My name is Anders Bøgebeck. My mission is to help you become a better investor and trader. Why is this important? We are not only helping ourselves by becoming financially free. Along the way we help society by either allocating capital the right places or creating better products and services. That's why I want to help you achieve the life you desire!
Most people know that buying a car is a consumer good. You're doing it for having fun. But if your goal is to build wealth - read on. In this post, I will walk you through the real cost of having a decent car. Not a thrashy one and not a Ferrari. First, I will present you some basic numbers, but I promise you, that in the end it gets really interesting. The example is for a decent Danish car converted to dollars at an exchange rate of USD/DKK 6.7.
|Price of car||$26,865.67|
|Down payment (20%)||$5,373.13|
|Principal||$21,492.54||This is how much the debt is worth.|
|Total amount to pay back||$27,700.93|
|Total credit expenses||$6,208.39|
|Now, let's move on to all the yearly expenses.|
|Yearly credit expenses||$1,241.68|
|Yearly gasoline expense||$2,633.89||At approximately 18641 miles yearly|
|Depreciation||$2,089.55||Yes, your car is wearing out each year. The day you cannot start your car and it sells for 80% less of what your bought it for, you realize that you made a big loss. Scrap value of car after 10 years: $5970.15.|
|Total yearly expenses||$12,860.64||This is a crazy high number just for having a vehicle to transport yourself around. But unfortunately it gets even worse. Those 12,000 bucks could have been invested and if done correctly, they could have earned you a 50% gain.|
|Real loss each year||$19.290.96|
|Over 5 years compounded||$97,660.51||I'm not kidding you. This is your real loss. Calculated this way in a spreadsheet: $12,860.64 * POWER(1.5,5). This is the magic effect of compounded wealth.|
When thinking about all the joy and experiences you COULD have had instead of wasting $97,660.51, suddenly you start thinking different of a decent vehicle. I'm not saying that you shouldn't buy a car, but if your goal is to build wealth, it should be bought very cheap. Seen from the other side, a cheap car can be a good thing, if it means you can get around for a nice paying job. Always walk through the numbers carefully when making a big decision with big money.
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