A NEW CAR OR A NEW FUTURE?

My car has been paid off for a little over 2 years now. It's still in pretty good shape, even though I bought it used (2 yrs old at time of purchase). But I've been thinking a lot lately about buying a newer model. I wanted to wait until I could pay cash or work out a great deal with a trade in and large down payment, so I could pay off the remaining balance in 3 years with small payments. Then I started to think a little more about the return on investment here.

We all know that cars are not really investments. You pay a large price, you pay even more if it's financed and the value steadily drops the longer you own the vehicle. Not to mention all the money you put out along the way for maintenance and repairs. All that aside, let's pretend for just a moment that you consider your car an investment of sorts. Say you were to buy a nice used car for $12,000 for 60 months, with payments of $200 per month. At the end of the 5 years we'll generously assume that you're able to sell the car for $4,000. Instead of spending the money, or using it to pay on a newer model, you decide to pay yourself equal monthly payments for the next 5 years (60 months) from the $4,000. You would be able to draw roughly $66.66 per month for 60 months ending with a $0 balance. O.K., that doesn't sound too bad. But let's consider another scenario. Instead of buying a nice used car, you decide to make do with the vehicle you have and invest $200 per month in dividend paying stocks. At the end of 60 months instead of having a $4,000 car to sell, you have accumulated roughly $12,000 worth of dividend paying stocks. From personal experience I'd say you could expect to draw $75 per month for the next 5 years in dividend payments, at which time you still own your $12,000 investment portfolio, instead of being back to $0. But it doesn't end there, because as long as you continue to hold your stock, you continue to draw dividends of $75 or more per month.

I realize the preceding scenarios do not take into account everything you would want to consider in making an informed decision. However, the basic lesson holds true: It's always better to buy things that put money in your pocket than something that takes money out of your pocket. So the real choice you'd be making here was whether to buy a new car or purchase a new future for yourself by investing in something that pays you back and keeps on paying.