Motor vehicles (in excess) are one of the biggest wastes of money. Our household has a Toyota Corolla and a Hyundai i30. Some people may think that such vehicles ‘do not befit a business advisor and an engineer’. My first car I had while at university was a 1L Suzuki Swift. It did not have air conditioning, it did not have power windows, it did not have power steering and it did not go all of the time (one time in fact it broke down because the cable to the battery came loose). I therefore feel exceptionally fortunate that I now have a car that is reliable and takes me from A to B in relative comfort.
Let’s condense this down to two scenarios:
The average person spends $38,000 on a brand new car, say a Toyota Rav4, and keeps it for 4 years. It will be sold for $18,000. This is an annualised cost of $5,000 (being the $20,000 difference between the purchase and sale price divided by 4 years).
The smart person spends $15,000 on a second hand car, say a 2 year old Toyota Corolla, and keeps it for 8 years. It will be sold for $5,000. This is an annualised cost of $1,250 (being the $10,000 difference between the purchase and sale price divided by 8 years)
This difference is $3,750 of after tax money per car per year. Or $7,500 of after tax money per two car household per year.
Taking into account inflation and a rate of return of 5%, if you change your car habit from the average person to the smart person, you will have a million dollars in 35 years. Would you rather have a million dollars or try to impress others?
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