car loan, that’s a little better. Then it’s “only” costing me 6% interest for the car loan.
But I won’t get more in return.
The car isn’t going to MAKE me money when I sell it.
So if paying cash and borrowing money are both raw deals, what’s a Financial Zen Master to do?
3 STEPS TO TURN YOUR CAR INTO AN APPRECIATING ASSET
1. CALCULATE YOUR MONTHLY CAR LOAN PAYMENTS
There are plenty of online calculators you can use. Most used car sites have it calculated automatically.
2. SAVE THAT AMOUNT (OR MORE) EVERY MONTH
Make room in your living expenses for the car payment by SAVING that amount first.
This shouldn’t affect your target Financial Zen Age (or if it does, make sure you do the math and you can live with it.)
3. AFTER SAVING ENOUGH TO PAY CASH, GET A CAR LOAN
The money you saved is now invested in your long-term savings earning 10%ish per year.
The payments you make on your car loan will cost you 6% interest.
Your car is now making you 4% for the life of the loan plus 10% for every year you keep it after it’s paid off.
I’m actively doing that right now for my current dream car, a manual-transmission 2014 BMW M5 F10.
It will be some seriously delayed gratification, but the satisfaction of not wasting my money on a depreciating asset is worth every second of anticipation (and kinda enhances it TBH).
