Meet our two characters, Mike and Shaun. Both have $12k set aside for a down payment. Mike goes out and starts shopping for a brand new whip. Shaun decides he is going to get something nice but used.
Mike's car:
- New off the lot
- Purchase price: $60,000
- Down payment: $12,000
- Loan details: $48,000, 60 months, 4.0%
- Monthly payment: $880
Shaun's car:
- Used
- Purchase price: $30,000
- Down payment: $12,000
- Loan details: $18,000, 36 months, 4.0%
- Monthly payment: $530
First 3 years:
Mike makes his $880 payment every month. Shaun makes his payment of $530, and invests the $350 difference every month.
Next 2 years:
Mike continues to make his $880 payment. Shaun now has a paid-off car and invests the entire $880 these two years.
At the end of 5 years:
(assuming 8% annual investing return) Mike: $0 Shaun: $39,490. But here's where it gets crazy.
Over the next 30 years, the $39,920 Shaun invested will grow to $397,000. That new car Mike wanted cost him over a quarter million dollars and likely years of retirement.
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