Prepare yourself for the End of Financial Year sales onslaught.

This time of year will see us all bombarded with all manner of “sales” and “opportunities” and many will be very tempting.

At the top of the list for many will be buying a new car, and that gives me an opportunity to share some thoughts on where cars should sit when spending our money, and not just when an ‘End of Financial Year Sale’ is happening, but as a general lifestyle practice.

If you’re considering buying a car, here are a few thoughts –

Second-hand cars are ideal if you can pick up something that is still under warranty, much cheaper than buying new.

In saying that, new cars are relatively cheap these days and come with the full warranty. Sometimes it can be worth paying that bit extra for a new car with the goal of driving it for a long time.

Either way, my message to you is to buy less car than you can afford. Buying too much car can be the equivalent of throwing money down the drain. In fact, cars are said to be the second biggest destroyers of wealth, after divorce.

Driving a flash, expensive car may help you look the part but for some people, it can be the start of a financial disaster, particularly for younger people. They may look happy driving around in their new car with the ‘P’ plates on, but little do they realise just how much they have set back their financial future.

If financed, it will likely take them years to repay the debt! That will put them years behind saving a deposit for a house, years behind starting to invest, years behind adding extra to super and will most likely mean they end up having to work for years longer than needed or suffer a reduced lifestyle later in life.

And for older adults, an overly expensive car is simply robbing their future selves of a better lifestyle!

This is where the difference between income and wealth becomes apparent.

Income is the amount of money you get paid on a regular basis. Wealth, on the other hand, is how long you could afford to live without working.

A brilliant book called ‘The Millionaire Next Door’ explained that millionaires have three common traits:

1. They spend less than they earn.
2. They drive second-hand cars.
3. They live in modest homes.

Take note of what it takes to become a millionaire. The average millionaire isn’t spending much of their money on cars that are only going to go down in value. They’re not spending crazy amounts on a house that will produce no income. They make decisions with their money that will lead them to create wealth so that they have options in life, not just debts that need to be repaid.

I once heard a great investor speak who explained that he drives a modest car, invests what he saves from not buying an expensive car, and then when he goes on a holiday he rents something like a Ferrari or a Porsche, because he can afford to AND keep his wealth intact… BRILLIANT!!

I guarantee you that most people you see driving expensive cars they’ve bought are spending all their income and not creating wealth.

And for the record, I drive a very inexpensive car… it’s a Skoda Octavia that I bought in 2016 for $25,000. White, plain, many would call it boring… beautiful car to drive!

Next time you’re in the market for a new car, try to leave emotion out of your decision, buy with your head screwed on and buy with your (and your family’s) financial future in mind!

Cheers,

Daniel