When James decided it was finally time to get a car, he called his old college roommate, Daniel. Both were entering their thirties, working stable jobs, and thinking about financial security. But when it came to buying a car, their decisions diverged—and what happened over the next five years became a case study in how we really spend money.
Scene 1: The $30K Sedan
James went traditional. He bought a sleek $30,000 sedan, financing the full amount over five years at 7% APR. His monthly payment was $594, predictable and manageable. After five years, the car was paid off and worth about $15,000.
James’s financial outcome: He paid a total of $35,600, had a car worth $15,000, and effectively spent $20,600.
Scene 2: The Investor’s Path
Daniel, on the other hand, took an unorthodox route. He didn’t buy a car at all—at least not right away. Instead, he invested the same $594/month in a mutual fund earning 7% annually.
After five years?
Daniel’s account balance: $42,500.
Sure, he used public transport and rented a car for the occasional road trip, but the returns spoke for themselves. By not owning a car, he not only avoided depreciation, he grew wealth.
Scene 3: The Frugal Hybrid
Then there was their friend, Sarah. She split the difference—literally. She bought a reliable used car for $10,000, also financed over 5 years. Her payments were just $198/month. But she didn’t pocket the difference. She invested the remaining $396/month at the same 7% rate.
In the end, she had a car worth $5,000 and an investment account with $28,400.
Sarah’s net worth after 5 years: $33,400.
Conclusion: Three Roads, One Lesson
| Person | Car Value | Investments | Net Worth |
|---|---|---|---|
| James | $15K | $0 | $15K |
| Daniel | $0 | $42.5K | $42.5K |
| Sarah | $5K | $28.4K | $33.4K |
James had the nicest car. Daniel had the most money. Sarah had both.
Let’s set aside Daniel’s choice for a moment—not everyone is that frugal, and life without a car can be a significant adjustment.
Owning a vehicle offers convenience, freedom, and quality-of-life benefits that public transit can’t always provide. But what truly made the difference was the car Sarah chose. By opting for a modest $10,000 vehicle and investing the remaining $396 per month instead of upgrading, she set herself on a long-term path to financial growth.
Now, freeze the moment her car is paid off and fast-forward 20 years—with no additional effort. Her initial 5 years of investing would have grown to over $114,000.
Compared to James—who spent the same amount but ends up with just a used car—Sarah’s modest decision created lasting wealth with zero effort beyond the first five years.
Use Loan and Investment Calculator to play with the numbers if you want to check your own scenario
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