Drive the Old Car or Buy a New Car?
When I was growing up, my mom drove a gray Oldsmobile Omega. By the time I was old enough to notice such things, it was an old car — much older, and clearly less luxurious, than those most of my friends rode to school in. When the plastic knob broke off the end of the shifter, it was replaced with a huge wooden one. When we hit a bump in the road, the radio hissed with loud static. Near the bitter end, duct tape held up the driver-side window.
When my mom finally got a new car during my second year of university, I was relieved. But when “Old Gray” recently came to mind, I found myself feeling less embarrassed than grateful. Here’s why. (See also: 7 Ways My Clunker Is Smarter Than a Hybrid)
Do You Want a Nice Car, or a Nice Pile of Cash?
My parents were fiercely (and at the time, inexplicably) loyal to their reliable old car. In fact, when I admired newer cars on the road, my mom would sniff, and say, “Yeah, but this one is paid for.”
At the time, I had no idea what that meant. I knew that both my parents had good jobs, so why couldn’t we have a new car like everyone else? The answer — the cost was just too steep, and in more ways than one. According to the Federal Trade Commission, the average cost of buying a new car is approaching $30,000. At an average interest rate of 6.5%, that $30,000 car would mean monthly loan payments of $586.98 per month for five years. Put that money into an investment that returns 5%, and you’ll end up with more than $40,000 in the bank in that same five-year period. Shelling out a lot of money to keep yourself in a nice ride is fine, if you can afford it. But with a national savings rate of just 4.5% of disposable income (not total income!), and many people arriving at retirement without a penny in the bank, chances are that a nice ride is further out of reach than most people realize.
Just about everyone is guilty of a little “keeping up with the Joneses,” but there’s a big difference between being able to afford something and being able to afford the payments. Next time you catch yourself envying what someone else is driving, think about what you might really be aspiring to. While I may have been rattling around in a beater as a kid, what this meant was not that my parents were poor, but that they were saving their money. And, as it turns out, that’s not as lame as I had assumed.
Living in the Fast Lane Can Lead to Financial Crash and Burn
As my mom prepares to retire, I’ve found yet another reason to be grateful for Old Gray — because we didn’t ride around in a car my parents could barely afford, I don’t have to spend my adult life trying to figure out who’s going to finance my mother’s retirement. This is no small thing. A recent report released by Massachusetts Mutual Life Insurance Company stated that only 3 out of 10 American parents believed they were adequately preparing for retirement. Plus, those parents were planning to have to care for their own parents as well.
My parents stuck it out with Old Gray for more than 20 years, which was pretty unusual then — and very rare by today’s standards. But, because of this and other similar choices, their retirement will not be something that will fall to me, which means that I have a shot at retiring comfortably too.
The (Somewhat Sensible) Way I Roll
Now you’d probably expect that I’d end this by telling you that I drive an old, reliable car. I don’t. I bought it used, and I went for reliable — but I paid the price for a turbo engine and heated leather seats. What that says about my desire to keep up with the Joneses may be another story altogether, but what I do know is that while I’ve taken some pains to drive a nicer car than my parents would ever buy, there is a limit to how much I would sacrifice for that experience — saving and investing will always come first. And if that means I’m still driving the same car 20 years from now, so be it.
Oh, and one more thing — Old Gray is still on the road. Perhaps my parents could have held on to it a little bit longer.