I’ve made a lot of unintelligent financial choices over the years. Despite my modern day frugal living, I still make silly financial decisions. I don’t regret a lot of them, as I’ve experienced some pretty great things throughout my life thus far.
The one thing I do regret however, is succumbing to the fancy car on finance concept. Aka, upgrading our cars to newer, fancier cars by taking out high interest car loans.
The first car loan we got was in 2012 for $15,000 at an average interest rate of 9.65% over 5 years. This was in our first year of having proper jobs out of University.
At the time, my beloved and I both had old cars worth about $1000 each. I had had my car since I was 17 and it was 19 years old with 160,000 kms on the clock.
As a consequence, I thought I better upgrade to a newer car before my existing car “started having lots of issues”. So, we upgraded to a 2008 model car with 40,000 kms on the clock with our $15k car loan.
This car served us well and didn’t have any mechanical issues. However, 3 years later we decided it was time to “upgrade” again as we now had a big dog and we needed a wagon type vehicle (as we had a sedan) to fit the dog in the back.
Instead of just finding another vehicle in the same price range as our existing vehicle, we decided we should upgrade again to a newer, fancier car with all the mod cons… After all, it was just an extra $100 a fortnight for a $25k loan, so we could “afford it”.
At the time, we just thought of these figures as $15k and $25k. We didn’t figure out what the total interest costs would be over the course of each loan. To be honest, I think we thought that the interests costs would be similar to the simple interest amounts of $1500 and $2500 for the amounts borrowed.
However, as we all know, loans charge compound interest! As a result, these cars actually cost us $19,067 and $31,779 respectively.
Unfortunately, we had been sucked in by two societal misconceptions:
Firstly, to be ‘successful’ we needed to outwardly express our wealth.
In my experience, this is something a significant proportion of society does… Which is one of the reasons why citizens of first world Countries such as Australia have such huge debt to wealth ratios.
Secondly, that cars should be upgraded every few years to avoid snowballing maintenance costs.
This concept is something I heard many times growing up. In my experience this isn’t necessarily true. Both my 19 year old and 7 year old cars gave us very few problems. So, who knows how long they could have lasted before any major issues arose.
In fact, I’ve found that the newer and “fancier” my car is, the more it costs to maintain. As I outlined in my post, becoming rich and forgetting your skills, I used to service my 19 year old car myself every 5000 kms, costing me only about $50 per minor service.
However, once I owned a newer car, I didn’t service it myself anymore due to both warranty and being scared of stuffing up something on a car that cost $15-$25k. As a consequence, minor servicing twice a year has cost us $300-$700 per annum since 2012.
To summarise… Compound interest is a bitch and having a new car is not an indicator of success or wealth.
As I outlined above, I don’t regret a lot of my financial decisions, but I do regret my car loans and nonchalant approach to compound interest.
In fact, when I think about this, I can’t help but picture Cher’s music video for “Turn Back Time”. Which was a bit wierd actually and kind of has a prostitution vibe. But, despite this, I can’t help but sing “If I could turn back time” over and over in my head.
The fact of the matter is that I can’t turn back time. I can, however, learn from my past mistakes and try not to repeat them again.
As a result, one of my primary financial objectives is to save up enough money over the next two years so that we can pay for our next, less fancy car in cash wholely or at least partly.
I encourage you to do the same… Trust me when I say, you’ll thank yourself for it in the future!