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Would you rather have a fancy car, or a funded retirement?

If it meant you could fund retirement, would you be willing to drive a car that was a little less fancy? Or used?

It is possible to fund retirement by making different decisions about the cars you drive. Below you will see how someone can save up to $1.75 Million.

Meet Larry, Alice and Bart. They each have the same amount of money available to buy cars; but they each have a very different approach.


  • Larry spends all his car money. He buys a new $55k luxury car every 4 years.

  • Alice buys a new car for $36k every four years, and saves the difference.

  • Bart buys a car that retails for $24k new; only he buys it 3 years used. Bart pays a little less than $12k for his used car and then he drives it for 8 years.

Every year a car loses value (depreciates). The following table shows the total depreciation each of our drivers pays toward cars over their entire “driving career” (age 25-65). Notice that Larry pays almost 6 times more than Bart.


The next table shows the value of investing the savings for driving a less expensive car. Larry spent all his money, but Alice and Bart invested their savings from driving a less expensive car. Below shows their savings balance after 8% annual return over the same 40 years. Bart has $1.75 M more than Larry, and $1M more than Alice.


So how can you be like Bart?

If you want reliable transportation that won’t ruin your other financial goals, here are some rules to live by.

1. Never buy a new car. Buy a 3 year old car. Cars lose close to 50% of their value in the first 3 years.

2. Buy reliable, not fancy cars. Consumer reports can help you choose a car with good reliability ratings. Low maintenance costs and reliability are the most important characteristics for basic transportation. Power accessories, fancy stereos and luxury interiors all cost more to own.


3. Pay cash for any car you buy. You will pay anywhere from 10% to 25% more for the car if you finance it. Use a budget, save every month, and buy a car when you have saved enough to pay cash.

4. If possible, replace the car when it is around 10 years of age. Maintenance costs increase with time. While every car is different, maintenance costs tend to become a challenge around 10 years or 150k miles.

5. Do your homework: Use consumer reports and other car buying guides to select more than one reliable car model. Look them up on Kelly Blue Book (kbb.com) to determine which year models and options fit within your budget.


6. Give yourself time to make the car purchase. It can take 3 months or more to find a good, clean, reliable, used car. Assuming you will go buy a car over the weekend almost guarantees you will compromise on one or more things including the price. Plan ahead, and be patient until a good clean car that is reasonably priced comes along.

7. Buy from private parties. This approach comes with some risks, but is generally the most cost effective way to buy a car. Wait until you find a single owner vehicle with maintenance records. Run a CARFAX or similar report to check for wrecks. Pay a mechanic to look over the car and provide you a report. Doing these things, you can get a quality, used car for a 10-20% discount over buying from a dealer. A private seller may still owe on the car. If this is the case, pay a third party broker to assist in the sale to make sure you obtain a clean title.


8. Negotiate a good price: If you have done your homework, have cash, and have given yourself enough time – you should be able to negotiate a great price for your car. Be ready to walk away.

If you aren't making the same progress toward retirement that Bart is, give us a call. Three Points Financial Coaching can help.


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