BMW or RetirementThere are some of you who caught me when I put up the post about buying my dream car. It was a BMW 750Li and it really is my dream car. I’ve wanted a 7 series BMW since I first laid my eyes on one. While a few of you caught me, more congratulated me about buying the car. Obviously they didn’t realize this type of car is in the upper five digits price range. Yes, the one I said I bought was over $80,000 and was used!  The sad thing that little April Fools experiment taught me is not everyone reads through all of te content that I publish. I’m OK with that, so if I want to throw another zinger out there, I should put the disclaimer in the middle! Anyway, that post was a precursor to this one. Since most congratulated me since I deserved it, I wanted to take it a step further.

Choose a BMW or Retirement?

Interesting question right? Do we have to choose between a BMW or retirement? In this case, yes, I would have to do that. Why? Let’s break down the math!

Purchase Price – $80,000

Down Payment – $5,000

Interest Rate – 3.13% (current used car rate for those with good credit)

Sales Tax – 6.5% (what it is in NC)

Loan Term – 60 months (5 years)

Total Monthly Payment – $1,445.72

Dang, that’s more than my mortgage! So, if I were to finance my dream car, I would go with a 60 month loan (why not?  They go up to nine years now!) and would be paying $1,445 per month for five years. Ouch. That dream car really kills my finances, but it is the American dream right?  Well, it’s my dream car, but some dreams aren’t meant to come true. This is one of them!

While I love cars and we have three, I couldn’t in good conscience actually go out and purchase a used BMW that costs over $80,000. It would derail everything we’ve worked hard for. I know this type of car is really just a status symbol in America. If you have a nice car, you are perceived to have money and class. Well, you probably know that money doesn’t buy class! I’ve met a number of pompous a**holes driving around in expensive luxury cars. They really ruin it for everyone else, but also enforce the stereotype of being rich. Our culture focuses too much on the nice things. We’ve all seen that just because you have the rich status symbol doesn’t mean you are actually rich. Credit can provide you with the perceived notion of wealth.

Some years ago, I wanted to get a BMW when I had money. It was a status symbol for me. It would have meant I made it. I’m glad I’ve grown up from that thinking. Having an expensive car doesn’t mean anything to me anymore. What it means is that I won’t be able to retire and that’s the status symbol I want. Retirement might not be a glamorous thing for many, but I want it for myself. We all know there are many who won’t be able to retire or won’t last through retirement with what they’ve saved. Buying a BMW is not going to get in my way and ruin retirement for me. That’s exactly what it would do. I would have to choose either a BMW or a fully funded retirement.

I Choose Retirement!

So, you might be wondering why I’m talking about retirement. I’m not planning on retiring early, but the dream car has a lot to do with any retirement plans. Let’s think about this for a minute. If I were in the market for car and I choose the BMW, I would be paying over $86,000 over the next five years. That’s a lot of money to be throwing at a car. If I instead decided to go for a quality, used car that costs $18,000, where would that put me in five years?  With the same information as above, except for changing the purchase price to $18,000, my monthly payment would be $255.43 per month for 60 months. That’s $15,325.80. Comparing the two vehicles, I would be saving $71,417 during those five years. That’s a huge chunk of change. Enough to buy a few more $18,000 cars!

Instead of throwing down a huge amount on a dream car, I could be funneling $1,190 a month into my investments. Oh, what a game changer that would be. If you don’t remember the power of compound interest, then go refresh yourself. It’s a powerful concept!

Let’s assume I’m getting an annual return of 8% with my investments. If I funnel $1,190 a month that I would be saving over the five years into my investment accounts, then I could be setting myself up right for retirement. Let’s go further and say that I only invest that extra for the five year loan term. Starting at $0 and not taking that money out until I retire in 40 years, then it could earn bring me $1,337,734!

Yep, that dream car could cost me becoming a millionaire. That’s a dream I would rather realize. The BMW can stay a dream. I would rather sit in retirement and enjoy the other aspects of life. I wrote this to show you what happens when we make choices like this. From a guy that loves cars and really wants a BMW 750Li, I would rather focus on my retirement. Yes, you only live once, but what if you do live to reach retirement? I don’t want to enjoy myself all right now and then have to finish up my life on this great earth scraping by and wishing I made better choices. I’m not OK with that. For that, the BMW will stay in my head and won’t be in my driveway!

So what about you my friends? Dream car or retirement?

Not Sure How to Start Investing?

I opened up my first investment account back in 2012 after paying off a lot of debt. That account was with Betterment. Since then, I haven’t looked back. I love the simplicity and ease of use they provide. I think their system is good for any type of investor. If you want to get into investing, check out Betterment.

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  1. That idea of owning that dream car like yours is really cool. But, the idea of retiring with great savings sounds cooler. I believe I am sticking to my car and saving for my retirement. Maybe by the time I retire, I can buy a newer edition of BMW car and just enjoy the rest of the retirement years.

  2. “Credit can provide you with a perceived notion of wealth” This is my favorite quote of the day – great post. Also, do you think you’ll ever get your 7 series, or could you simply not stomach the amount of $$ in a car that drops in value like a rock? I often wonder what I will do once I have made it to my pinnacle point.

    1. Who knows. By the time I would even try to spend that money, the 7 series might not even be around. I still probably wouldn’t spend that much on a car, though BMW can certainly gift one to me!

  3. When you take depreciation, maintenance and repair costs into account it’s even more reason to take care of funding a retirement account first before spending on a luxury item like that!

  4. Great post and you explain the two options very well. I’m amazed that many people spend lots of money on cars that depreciate rapidly and fail to see the trade-offs that they’re making.
    The extra $1,000 per month saved does add up over time and will grow in value instead.