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Your car could cost you a million dollars

If you’re at all like me, one of the first things you want to do once you enter active duty is buy a new car. While this is definitely an exciting proposition, you’ve got to use your head on this one.

Say you have your heart set on the Ford Mustang GT. Your first thought is to buy a brand new one from the local dealer. You can pick up this one for about $34,000 (before tax, title, and license charges). Or, you can go for a gently used 3 year old GT for less than half that amount, about $16,600.

Compare the payment: 48 mo. 1.9% on the new vehicle, 6.9% on the used one.
New: $736
Used: $396

Now, here’s where it gets interesting. If you take the $340 per month that you save by buying the used car, and you put that in your Roth IRA for the 48 months, and you invest in a typical growth stock mutual fund, when you retire 40 years later you’ll have…are you ready…

$1,500,000!
(40 years, tax free, 12% rate of return, Yahoo! finance calculator.)

Now, think about a lifetime of purchasing brand new cars or substituting low mileage used cars and investing the difference. Think about it.

Discussion

One thought on “Your car could cost you a million dollars

  1. Your posts are great, but please, show me a balanced portfolio that yields 12% annually over 40 years.

    Posted by Daniel | November 29, 2010, 4:58 am

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