Does It Make Financial Sense For You To Buy A New Car?

by Mechel Glass, Contributor (@CredAbility)

Much of my working day is spent helping people manage their money wisely so that they can build their assets, save money to send their children to college and have enough put away to enjoy their retirement.

But it doesn’t mean that I don’t get tempted to buy a luxury item that I don’t need – and one that will throw a wrench into my financial plans.

I drive a 2007 model car that is paid off and runs well. I know the full maintenance schedule, from oil and transmission fluid changes to brake pads. Because it’s paid off, I occasionally buy some special items to improve its look. For example, I recently bought new tires and a new radio. The car gets me where I need to go, and the $450 I save each month in car payments goes into my retirement account, my emergency savings fund, and a 529 college savings fund for my daughter.

Still, I’ve been thinking lately about purchasing a new car. The car of my dreams -- or maybe it’s just a fantasy –- is a BMW. I often imagine myself driving a luxury car and enjoying all of the features not offered in a standard car. But when I weigh the benefits of owning a new car -– not to mention a luxury car -- against my financial goals, it just doesn’t make much sense.

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Most of us know a friend or relative that owns or bought a luxury car at one point. We remember how happy they looked in their new car. It certainly made them appear to be wealthy and maybe gave them an aura of superiority. But, as usual, that isn’t the full story.

Years ago, my mother bought a Cadillac Escalade, which she believed was the car of her dreams. For about six months, she was the talk of the neighborhood and she enjoyed the look of the car and all of its features.

But the benefits soon began to fade as she faced up to the financial impact of her decision. She started to complain the amount of the payments, and as well as the cost of the insurance and the maintenance. She realized that the amount of money she paid each month for her car could have easily covered several other essential expenses. Instead, her life became more costly and more complicated. Buying a luxury car may have fulfilled a fantasy, but it was short lived. And it turned out to be a setback to her financial goals.

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BMWs and other luxury cars are the right purchase for some people. But if you are considering such a purchase, make certain that it fits into a long-term financial plan. Whenever I have any fantasies about the joys of owning a luxury car, I consider the impact on my finances and remember the problems it caused for my mother.

The cost of owning and maintaining such a car simply doesn’t work. For me, the luxury car will always be a dream – far down the list of paying off my home, my child’s college education and having enough money to retire on my own terms.