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Skimp or Splurge - Millionaire's Car

We live in a very nice neighborhood where the houses and yards are well-tended, and new, shiny luxury cars are parked in most of the garages. I'm proud to say that in our garage are two of the least impressive cars in the neighborhood - an eight year old Pontiac and 11 year old Ford. Why do we skimp? Because doing so pays handsomely, and by handsomely I mean to the tune of $1.9 million dollars. Here's my cost-benefit analysis.

Costs of the new car
I compared the costs of two imaginary families. The image conscious Jones family must drive $60,000 luxury SUVs, and wouldn't be caught dead in a model that is more than three years old. Across the street, lives the Thriftys, a family with less invested in their image and more invested in their future. They feel no pressure to keep up with the Joneses, or anyone else. They buy $24,000 Fords and keep them for ten years.

  • Depreciation - Cars depreciate at a greater rate when they are new.
  • Sales tax - The Joneses pay a much greater tax, every three years, vs. the Thriftys.
  • Ownership tax - Most states impose a license tax based on the value of the car.
  • Insurance - More expensive cars cost more to insure.
  • Gasoline - The SUV gets 13 MPG while the Ford economy car gets 26 MPG.
  • Maintenance - Everything is covered on the SUV - The Ford has an average cost of $1,000 after the first three years.
On average, each of the two Lexus SUVs cost $15,060 annually, while the Ford clocks in at $10,000 less. This leaves the Thriftys with $20,000 annually to invest. If the investments return seven percent annually, the Thriftys will have built up a $1.9 million portfolio after 30 years. Of course to get that rate, you've got to keep expenses and emotions out of the equation and be a rational investor.

Benefits of the new car
You'll get no argument from me that the Lexus SUVs are a little slice of automobile heaven. And I admit that I enjoy being a passenger in someone else's Lexus. Getting a new car, with that new car smell, brings a certain pleasure and psychological well being. But studies show that this happiness is inevitably short-lived, even turning into anger or sadness, as soon as you notice that first ding.

The unsexy, boring truth is that the Ford gets to any destination just as fast as the Lexus. The comfort factor seems to disappear as one gets used to the ride in any car. So, for the most part, splurging on the Lexus gets you only one thing that you don't get with the Ford - status.

Bottom line
If you have more money than you can ever spend, then have at it with my envious blessings, and get whatever kind of car you'd like. But if you are concerned about your financial well being, skimping on a car is the single most important thing you can do to cut expenditures without giving up a single economic good since you can still go anywhere you'd like. You need only give up the psychological value of status and, if you can reframe your view of psychological value, you may be even better off there too.

My advice is to get off of the hedonic treadmill and break the chains of status-seeking. Before you know it, the Joneses will be trying to keep up with your portfolio.

Top 10 Benefits of a Millionaire's Car

  1. You can actually be a millionaire rather than only looking like one.
  2. You won't have to worry about getting a ding on your car - go ahead and park in that tight space.
  3. You know your friends won't like you only for your car.
  4. You won't be accused of being materialistic.
  5. You'll get from point A to B just as fast as the luxury car.
  6. When you drive somewhere with your friends, they will want to take their car.
  7. If you get pulled over, the police officer won't give you attitude because he can't afford your car! (Okay - I'm reaching here.)
  8. When your friends make fun of it, you'll learn which friends are snobs.
  9. You'll demonstrate your self-image can't be manipulated by advertising agencies.
  10. Did I mention it will make you a millionaire?
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