Like many, I was caught in the cycle of buying a new car every few years, a common practice that many experts label as the number one wealth killer in America. I kept changing my cars, irrespective of whether the old one was running perfectly fine or not, driven by an inexplicable desire for novelty. So, should you sell your car right now?
The constant need to upgrade became a burden. I was spending a significant amount of money on car payments and dealing with the stress of debt. What I didn’t realize at the time was that my habit was costing me well over $500,000 in future opportunity cost (wait…what!?!)
Understanding the True Cost of Car Ownership
On the surface, car ownership is associated with the sticker price. However, there are many hidden costs to consider, including insurance, fuel, maintenance, and most notably, depreciation.
I decided to take an in-depth look into the true cost of car ownership for my Audi A6. The numbers were astounding. The cost of owning an Audi A6 for five years stood at a staggering $63,029, inclusive of everything from depreciation to fuel costs.
But it wasn’t just the depreciation or the higher insurance premiums that caught my eye. It was the fuel and repair costs that were taking a significant chunk of my income. Being a luxury car, the Audi required premium fuel, which was more expensive. Furthermore, repair costs were exorbitantly high due to the foreign-made materials, making it an expensive proposition in the long run.
Here is the example of Edmunds.com True Cost of Ownership for my 2017 Audi Car:
To contrast, I compared these costs with a more practical car choice, a 2021 Honda Accord. The overall cost for the Honda stood at $49,000 over five years, a significant reduction compared to the Audi.
Here is the example of the Edmunds.com True Cost of Ownership for my 2021 Honda Accord Sport:
You can try all of this out yourself, with your cars, using Edmunds. Just keep in mind you may want to sell your car right away!
Unmasking the Opportunity Cost on Should You Sell Your Car
Beyond the direct cost of ownership, it’s crucial to recognize the opportunity cost involved. The average American car loan payment is around $500 a month. Imagine redirecting that money towards something else, like an investment account. The financial gain could be tremendous.
Using a portfolio visualizer, I calculated that if I had invested $500 every month for 20 years into the stock market index instead of paying car loans, I would have accumulated a total of $511,462 with a return rate of 40.22%.
These figures are a stark reminder of the importance of being mindful of our spending habits and how they can impact our financial future. Sometimes, it’s not just about getting the latest car or matching up to the Joneses. It’s about making smart financial decisions that can set us up for a future of financial freedom.
Sell Your Car – There’s More
Check out the video I did that walks you through the crucial mistakes of the #1 Wealth Killer that No One Talks About. Imagine what you could do with your investing skills if you didn’t have an expensive car?
In conclusion, there’s a profound satisfaction and sense of financial security in driving a Honda to the beach instead of a Ferrari to work. My journey of switching from a luxury car to a more practical one wasn’t just about money—it was about taking control of my financial future and prioritizing long-term wealth over short-term pleasures.