Let’s talk about “my friend Jane”.
Jane spends much of her day helping others manage their money more wisely. She helps them build their asset base, save money, build college funds, and put money away for retirement.
This does not mean Jane is a financial drone and doesn’t have an urge to buy a new luxury item she doesn’t need, one that would put a damper on her own financial plans. She’s human and a consumer, like all the rest of us.
At present, Jane drives a paid-off, 07′ vehicle, fully maintenanced, all fluids change regularly and on-time. Because the car is paid for, she will occasionally do some minor upgrade, including aesthetic. LIke recently, she bought a new car stereo and some new tires. The car reliably and comfortably gets her from point A to B, and the lack of monthly care payments effectively saves her $450 a month, which she divides up and puts into her retirement account, a 529 college fund for her daughter, and part into an emergency fund.
Still, she has been considering that new car purchase a lot as of late. Yes, “the car of her dreams”, or so her fantasy goes, a BMW. She often imagines herself enjoying all of the cool features of the luxury vehicle, all of which she doesn’t have on her current vehicle. Yet, when she does her own cost benefit analysis, primarily the cost of the new vehicle, down payment and monthly payments to that of her financial goals, the purchase makes less and less sense.
Most of us have a friend or family member who has purchased a luxury vehicle. We remember how enthused, excited, or happy they were when they cruised around in their new vehicle. They might have even appeared affluent or even felt superior driving around in such a cool vehicle. But, the romance doesn’t last, and it surely is not the full story.
Years ago, Jane’s brother purchased a Cadillac Escalade, which he thought was the car of his dreams. For about six months, yes, the neighbours all talked about him and his new car, and he enjoyed the look and features of this shiny new toy.
But, these ‘benefits’ soon faded and he faced the financial cost of his purchase. Soon, he began to complain about the monthly payments, cost of insurance, and maintenance. He came to realize the payments simply were not worth it, as the same money alone could have covered several other essential monthly costs. His life became more complicated and more costly with his purchase. It might have fulfilled some type of fantasy for Jane’s brother, but it didn’t last long. Not only that, it was a financial setback, as it prolonged his ability to meet his overall financial goals.
For some people, BMWs and other luxury vehicles might be a good or reasonable purchase. The main thing is to consider if it’s right for you, before you just jump into fulfilling the fantasy, making sure the purchase fits into your long-term financial plan. Perhaps keep this in mind each time the fantasy arises of buying that new car.