How Much Car Should a Doctor Buy?

Because I truly believe that the reason.

Most middle class families in this country.

Do not become millionaires is sitting in their driveway.

Americans like to drive expensive cars. It's fun. Expensive cars are nice.

I get it.

I've got an expensive platinum F250. People wonder why a blogger needs it. A blogger doesn't need it. I think we talked about that on a separate podcast.

I don't know if it runs before.

Or after this one, but you can see that for details. But the bottom line is we like having nice stuff.

But sometimes if you let it, that nice stuff keeps you from reaching your financial goals.

You know, the difference between the annual expense, you know, counting depreciation, insurance and.

Maintenance and all that stuff, between a really nice car, especially if you're buying them new and churning them every three.

Years or so, and a not so nice car.

You know, an economy car that you.

Hold on to for 10 or 15 or 20 years can be about $5,000 per year. That's the difference in operating costs. And a lot of families have more than one of those. Well, $5,000 per year invested at 8%.

Over 40 years is 1.3 million.

Thus, if most families would drive, you.

Know, maybe not a beater, but an economy car that you hold onto for.

A long time, they would be millionaires.

Instead, they spend too much on a car.

So here's some guidelines to help you.

Not have this problem. Now, I got to put a caveat on this though.

Most doctors make enough money that they can afford to kind of throw some.

Money away on cars and still be okay, still reach their financial goals.

People like to say that, oh, white coat investor says you got to drive a 20 year old Honda Civic to be successful. Well, obviously that's not true. If you make two or three or $400,000 per year, you've got a halfway decent savings rate.

You control your spending. You don't have debt coming out your ears.

You can probably spend a little bit.

More on a car and still be okay.

But here's some guidelines for cars because people need these. People spend way too much on cars.

If you don't pay any attention to it.

All right, so some of these guidelines I stole from Dave Ramsey. I don't agree with everything Dave Ramsey says, but I think his guidelines on.

Vehicles are pretty good. So we're going to use some of those. And then I've got a few of my own. Okay, so the first one is that.

You shouldn't spend more than 50% of your gross income on all the things you own. With motors, we're talking about cars, we're talking about motorcycles, we're talking about dirt bikes, we're talking about boats, we're talking about planes. 50% of gross income. So if you're a resident making $60,000 a year and you have a $45,000 car, you have broken this rule. If you are a physician family and you make $250,000 a year and you've got a brand new F250 that cost you 90 grand and you've got a $60,000 Suburban, you've broken this rule. On the other hand, if you're making $400,000 a year and you've got a 15 year old Honda Civic, and you've got three year old Toyota Sequoia, you're well within this rule. So just do the math. 50% of gross income for all things.

With motors. Now, at certain levels of wealth, the income doesn't matter as much. Obviously, if you're a financially independent multimillionaire, this guidelines maybe not for you, but.

For those of us still trying to.

Build wealth, this is a pretty good rule of thumb.

50% of gross income is the maximum.

You spend less, you can use more of it to build wealth.

But you certainly shouldn't feel guilty if.

You'Ve got $80,000 worth of cars and you make $250,000 a year. All right, here's another one.

Don't buy your cars new until you're a millionaire.

I think this is a pretty good rule of thumb.

You've got a better use for your.

Money if you're not a millionaire yet than a brand new car. Yes, the brand new car is cool. You got a warranty on it, you get a few more years with minimal maintenance hassles, minimal repair hassles anyway. I guess you have the same maintenance. Either way, you don't have to buy anybody else's problems. You can order it exactly like you like it.

I bought new cars. I understand the draw. I just think it's probably wise to build wealth first so you can get.

A nice used car.

You can buy something that's two or.

Three years old that's already had a big chunk of the depreciation taken off it.

You can drive it for 10 or 15 years and that's fine, right? But I'd encourage you not to really.

Start buying new until you become a millionaire.

Now, for most docs, that's probably five.

To 10 years out of training is probably about the time most docs taking care of their finances can become a millionaire.

So it's not forever, right? Certainly by the time you're 40, you.

Ought to be able to be buying.

All your cars new. So don't feel like you're having to live some deprived life for, for 50 or 60 or 70% of your life, you're going to be able to drive brand new cars. You're not totally deprived, but I'd encourage.

You to become a millionaire first.

All right, here's another guideline. You should never have a five figure car loan.

All right?

If you need a car loan, this.

Is a consumer good. This is consumer debt.

It depreciates, it's going down in value. I understand that some people need a car, but if you need a car, what you need is a $5,000 car. Maybe you can stretch it up to $10,000. So if the need is 5,000 or $10,000, you should never have a car loan for more than what you need, right? And so no one should ever really.

Have a five figure car loan.

If you have a car loan, it should be a few thousand dollars and you should be paying it off very, very rapidly.

You know, this isn't something you keep around for years and years and years.

Now, I know it seems normal to.

Have a car loan that people talk about, you know, what they pay rather than what it costs. This is like, you know, Finance 101.

Actually, Finance 101 is don't carry a.

Balance on your credit cards.

If you haven't learned that, you know, that's personal finance 101. Don't carry a balance on your credit cards. But personal finance 201 is you don't buy cars on credit, right? You need to pay more attention to what the cost of the thing is than what the cost per month is, because they can make the cost per month anything they want just by stretching out the number of months that you pay for it. The average car loan right now is $36,000 on used cars. That's the average car loan on a used car. $36,000 stretched over 68 months. That's the average. Half of them are more or longer than that. That's ridiculous.

There's no reason you need a car loan that long. All right?

Five figure car loan is the max, and you should never have a second car loan, right? This is something you only do one time in your life, right? You don't have any money. You're, you know, a resident. Your car's dead. You need a new car.

Great. Go borrow $8,000 and buy yourself an $8,000 car as soon as you pay.

It off, you keep making those payments, but you make them to yourself. And in essence, you're using those payments to save up for your next car.

And when you've hit $20,000 or $30,000 or $40,000 or whatever it is that you want to spend on your next.

Car, you take that money, you go.

Buy the new car, you sell the old car, and you start the process again, right?

So one car loan in your life, zero to one.

I'd rather have you have zero car.

Loans, but one in your life, it's.

Five figures or less.

Here's the other thing to keep in.

Mind about cars, safety, right?

You care about your family, you care about yourself. You don't want to be disabled, right?

You have this great earning ability, all right?

Don't forget, safety can be used to justify anything, right? You, you can justify bulletproof windows with safety, right? You can justify a dramatically more expensive.

Car than you need with safety.

Every year there's new safety features on cars. My new F250, it practically drives itself. You just gotta jiggle the steering wheel.

Every now and then and it'll track.

The distance between you and the car in front of you. It'll slam on the brakes if it needs to. It'll keep you in your lane. It's got all kinds of cool safety features that cars have on them these days. You know, it's got cameras all the way around it so I can see if I'm running over anybody or anything.

It's really pretty remarkable.

But there will be something new next year that'll be even nicer. And if you're just going to go for maximum safety all the time, you're.

Going to spend an awful lot of money on cars.

So yes, you're going to get a.

Significant upgrade in your safety, going from a 20 year old car to a 5 year old car, no doubt about it. And if you can afford that, go ahead and do it.

But keep in mind that five years.

Ago, the ultra safe car is now a five year old car. It's okay to drive a car that's 5 or 10 years old does not.

Show that you don't care about your family, right? It's still got lots of cool safety.

Features on it, even if it doesn't have every single one of them. So be careful what you justify with the safety justification.

All right, enough ranting about cars.

The hosts of the White Coat Investor are not licensed accountants, attorneys or financial advisors. This podcast is for your entertainment and information only. It should not be considered professional or personalized financial advice. You should consult the appropriate professional for specific advice relating to your situation.