If you’re a typical middle-class American, your car is probably the single easiest thing you could change to become way richer, way faster.

Saving money on even bigger expenses like housing has a huge financial impact too, but shifting your mindset about cars doesn’t require any serious lifestyle changes like moving away or living with more people. Transportation is the lowest-hanging fruit on the path to financial independence.

Your choice of car is more important than you probably realize. Here’s a thought experiment: Imagine buying a new car at the average purchase price of ~$32k and driving it for ten solid years. At the end of that decade, you sell it (about 85% depreciated) and roll the money into buying another one at a similar price. Sounds pretty normal, right?

Completely ignoring all the additional costs associated with vehicle ownership, the net cash spent in just three cycles (30 years) of new car purchases could turn into about a million dollars if it were invested in the stock market instead*. A lot of people think that depreciation is the worst part about buying new cars (and yes, it’s bad), but the big, silent wealth killer is actually the investment opportunity cost.

Keeping the purchase price of your vehicles in check is worth some serious thought.

A Tale of Two Cars

In January of 2016, Lauren and I returned to Florida from our Hawaii honeymoon and made the worst car purchase of our lives: A 2001 Nissan Altima. It wasn’t a terrible purchase because it was a bad car — it’s just that I hate car shopping and was in a hurry to buy something, which led us to make some poor choices. We pretty much bought the first decent, cheap vehicle we came across, without any research.

Photo of Nissan Altima

We paid $2,800 cash for the car before even bothering to check its Kelley Blue Book value, which was actually more like $2,000. We were also under the impression that Altimas had great fuel economy, but we later found out that it only got 23 mpg (10 L / 100 km) in the city and 31 mpg (7.5 L / 100 km) on the highway. D’oh!

Fortunately, we were saved by the fact that driving super cheap cars automatically makes you richer, which is what I want to prove to you with a little thought experiment…

A lot of people who are otherwise not too picky about cars are scared to buy cheap, used vehicles because there’s some risk involved. Any used car could turn out to be a nightmare of expensive maintenance, right?

Let’s suppose our Altima had some issues right from the start (which was not actually true), and aside from regular maintenance like oil changes, we had to sink a thousand bucks into repairing it over some period of time. Then, after we waste $1,000 repairing it, its engine completely craps out, and we are left with an irreparable vehicle that we sell as literal scrap metal for $250. (Note that I’m being dramatic and choosing a nightmare scenario — this didn’t really happen.)

Net cost: $2,800 + $1,000 – $250 = $3,550.

Now let’s also say that a hypothetical friend purchases a new or slightly used vehicle for $25,000. Aside from regular maintenance, suppose this newer car requires zero repairs for an entire decade. After ten sweet years, our friend sells his still-functional vehicle for a cool $5,000. (Note that I am being charitable and choosing a best-case scenario.)

Net cost: $25,000 – $5,000 = $20,000.

Not bad for ten years, right? It looks pretty reasonable until you consider that if we repeated our nightmare used car scenario five times in a row over the same decade, we would have still spent $2,250 less in total than our friend.

By buying an excellent, reliable, newer car which gives you no issues over a decade, you are basically guaranteeing that you live the equivalent of at least five horrifying used car financial disasters in those ten years.

But wait; there’s more! Our friend tied up $25,000 for an entire decade, which could have been used to invest and earn a return — or perhaps he got a car loan and paid interest on top of all of the above.

Let’s also not forget that I was particularly charitable to our friend in my original assumptions, and I chose a nightmare scenario for us. In reality, you’ll have pretty good luck with most used cars (or at least better luck than ending up with scrap metal), and even if you have horrible luck, you still come out ahead!

Buying newer cars is fun and exciting, but for lower- and middle-class folks, it is financial suicide. If owning a fancy car is more important to you than almost anything else in your life, by all means, you should find a way to own the car of your dreams (and you can!). But if you want to get from point A to point B and save a seven-figure sum over your driving lifetime, consider buying something old and cheap.

As for our Altima, in reality it served us pretty well, costing about $600 (and some elbow grease) in maintenance over its 2.5-year lifespan, after which we sold it for $1,200. And like I said before, that was the single worst car we’ve ever bought.

Update, May 2022: Check out the video below, where we make a similar argument using more recent numbers.

Secret Benefits of Crappy Cars

Maybe you’re not totally sold on buying hyper-depreciated cars yet, so I’ll share some other, often overlooked benefits with you. Other than just having a lower price tag in the first place, there are several other ways that driving a beater pays off big time.

First, the insurance costs are dramatically lower. When you own a $20k+ vehicle, you’re going to be scared into paying for comprehensive and collision insurance, so that the car itself is covered if you wreck it. But if you drive a car that you could easily replace many times over in cash, that risk is minuscule, and it makes sense to drop comp/collision and buy liability-only coverage, which is much cheaper.

Second, while older cars may need more maintenance, the cost of each repair can be extremely low if you’re willing to get creative. When you own a cheap car, you’ll be much more likely to attempt DIY repairs with the help of YouTube and car parts from eBay because the risk of messing things up is lowered when you’re toying with something that’s only worth a few thousand bucks. Even if you’re not willing to do it yourself, it’s less scary to hire a random guy from Craigslist or your local auto parts store to do the repair. You’d probably never do that with a two-year-old Mercedes, and repairs at the dealership are very expensive.

Photos of spark plugs
Over the years, I’ve used YouTube to learn how to do basic stuff like changing out spark plugs, alternators, batteries, electric switches, oil, and air filters. I can’t say I love the work, but I definitely feel a sense of accomplishment and growth every time I try something new.

Also, cheaper vehicle models typically have less stuff to break in the first place. My dad’s BMW has silly features like rain sensors built into the windshield and headlights that tilt left and right when you turn your steering wheel. That makes all of those parts way more expensive to replace.

Lastly, you’ll feel less obligated to even try expensive repairs on really cheap cars. At the point when your car is only worth a thousand dollars or so, it’s simpler to just sell the vehicle and buy another one than to sink cash into major repairs. When something big goes wrong, you’re more likely to just set yourself free from the problem altogether than you would be with a nicer car. Part of owning cheap cars is having a willingness to move on when needed.

Common Concerns

If you’re the owner of a newer car, and you’ve gotten this far in the article, chances are good that you’ve had a few objections come to mind. I’ve talked about this to a lot of friends and family over the years, so in fairness, I’d like to share some of their arguments and my responses.

The most common concern brought against me is that cheap, used cars aren’t reliable. The idea of being fired from a job (or worse) because of consistently flaky transportation is totally unacceptable.

First, let me admit immediately that a brand new car will almost always be more reliable than its 10- or 15-year-old counterpart. Lauren and I have definitely woken up to a car that won’t start, or been stuck on the side of the road, more than once in the last decade. But we’ve never suffered any serious consequences for it.

One of the keys to driving an older car is always having a backup plan. Keep jumper cables in your trunk (and know how to use them). Make sure Uber and Lyft are preinstalled on your phone with a payment method on file for a fast ride when you need one. Consider a AAA membership (or a free roadside assistance option offered by a credit card you carry). Make a plan with your spouse or roommate about when they’re generally available to give you an emergency ride. Know your local bus route. Own a bicycle. There are dozens of cheap or free options to get you where you need to be when your car inevitably fails you (and it will, eventually).

Beyond just being ready with an emergency ride, owning a cheap car also requires some financial readiness. If you buy a $4,000 car, you should keep at least another $4,000 on hand at all times to outright replace it if the absolute worst-case scenario occurs. You may weather financial storms randomly in the short term with cheap cars, but in the long run, you’re winning on a grand scale. At some point, the replacement cost of your car should start to feel like a tiny droplet in your gigantic bucket of money.

A lot of people also bring up the added stress and inconvenience that a less dependable vehicle adds to your everyday life. While there’s almost nothing more annoying than dealing with car trouble, understand that it doesn’t happen as often as you’d think. We’ve dealt with less than one car issue per year on average over the course of owning a bunch of old beaters.

Photos of cheap used cars, a Honda Civic and a Mazda Miata
These are the two cars we owned serially before the Altima. The Civic (shown here in Littlefield, Arizona) was the most expensive at $5,600, but we drove it to over 250,000 miles (including a single 17,000-mile trip) without any major issues! We only drove the Miata (shown here in Hawai’i Volcanoes National Park) for 6 months, but we actually sold it for $1,100 more than we paid.

Update, August 2022: Our most recent vehicle has been a Nissan NV200 camper van (which doubles as our daily driver). We’ve taken its odometer from 51k when we bought it, to 181k miles to date, with a grand total of just $300 in repair costs (an AC compressor replacement).

Also, facing car troubles is an important opportunity to grow into a stronger person. Rather than literally buying your way out of short-term stress with new vehicles, learn to face that anxiety rationally. When your car breaks down, take some stoic joy in the fact that, by facing ordeals like this one and becoming financially independent early in life, you are saving yourself decades of work! Take pleasure in the logic of your choices.

One final objection we hear from time to time is that older cars are less safe than newer ones. That’s particularly true if you’re buying cars from the ‘70s and ‘80s, before safety regulations were as strict as they have been in recent decades. But there’s not much to worry about if you’re looking at cars from the 2000s onward. If safety is a big concern for you, it’s probably better to look at newer cars with higher mileage than older cars with lower mileage at the same price point.

Tips for Getting Rich with Cheap Cars

  • When you go car shopping, start with Craigslist and Facebook Marketplace, and try to buy from an individual owner, not a dealer. This will help you get the best price by completely avoiding dealers’ profit margins.
  • Focus on reliability. You’re not buying a cheap car to look cool; you’re doing it to stack money. Look at car makes and models that are notoriously low-maintenance.
  • Focus on fuel economy. The more efficient the car is with gas, the more you save in the long run.
  • Buy featureless, stock models. When you buy a car with fewer bells and whistles, you get more bang for your buck in terms of what really matters.
  • Avoid luxury brands. A Ferrari with a four-figure price tag is going to be a bucket of rust. A Honda Civic with a four-figure price tag may have many years of life left in it.
  • Don’t baby your beater like you would a nice car. Go 6,000 miles between oil changes instead of 3,000. Don’t get it professionally washed and waxed every month. It’ll be fine.
  • Drive a little easier. The less you slam on the gas and the brakes, the longer any car will last. This has a double effect because it makes your car more fuel efficient, too.
  • Use your car less altogether. Ride a bike to work if you can. Again, the car will last longer, and you’ll burn less gas. It’s not bad for the environment, either.
  • If you can get your car usage down low enough, share one car between two people! That’s what we’ve done since college, and it’s cut our car ownership costs in half!
  • Don’t be afraid to try some DIY repairs, especially on simple stuff like electronics. But don’t skimp when it comes to life-or-death maintenance!
  • Have a backup transportation plan (or two!) ready to go at all times.
  • Keep cash in the bank for when something inevitably goes wrong. Don’t leave yourself financially naked.
  • Make sure the money you would have been spending on new car payments is actually getting invested (or going toward debt payoff) instead. That’s the whole premise of this article. If you’re using the money you save on cars to buy other stuff, you’re not winning financially at all.

The Takeaway

Everyone’s gonna have a different comfort level about how cheap they’re willing to go when it comes to cars. Other than our camper van, we’ve always purchased cars in the low-to-mid four-figure price range and enjoyed overwhelming success. Whatever level you decide you’re comfortable with, just make sure you’re honest with yourself and realize that cheaper is almost always financially better overall. Don’t get sold into the idea that a newer car is some sort of investment.

I’m not saying we’ll never buy a more expensive car, either. Our target price range will probably extend upward a little as we get to a point where money isn’t much of a concern any more. But we’re happy we made these frugal choices early. The compounding effects of saving and investing are bigger the earlier in life you prioritize them, and buying freedom from our office desks was always more important than driving to work in style.

— Steven

* The total return of the S&P 500 has been 10.2% annualized for the last 30 years (Feb. 1990 – Feb. 2020), so I used that to make my estimate. Here’s the million-dollar math: ($32k first car) × (1.102^30 stock return) + ($43k inflation-adjusted second car − $4.8k recovered from first car) × (1.102^20 stock return) + ($58k inflation-adjusted third car − $6.5k recovered from second car) × (1.102^10 stock return) − ($8.7k recovered from third car) = $983k total nominal cost of three new cars over 30 years. Note that the average “first” car will likely be even more expensive than $32k if you’re reading this beyond 2020 when it was written!

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