Buying cars, millionaire style

Katie got home from WalMart today grocery shopping (the closest store within a 45-minute drive) and said the Honda Fit had crossed 100,000 miles.

Sweet!

I love that car. Can you imagine Adam Levine pulling up in a beat up Honda?

It’s so un-rock-n-roll.

But I still love it.

I love it because:

  1. It was cheap
  2. I gets great gas mileage
  3. It’s never needed any repairs
  4. It was cheap

Ditching a car loan and buying a cheap car has been one of the keys for me to have more money.

Do you want to know what kinds of cars millionaires drive? You’ll be surprised when you find out the answer.

Who wants to drive like a millionaire?

In the book, The Millionaire Next Door author Thomas Stanley interviews America’s wealthy to learn their surprising secrets.

Here are a few facts from the millionaires interviewed:

81%
purchase their vehicles outright
81%
purchase their vehicles outright
23%
own new cars
25%
have not purchased a vehicle in four or more years
30%
spend $19,500 or less on a car
50%
spend $24,800 or less on a car
37%
purchased a used vehicle

I bet you didn’t expect that, right? Millionaires preferring used, less expensive cars?

We’re used to seeing basketball players and Hollywood stars pull up in Land Rovers and Maserati.

In reality, the average millionaire is sitting next to you at the stop light, but you wouldn’t recognize them by their average looking car.

Coincidence?

One of the quotes from the book from a millionaire puts it quite well:

Many status artifacts can be a burden, if not an impediment, to becoming financially independent. Life has its own burdens. Why add excess baggage?

One of the major reasons the millionaires are wealthy is due to their frugality.

Being frugal allowed them to use the money otherwise spent on cars, to invest.

This car minus that car, minus a loan is…zero

My Honda Fit made an appearance after I got married.

Katie’s Volkswagen Jetta had a Kelly Blue Book value of $24,000.

It also had a $10,000 car loan that cost us $340 a month.

We traded in the Jetta and got rid of the car loan. We replaced the Jetta with a brand new Honda Fit and were out of pocket $3,000 for the difference.

So for $3,000 we got a brand new car and no car loan every month. Zero.

What could you buy?

According to Experian, the average monthly payment for a new car auto loan is $471.

What would you do with an extra $471 a month?

By not having a car loan, you free yourself up to have a lot – A LOT – of extra money each month.

We freed up $340 a month when we made the switch.

You can be frugal and extravagant

I find in my life a healthy balance between being frugal and extravagant. It allows me to spend money on the things that are important to me and cut costs on things I could care less.

I wear a $35 watch.

I play a $1,500 guitar.

I drive a cheap – now old – car for daily driving.

I travel to the best resorts on vacation.

If you want a $50,000 car – buy it!

But pay for it in cash. Cars are depreciating assets.

When you drive a new car off the lot, it loses 10–20% of its value as soon as you hit the road.

If a new car is one of your goals and it makes you happy – buy what you like, for as much as you want to spend. In cash.

When you free yourself from the monthly car payment, you follow the road of America’s wealthy. America’s millionaires.

Question: What kind of car are you driving? Please post a picture on Facebook or Twitter.

Photo from George via Flickr.