What you will learn: How a $22,000 car cost me over $30,000 in the long run, the car buying mistake most young people make, and what I drive now for $150/month.
The $30,000 Mistake
My biggest financial regret is the car I bought at 24. A shiny Honda Civic with all the features. $22,000 price tag. 60-month loan at 8.9% interest. I was so proud when I drove it off the lot.
Here is what that $22,000 car actually cost me. $6,200 in interest over five years. $3,400 in depreciation (it was worth $7,000 when I paid it off). $2,100 in higher insurance premiums because I had full coverage on a financed vehicle. Total cost over five years: roughly $33,700. That is $562 a month.
The Alternative
When the Civic was finally paid off, I drove it for two more years and then sold it for $5,000. I used that money plus some savings to buy a 10-year-old Toyota Corolla with 120,000 miles for $6,500. It is not pretty. The paint is faded and the radio is ancient. But it runs perfectly and costs me $0/month in car payments.
Insurance dropped from $120/month to $55/month because I only carry liability. My total monthly car expense went from $562 to $55.
The Math That Changed My Mind
If I had bought the $6,500 Corolla instead of the $22,000 Civic at 24, and invested the difference ($355/month) in an index fund earning 8%, I would have over $30,000 today. A reliable car plus a $30,000 nest egg versus a slightly nicer car and nothing. The choice seems obvious in hindsight.
My advice: buy a reliable used car for cash. Drive it until the wheels fall off. Invest the car payment you never had. Your future self will thank you.