New Cars or Retirement?

Bob at Christian Personal Finance has a great post about how cars affect your financial freedom. Definitely check out his post. He estimates that eliminating a $400/month car payment could mean $1,000,000 more by the time you retire. Even a $200/month payment could mean an additional $600,000 over 40 years. Granted that’s not adjusted for inflation, but it could easily mean the difference between retiring and having to work a few more years for many people. It’s just another great reason you shouldn’t buy into consumerism. There’s nothing wrong with buying a used car, and it could save you a lot of money in the long run.

OR

One Million Dollars

?

Your Choice!

Be sure to check out this week’s Carnival of Personal Finance hosted at The Digerati Life! It’s a very interesting theme this week!

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2 Responses to “New Cars or Retirement?”

Joshua Says:
November 10th, 2008 at 7:43 pm
Honestly I love and hate those mathematic examples and here’s why: While I definitely agree with the concept and absolutely agree with not taking out a loan…. when you take the “40 years” and add it to your current age, how old are you before you can “crack open” the nest egg, so to speak? Will you be of an age to enjoy it at all? And truly, the “magic of it”, so to speak, doesn’t happen until the last 10 years or so… that’s when the compounding really makes huge strides.

Sure, it is a good thing to think about, but in reality you could say this about almost anything ( example, if you have a family of 4 and drink 2 gallons of milk a week and milk costs $3.00 a gallon and you drop to 1 gallon and invest the difference… over 40 years (at 7% compounded), you end up with over 33 thousand dollars! Woo hoo…. but you now have a calcium deficiency which eats away at your quality of life.

So, no, I know it is not the same, but I do tend to think that we should be honest with ourselves and not always shoot for the infamous “1 million dollar” mark. ( I may just be in an argumentative mood as well ! )

Stay out of debt, sure. Save money, cartainly. Create goals that are realistic and then stick with them, absolutely.
Paul Williams @ Crackerjack Greenback Says:
November 10th, 2008 at 9:58 pm
Joshua,

I agree with you it’s not 100% realistic, but the point is to get you thinking. The decisions you make today will have an impact on your future. We don’t think in the future - we think in the now. And when we’re presented with the option of getting a new car (with a loan) versus paying cash for a used car, we tend to forget about the future and pick the more appealing (near-sighted) option instead. That’s the point of those mathematical examples…maybe it’ll get us to stop and think “Do I really need this?”

Adding 40 years to my age will still leave me with plenty of time but that might not be true for everyone. And really the magic of compounding happens in the very beginning. The numbers aren’t as big, but the percentages stay the same. The longer you go, the bigger the numbers get and the more amazing it seems.

It’s true, you could use these examples for anything. But like you pointed out, we have to keep it within reason. I could just start eating cardboard and save all the money I spend on food, but I probably wouldn’t live long enough to enjoy that money. God makes this same point to us in the Bible several times with the examples of working tirelessly to gain wealth. What will it matter if you become the richest person in the world but you lose your soul in the process? or die before you get a chance to spend any of the money you’ve so stingily saved?

Don’t worry about being argumentative! You bring a good balance to this article, and debate keeps me on my toes. It’s the best way to come up with new ideas and to reinforce any good ones. Thanks for your comments!