Driving An Older Car WILL Make You A Millionaire
For most of us, the single biggest expense after mortgage and household bills is our car payment.
How about ditching that expensive, depreciating hunk of metal on your driveway?
Do not get me wrong, I am a petrol head my self.
Problem is, most of the population are paying extortionate amounts of money per month for boring generic cars. Examples include Audio A3, A4, BMW 3 series etc.
Essentially, a generic 2-litre diesel. With a nice interior and an “I am doing well” feeling attached to them. Costing a pretty penny at around £400 per month.
To make it even worse they are just rented 99% of the time.
Why Driving An Older Car WILL Make You Rich
How about this.
Do not PCP a new car for £400 per month.
It will get you nowhere.
How about buying an older car for say £5,000 or thereabouts.
Now, let’s say we put £100 per month into our car pot from here on out.
For example, £5,000 can be borrowed at 3.5% from Tesco over 5 years for £90 per month. Paying just £5,449 back. Pretty decent if you ask me.
Let’s just assume the car is paid for cash to make it easier, you get the idea though.
We put £100 per month into the highest interest account we can. With the £300 per month, we are “saving” by not “borrowing” a new car. That is all people are doing with PCP, they almost never buy and just have another new car after 3 or 4 years.
If we put that £300 per month into a Trading 212 ISA and stick with a simple broad market ETF like VUSA S&P500 we should return around 7% per year over the long term.
That is to say, past performance is not an indicator of future performance but 7% has been a long term average.
£300 per month for 45 years (I know that’s a long time). From the age of 22 to 67 retirement age. You would end up with about £1,140,000 in your ISA. I chose 22 as that’s likely the sort of age most young people want to start buying nicer cars.
Meanwhile, the guy who had a boring German saloon for 45 years has nothing and still does not own the car.
A Lot Of Rich People Do Not Drive Flash Cars
It is often the people with nice cars who can not truly afford them.
Many rich people will drive an older model and let somebody else pay the immediate depreciation on it.
Using my example above of buying a £5,000 car and putting £100 per month into a pot for repairs/another car.
Every 5 years or however long you can stretch it, you just sell your car for maybe £2,000 maybe more and take whatever is in your pot to buy your new car.
Realistically cars these days are very reliable. A car may need £200 a year roughly for repairs. Not including brakes and tyres as these would be done on any car.
Assuming the above you would have around £5,000 in the pot (deducting £200 per year for repairs) and the value of your car say £2000.
Go crazy, buy a £7,000 car this time around. Rinse and repeat.
Meanwhile, had a few more repairs than expected? Get another £5,000 car.
My Own Car
Personally, I paid £3,600 for my car, cash 6 years ago. It’s an Alfa Romeo GT 1.9JTDm. I do not do that many miles per year but the car owes me nothing. It’s only cost me a few pounds here and there to maintain as well.
It is also, in my opinion, one of the best looking cars out there. For any money! Supercars excluded of course.
In conclusion, all of the above can be used as a guideline. However, if you do 20,000 miles per year then perhaps a £5,000 car will not suffice.
Therefore, use your common sense and apply it to your needs.
We all want to keep up with Jones’s sometimes but a car really is not the place to do so. Furthermore, it is the most depreciating asset you will ever for the most part.
Thanks as always,