In our journey towards early retirement, we believe saving money is not enough: preserving our capital is equally important, and even more so after retirement!
It’s a shame there are many more ways to deplete our savings, than to increase them 😅. So I’ve decided to list a few money mistakes that can really hurt our FIRE. There we go: welcome to our little ‘Financial Mistakes Series‘.
First, the obligatory Disclaimer: these are just our personal opinions and nothing in this article (or this blog) constitutes financial advice. We are not financial advisors. If in doubt, please seek professional advice!
Now, without further ado, today’s mistake is….
Buying a new car
For many people, buying a new car is an achievement and a status symbol. We are no exception! 😅 It’s actually quite funny to see how many excuses one can find to justify the purchase. The top, for me, are the ones who have just had their first child, who is still super tiny, and they immediately feel the need to buy an estate car or a massive SUV!
Unfortunately, a new car is probably the King of net worth destroyers. The amount of money involved, together with the depreciation rate, just makes it a very poor investment. In fact, it is not even an ‘investment’, which by definition is something you buy because it could be profitable in the future. Forget about it: unless you buy a special, vintage car, there is no way a car will ever turn into a profit.
According to the Automobile Association, a new car will lose around 60% of its value in the first 3 years. On top of that, it has a never-ending list of additional costs associated to it: running costs (petrol, oil, etc), maintenance costs, insurance, road tax, parking permits, plus any interest you pay on a payment plan (if you have one).
There are obviously situations where a new car is needed. Maybe you want an electric one; or maybe you want access to the latest in safety and comfort.
However, the average driver will do less than 6,000 miles per year. From a purely financial perspective, pretty much anyone might be better off by just renting a car or taking a taxi when needed!
The Fam’s Perspective
We own an old car. To be honest it works very well; it’s just a bit small for the 4 of us. We have decided to keep it while it’s still useful, in good shape and its cost are manageable, but we’ll sell it the moment this is not the case anymore. If we were to buy a car, we would definitely buy a 2-3 years old one (so when the worst depreciation has already happened), with the aim of keeping it long term (10 years or more).
…Or at list this is the theory!
Are we going to make this mistake?
Now it’s the time to be honest! 👀 Our car is quite old, and we have two young kids, so I’ve got the perfect excuse for wanting a new car which has the latest in terms of safety and comfort. And space. And coolness 😎. Financially it would be a big step, and on occasion I need to remind myself that spending a lot on a Volvo or a BMW is not a good idea. So far I’ve managed to convince myself, fingers crossed for the future…
…More money mistakes?
Check out the full series here.