A car is never an asset. A car is a monthly invoice that depreciates while you are sleeping.
It happens that there is something attracting everybody. It is a nice looking Audi A4 or BMW 3 series standing in the window of the car dealer. However, if you want to become rich as a young professional, you should consider this car as an invoice rather than a trophy. Young men aged twenty to thirty years old spend lots of money on cars. They think only about the price tag and forget about some silent killers like insurances, premium fuel, and depreciation.
First of all, it is necessary to follow the “total cost of ownership” principle. The payments to the bank on monthly basis may seem reasonable but you need to take into account insurance, fuel, and maintenance costs. In case with a luxury sedan, you are spending a thousand dollars per month before even filling the tank. It is really quite a considerable amount of money that could be used for buying shares on S&P 500 index fund.
One of the biggest mistakes young professionals make is the leasing strategy. It looks cool to lease a new car every three years to have always a new car for client meetings. Actually, you are renting a depreciating asset that will bring you nothing. It would be more reasonable to invest in a reliable and used Toyota Camry or Honda Civic. These cars won’t attract attention but you will save money and have an asset that will give you profit in the future.
There is one piece of advice that will be helpful in your budgeting. Estimate your annual expenses on this particular car and divide it into twelve equal parts. Monthly place the same amount of money on the high-yield savings account. When there will be a $1,200 fee for repairs of your brakes or tires, for example, you will feel comfortable taking the money from special account.
To conclude, this may be the best period of time for you to start doing boring things. While your friends will lease Range Rovers, you will drive your sensible car for three years. Then you will observe them posting photos in Instagram while your investment portfolio will double in size. Later you will be able to buy your Porsche.