By: Dividend Sensei
As a professional investment writer it’s easy to become so engrossed in stocks, especially of the dividend paying variety, that I sometimes forget that for many people the hardest part about building wealth in the market isn’t in picking what to buy, but even having anything to invest at all. In other words, many people live paycheck to paycheck and are so bogged down in debt that they simply can’t afford to invest anything at all. So here’s a nice trick my father just used to save thousands of dollars on a car.
Specifically he bought a 1 year old Nissan Quest from Hertz for $4,000 below blue book value, around $16,000. It got me thinking about my own future car buying needs so I started researching what models where available and here is what I found.
A 1 year old Toyota Prius with 40,000 miles: $14,000
Studies from several countries have shown that the Toyota Prius is among the most reliable cars in the world, often running for well over 500,000 miles, even on the original battery. This means that for the average person who drives 12,000 miles this car will last a good 20 years or so, assuming you drive it until the cost and frequency of repairs becomes not worth paying.
In other words, for a car that’s build so rock solid you can drive it to the moon and back, 40,000 miles and 1 year is essentially brand new. AND you can save $9,000.
While most people will focus on that initial figure I know that $9,000 isn’t just $9,000. Because as smart as Ben Franklin was, he was wrong about one thing. A penny saved isn’t a penny earned, its a heck of a lot more.
Consider this: Since 1871 the S&P 500 has a compound annual total return of 9.1%. You can buy a low cost index ETF such as Vanguard’s S&P 500 ETF (VOO) which charges a 0.05% expense ratio, so that’s pretty much a 9% post expense return. Especially thanks to Robinhood, (as well as Vanguard.com) which let’s you buy shares of the ETF with zero commission costs.
So here is what that $9,000 in savings is worth:
After 5 years: $13,847.61
10 years: $21,306.25
15 years: $32,782.31
20 years: $50,439.64
By purchasing a lightly used car from a car rental fleet, not just can you save a lot of money, but if you invest those savings, and then own the car until it starts to fall apart (“drive it into the ground”) then not only will you have paid for the car, but also the maintenance, repairs, and gas for the car, TWICE OVER!
Or put another way: you are being paid to buy this car, and to own, and operate it.
Just something to think about the next time you need a new ride;)
I'm an Army veteran and former energy dividend writer for The Motley Fool. I currently write for both Seeking Alpha, Simply Safe Dividends, and DividendSensei.com My goal is to help all people learn how to harness the awesome power of dividend growth investing to achieve their financial dreams, and enrich their lives. With 22 years of investing experience, I've learned what works and more importantly, what doesn't, when it comes to building long-term wealth and income streams. I'm currently on an epic quest to build a broadly diversified, high-quality, high-yield dividend growth portfolio that: 1. Pays a 5% yield 2. Offers 7% annual dividend growth 3. Pays dividends AT LEAST on a weekly, but preferably, daily basis