Is Buying A New Car Really Worth it?

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shutterstock_81123025I have a confession to make: Recently, I purchased a brand-new, 2013 BMW 328i. Yes, me, the personal finance blogger; me, the girl who used to be in debt up to my eyeballs. Despite the fact that the car payments fit in my budget without changing any of my other savings goals, I still can’t help but feel a bit shameful over the insane amount of money I’m plunking down….for a car.

The funny thing is that I’m not rationalizing this purchase: It is what it is. I love, love, love my car. As I channel my inner Carrie Bradshaw, I can only say: “I don’t know; it’s my thing.” I’ve always loved cars, and I’ve planned for years to own a BMW.

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But is it worth it?

Yes, I can afford it and maybe you can afford your new car as well. It’s tough to argue when it fits in your budget in a way that doesn’t disturb other aspects of life. Plus, that new car smell. Oh, that smell. Not to mention the sheer pleasure of driving the car….

But is it really worth it?

If you consider that the average car payment is $500/month and that a car is most people’s second-highest expense after housing, you have to wonder if the economics work out in your favor. When it comes to buying a new car, it’s very rare that it’s worth your hard-earned money, no matter how much you love the car.

Car or millions?

Let’s say you were to take that $500 and invest it in a mutual fund or other retirement account instead of shipping it off to the car financing department each month. If you continue to do this for most of your adult life, you could be sitting on a nest egg worth MILLIONS in less than 20 years.

When you look at this way, it’s hard to argue the fact that buying a new car is really never in your best interests when it comes to finances (especially considering the crazy depreciation that begins pretty much the moment your roll out of the dealer’s lot).

Add expenses

In addition to the high cost of car payments, you also need to factor in any maintenance, insurance and gasoline costs. If you didn’t opt for the fuel-efficient hybrid, you could be looking at a gas bill increase of $50+ each and every month, which means at least $600/year. And if you don’t consult your insurance company for a quote prior to signing on the dotted line, you could be in for a rude awakening (I did my homework prior to buying my car, and I knew my insurance premiums would increase another $480/year).

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An alternate solution

For the car buffs like me out there, fear not—there is still a way to enjoy a nice set of wheels. The solution is simple: Buy used. Let someone else take care of the depreciation expense for you and adequately break in the car for you. You’ll be laughing all the way to the bank if you do.