Should I buy a new car?


Since you’re unlikely to win a car

[AJC: if you haven’t seen yesterday’s April Fools Day post, you can check it out here]

… you may be thinking about buying one.

For example, Michael asks:

My business is going well and I’d like to update my old Ford Ranger pickup (160k miles) with something new.  I saw that there is a bonus depreciation on vehicles over 6000 lbs GVW so I was looking to use that to save on taxes.  I settled on a new Range Rover Sport.  But here lies the issue…
It makes me uncomfortable to think about how others will perceive me in the Rover.  [But, if I buy another type of car] the lack of tax advantages would probably end up costing me more than the “pretentious” Rover.

Before we worry about what brand of car to buy, I would question why Michael’s buying a new car, rather than a new investment property.

Other than that, he should simply buy the cheapest car that meets his requirements.

You see, unless the vehicle specifically supports your business (think delivery truck), it’s just a depreciating liability (it doesn’t earn you any money, so it sure ain’t an asset!) …

… which means that any money that you don’t spend on it (or can claw back in tax deductions, etc.) is the next best thing to not spending the money in the first place!

Why spend money just to feel uncomfortable?!

Don’t spend more money just to get rid of the discomfort: spend less (e.g. buy a lower-profile American or Japanese car; one that costs less than 60% of the list price of a Rover) or none at all.

Why not put off buying the car, altogether?

On the other hand, if your business is producing enough cash to support its own growth and is producing enough to fund outside investments, there’s no reason why you shouldn’t spend what’s left …

… after all, that’s what money’s for, right?

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5 thoughts on “Should I buy a new car?

  1. I have a quick easy philisopy about cars if it costs you 10 cents per mile ( after repairs) not including gas costs you are doing good… so… paid $20,000 for your car you better get 200,000 miles out of it… or buy a used car for $10,000 you should get 100,000 miles out of it… or buy used for $10,000 and drive it for 50,000 miles and sell it for $5,000 you did good 10 Cents per mile. I have used this concept for 20+ years and im a multimillionaire the idea treats me good.

  2. @ Jimbo – Dang. I had better get 2 million miles out of mine 🙁

    But, an interesting concept; one that obviously works well for you. I’ll have to do some research!

    In the meantime, my Rule of Thumb is that your car should be no more than 2.5% of your Net Worth (both tested yearly).

  3. Someone told me after you become rich you CAN have “your toy” if “your toy” is a nice car DO IT enjoy it and love it and just know its “your toy” !! As for me my TOY was my house… and I love every minute it in , WAY bigger house than I need, WAY nicer than anyone needs but I love it, its my toy… I worked to buy my toy for 1.5 years and bought it a bank foreclosure for 40% less than it sold for new only 2 years earlier… So if your toy is boat do it… but try to get a good deal also 🙂 There are many times AFTER you get rich you to it because its your toy my recommendation is that your toy is a treat to yourself for accomplishing a huge goal ( like 7 million in 7 years)… Go treat yourself to some extent…. I LOVE lamborgini’s but i just dont feel that my current net worth justifies such a huge expense AND…part of me would rather give that money to charity ( to build water wells for those in need and to help orphans) so I dont buy one even tough I can. However when I hit a HUGE goal I just might :>
    So if you can afford a NICE car JUST DO IT and enjoy it its your toy…. I would say 2% or less of your net worth so $5 Million networth go and blow 2% on a your toy, hopefully getting your toy at a nice auction or some such good deal you can find, be patient but be focused and ENJOY IT… You cant take it with you!!

  4. @ Jimbomillions – yep. 2% of your net worth on a car is about right. For me that would be a Ferrari in the USA, or this M3 in Aus ($200k!) where cars are v. expensive.

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