[pictured above: our 1997 Saturn SL2's odometer at 300,000 miles]
The Spend | New Car
When buying a vehicle, you can choose to buy new or used. In this case, we're going to do some math around Dave Ramsey's sage advice to buy a three year old used car instead of new. And, we'll use the most popular car in America - the Toyota Camry.
According to Edmunds.com's True Cost to Own analysis, a new Toyota Camry will depreciate a total of $7,193 in its first three years of service. Here are the numbers:
- Year 1 | $3,145
- Year 2 | $2,153
- Year 3 | $1,895
The Opportunity Cost | Retirement
Should you choose to take Dave Ramsey's advice and buy used instead of new, you could easily put that $7,193 of depreciation savings into your retirement. In doing so, you'll collect $3,094.47 in tax breaks and $5,143.74 in employer matching contributions - assuming a 50-cents on the dollar match.
Total it up and you'll be able to add $15,431.21 to your retirement by choosing used over new.
The Long-term Opportunity Cost | 30-year Value
When you continue this great bit of decision-making, your savings compounds into a pretty incredible sum of money. Assuming that you replace your car every 10 years and simply earn what the market has averaged, you'll end up with $431,456.72 after three decades.
Let's capitalize this one - you can easily add FOUR HUNDRED THIRTY-ONE THOUSAND FOUR HUNDRED FIFTY-SIX DOLLARS AND SEVENTY-TWO CENTS to your retirement savings by making the same decision three times in the next three decades.
The decision, of course, is to skip paying the first three years of depreciation that new cars invariably suffer.
Two Car Household? Double It!
If you're a two car household, this amount doubles to $862,913.44, or in words, EIGHT HUNDRED SIXTY-TWO THOUSAND NINE HUNDRED THIRTEEN DOLLARS AND FORTY-FOUR CENTS.
Our Quarter-million Dollar Ride
When my wife and I were first married, she bought a 1997 Saturn SL2. It's been a GREAT car, and we still drive it today. It has well over 300,000 miles and while we've paid for a number of repairs, I estimate keeping that car instead of replacing it will result in an extra $250,000 in savings by the time we retire.
Meh, maybe I'll do the math on that next year when it turns the ripe young age of 20.
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