I would never buy a brand-new car, even when I become a millionaire.
Why? Most new cars purchases are horrible financial decisions – especially when you’re young with a lower income. You may be thinking “I can easily afford the repayments” or maybe even “I can afford to buy it in cash, what’s the big deal?” But, why spend your hard-earned money towards instant depreciation? On a asset that will keep depreciating over time? It doesn’t make much financial sense! You’d much rather have your cash in an asset that grows over time such as stocks or real estate.
If you really want the new car feeling, find one that has been gently used or one that the owner has had for a short period of time. This can instantly knock off the initial “depreciation” cost. Plus, your brand-new car will also be a “gently used” car within a few months anyway.
Real life case study: When my friend was 19, she bought her first brand-new car. It was $20,000. Since she only had $10,000 in savings, she had to borrow $10,000 (interest-free) from her parents. She estimated it would take her 2 years to pay her parents back.
Since she bought a new car: This left her with $10,000 in debt, no savings and an car that goes down in value every year (depreciating asset). For the next two years, she will be paying her debt and unable to save or invest with no cash savings.
If she had bought a second hand car: If she bought the used car for $5,000 and invested $5,000 – she would have no debt and a growing investment portfolio. She can now invest her extra money instead of putting it towards debt. Two years later, she would have an $18,000 investment portfolio that has grown by $1,000 – $2,000 in capital gains alone.
This is how your vehicle purchase can really alter your financial circumstances, especially when you’re young with a lower income and no assets. If you want to get ahead in the financial game, I highly recommend that you purchase your first vehicle, second-hand.