Why Buying A Car Is A Bad Idea (and what you should do instead)

Why Buying A Car Is A Bad Idea (and what you should do instead)

If you were given $1,000,000 today what is the first thing you do?

The first time I won a bunch of money playing poker, I bought my dream car.
And it made so much sense at the time.

It was a reward for my hard work.

A lined crossed off my bucket list.

A measure of my success.

But all my immediate satisfaction came with a hefty price tag. Because cars depreciate immediately once you drive them off the lot, that impulse purchase costs 30% right off the bat.

And once the newness of the car wears off, all you have is a car.

Hedonism isn’t sustainable. You keep needing more to produce the same high. And even though I loved my M6 BMW more than life itself – so much, in fact that my 20 year old self would buy it again – I’d never make the same decision now.

Because my priorities have changed. If I could go back and talk my 20 year old self, here’s what I’d tell him.

Status symbols don’t define you.
Invest in things that actually provide you a return.Always buy something used.

If a fancy ride is a must have, at least have the humility to buy it used. Do you really need to spend 30% more to have that fresh car smell and drive it off the lot?

But this conversation is about more than just the car. It’s about how we as a society approach money and decision making

Coveting status symbols robs us from the opportunity to grow rich. Instead of your money making a return of say, 5% per year, it’s doing the opposite!
That 10% difference multiplied over a 10 year period (average life of your car) can seriously add up.

Let’s do the math, shall we?

Your car costs $35,000, but had you bought it used you could have got it for $25,000.

That’s $10,000 you just lit on fire. You’ll never get it back.

Now let’s invest that same $10,000 into a fund that pays 5% annually, for example a Verizon stock that pays dividends (of course, I know that returns aren’t guaranteed. Thank you for playing along with me).

That’s an additional $500 per year. It doesn’t sound like a lot, until you compound the interest.

Year 1: $10,500
Year 2: $11,025
Year 3: $11,576.25Year 4: $12,155.06
Year 5: $12,762.82
Year 6: $13,400.96
Year 7: $14,071.00
Year 8: $14,774.55
Year 9: $15,513.28
Year 10: $16,288.95

So that MUST HAVE new car didn’t just cost you $10,000, but how much you could earn by investing the same $10,000, which in this example is $16,288.95.

How many dream vacations can you take with that money?
What countries could you see? What real memories can you make that will last a lifetime?

It’s missing the big picture to only consider this example in a vacuum. What else in your life can you apply this to?

Are designer clothes, handbags and watches really necessary, or are they eating away at the lifestyle of your dreams.

Don’t trade material for freedom. Because in the end, one is useless. The other is priceless.

Check out today’s video and learn once and for all why buying a car is a bad idea!

What do you think? Would you buy a car new or used? What should our friend do with his new tournament winnings?

Share your thoughts in a comment below!

Thanks for reading.
Alec

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3 Comments

  • ashish chandel February 9, 2015 5:31 am

    Great sir,
    Can i do it.

    thanks

  • kurtis February 10, 2015 1:56 pm

    hi alec,how are ya?”why buying a new car is a bad idea”well,i think you are being to hard on your 20 year old self.sure,a new car is going to cost you money,so what isn’t?you could be dead tomorrow,then what?if you want to buy it-buy it and dont worry what other people think of it.you could easily lose that money in investments,then what?

    30% of winnings– taxes
    50% of winnings–investments(poker bankroll included!!)
    10% of winnings–retirement savings i.r.a. etc..
    10%of winnings–blow money!! buy a new car,boat,r.v.,whatever suits your fancy!!

    YOLO!!

    • Alec February 10, 2015 8:38 pm

      Hey Kurtis,

      Thanks for sharing your thoughts.
      I have no regrets for what I did. Furthermore, if I could go back I’d still do it all over again. I loved my car that much.

      But strategically and long term I would never advise that decision.

      The fact that life is unpredictable should be motivation to live it to the fullest, not be frivolous. I’ll be devils advocate here.
      Do you shoot up heroine because you could die anyway? To what extent do you take this logic?

      While you could lose the money in investments, one has to be make decisions based on likelihood and EV. And certainly one can’t argue that the possibility of loss should justify punting $100k on a depreciating asset!

      I love your little chart, and I totally agree. However I feel like too many people switch the 50% investments for the 10% blowing money!
      And getting it backwards was what I was trying to prevent him from doing with the video… because it’s damn costly!!

      Great comment. Thanks for writing!
      Alec

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