Advertiser disclosure

Terms and Restrictions Apply
Physician on FIRE has partnered with CardRatings for our coverage of credit card products. Physician on FIRE and CardRatings may receive a commission from card issuers. Some or all of the card offers that appear on the website are from advertisers. Compensation may impact on how and where card products appear on the site. POF does not include all card companies or all available card offers. Credit Card Providers determine the underwriting criteria necessary for approval, you should review each Provider’s terms and conditions to determine which card works for you and your personal financial situation.
Editorial Disclosure: Opinions, reviews, analyses & recommendations are the author’s alone, and have not been reviewed, endorsed, or approved by any of these entities.

When the New Car Bug Bites

Acura NSX Black

[PoF: Today’s guest post comes to us courtesy of Dr. Cory S. Fawcett, a general surgeon who quite recently retired early from clinical medicine in his mid-fifties. Notice I didn’t simply say he retired.

The good Dr. Fawcett remains busy, having published The Doctors Guide to Eliminating Debt, The Doctors Guide to Starting Your Practice Right, with a third book in the series due out soon. He also writes at his own site, provides one-on-one financial counseling, and is a public speaker.

Let’s see what Dr. Fawcett has to say today.]


When the New Car Bug Bites


These days when shopping for a car, it seems natural not to look at the total price, but at the monthly payment. It’s not about affording the car but affording the car payment.

When I was a second-year resident, my car began visiting the shop too often. Maybe it had a thing for the mechanic. It was a fourteen-year-old Oldsmobile Delta 88 my parents had given me. My wife had nicknamed this very large car The Boat. As a resident working 80-110 hours a week, there was no time for the frequent visits to the shop. It was time to replace my car. [PoF: True story — I drove a ten-year old Olds Eighty Eight as an intern. I later traded up (?) for a Dodge Caravan before buying a Mustang Convertible as a resident.]

As I embarked on the search for a car, I figured my paycheck, about $25,000 a year, could handle the payment. I had fallen into the trap of thinking car payment instead of car price. What kind of car was befitting a young new doctor? After all, I would still be driving it at the end of my residency and wanted to look good as a new staff doctor.


Test Driving the Mercedes


Mercedes was the first idea to pop into my head. I’m not sure why, since I didn’t know anyone who had one and I had never been inside one. It seemed like the right fit for a young doctor’s image. With the target car chosen, it was time to proceed to the dealership for a test drive.

In 1990, the Mercedes 300E was priced around $30,000. A seven-year loan payment would only be about $400 a month. Pulling onto the car lot driving The Boat did turn a few heads. What was a guy driving a car like that doing at a Mercedes dealership? When they discovered I was a doctor, they jumped to attention. Their whale had arrived.

The test drive was awesome. The look, feel, and smell, and the confidence I experienced while driving down the road were new to me. The sound when the door closed, a good solid clunk, was very different from the clink and rattle made when shutting the door on The Boat.

What a car. Now I knew what the big deal was about owning a Mercedes, and I wanted one. The new car bug had bitten and its venom flowed through my veins. I reluctantly returned the keys and sat down with the salesperson to come up with a deal.

Reality began to set in as I pondered all the things I could do with $30,000 besides driving around in a very nice car. Was a car really worth so much money? More than one year’s salary? Was more than an entire year of every-other-night call worth a trade for one metal car? How would the $400 payment really affect our spending plan?

My wife and I agreed at the time of our wedding, four months into my internship, to live on only one of our incomes and save the other. We both earned about the same amount, although she did it with half the hours I put in. We figured if something happened to one of our incomes, it wouldn’t hurt us financially since we could live on only one income anyway. Taking on this car payment would mean encroaching on our second income for the budget to balance.

We Could Easily Afford a Ford


The salesperson was not pleased to hear me say I would think about it and get back to him. Carolyn and I talked about it over the next few days. We knew it was more than we should spend at that time in our lives.

We had been married more than a year and were establishing a solid financial footing, so I thought I could afford the car. By conventional standards, we could afford the payments. At the time, we didn’t appreciate the difference between being able to afford the car, and being able to afford the car payments. Since it was my dream car, my wife said she would go along with it if I really wanted to buy the car.

The Mercedes never ended up in our garage. After much lamenting, a one-year-old Ford Taurus sat in the driveway.

Similar style car, but not similar quality. At one-third the price, our spending plan had a lot more breathing room. Regrets never surfaced from the decision to forgo the Mercedes. We have purchased cars since then costing more than the $30,000 sticker price we passed on that day, but we waited until we could pay cash. The easy monthly payments didn’t get their hooks into me, so I dodged a bullet.


Acura NSX Black
mr. 1500 waited until FI to buy his dream car


About that same time, one of the other residents in my program came driving into the parking lot in a brand new sports car. This guy had been constantly complaining about how depressed his enormous school loan debt made him feel. He was so weighted down, he wondered if he could ever get out from under his debt.

When he drove in with a gorgeous new car, I asked him if he won the lottery or inherited some money. How could he afford such a car with all his debt? He said he was getting so depressed about his debt that he needed a pick-me-up, so he bought a new car.

I had a hard time grasping his concept. How could adding more debt and more monthly payments decrease the depression he felt from being in debt? I’m sure he felt better for about a month until his first car payment was due. Then his depression returned and was probably worse than before.


The New Car as a ‘Gateway Drug”


Many doctors have fallen into the new normal lifestyle of debt and easy monthly payments. Once you begin, you tend to never go back. It’s too easy to have it now and agree to the easy monthly payments, while disregarding the total cost and the effect it will have on your future.

Everyone else does it that way. The government does it that way. The neighbor does it that way. Family members do it that way. So why shouldn’t you do it that way too? You just don’t remember any other way. I have coined that problem Alzheimer’s Debtmentia.

Do you have Alzheimer’s Debtmentia? Do you think monthly payment instead of total cost? Many of us do and I have struggled with it myself. Don’t fall into that trap. The car you can afford is the car you can write a check for. If you need to borrow the money to buy the car, you can’t afford that car.

Often when I do a one-on-one financial makeover with doctors, I find automobile purchases to be a problem in their overall financial picture. It is very easy to overspend in this area. When you minimize expenses, you maximize your wealth.

So buy the car of your income, not the car of your dreams, and don’t let that new car bug take a bite out of your financial future.


“There is more to life than increasing its speed.” –



[PoF: For further reading on doctors and cars, see WCI posts:

2006 chevrolet hhrThe closest I’ve come to owning a new car was when I bought a 2006 Chevy HHR in June of 2006, but the car had been a prior rental and had about 12,000 miles under its belt. Guess what I’m driving now?



You guessed it! A 2006 Chevy HHR with 133,000 miles. I’m not terribly attached to it, but it still gets the job done and manages a decent 30 miles per gallon on the highway. When it finally breaks down, I’ll replace it with a roomier vehicle that is capable of pulling a travel trailer.

You never know when that feature might come in handy.]

Share this post:

51 thoughts on “When the New Car Bug Bites”

  1. Interesting article. As an avowed “car guy” since childhood as well as a Boglehead, I have a unique dichotomy of priorities that I will attempt to justify now :). Bogleheads and FIRE-types often espouse spending money on “experiences” rather than “things”, which I generally agree with. However, for someone who loves cars, the “experience” could very well be a thing, specifically a car. My cars are my hobby, I take them to car shows, go on early morning weekend drives in the California foothills and canyons, and am active on the car forums. It’s my “experience”. Notice the article ends with the writer planning on replacing his old car with one that can pull a travel trailer. I would consider owning a travel trailer an unnecessary waste of money, but to another person it’s completely FIRE-compatible. A lot of the “drive a wreck” advocates in the FIRE community are simply not car people and view cars purely as transportation.

    Fortunately my high income allows me to own pretty much whatever car or cars I want without impacting my savings rate or my retirement planning.

  2. Subscribe to get more great content like this, an awesome spreadsheet, and more!
  3. FF,PharmD,
    So glad to hear you are almost debt free. I’m partial to the bike riding to work as I spent a few years racing bikes and now my wife and I like to ride our tandem bike for exercise.

    Since you asked for some guidance, here it is. Once you are debt free and will be saving one income and living on the other, don’t get so caught up in saving that you forget to live a good life. Don’t become a Scrooge, who saved all his money for later. Realize that if you are in that position, (saving 50%), you will win the money game bigtime. You can lighten up a little and do some things you would like with some of the money. If you have a particular car in mind that is your dream, start setting aside some money for that dream and pay cash for it. After all, isn’t that what you are saving it for anyway, to live a better life? That sounds like a good reward for reaching debt free status.

    Best of luck and contact me if you need any help.

  4. Dr. Fawcett, excellent post!
    My wife and I recently began on our journey to FIRE, and will be debt free this December! I’m currently fighting the new car bug, and hoping it will be a fight I can win haha. Maybe I’ll be able to find a used Tesla Model 3 (my dream car!) in a few years, or there will be some crazy incentives/rebates for the 2018 Nissan Leaf! Currently have a 2001 Chevy Cavalier that’s on its last leg, a 2002 Honda Accord that’s still running decently, and a 2003 Honda CRV (which my wife drives) that my dad gifted us when he was willed a new car by a family friend. Hoping to trade in the Cavalier and Accord whenever the time comes for the Model 3.

    No big hurry since I ride my bike 2 miles to work every day, and enjoy it! Once we’re out of debt, we’ll be living off my wife’s paycheck and investing my entire paycheck. I think I’d be able to afford the new car… except I know I should be continuing to invest it instead. Decisions, decisions. Just thought I’d share my current situation, feel free to help guide me!

    PoF, I just entered the blogging world and have been introduced to your site! Thoroughly enjoying it and looking forward to reading many more posts!

  5. Maintenance and reliability also factor in to the decision. I was FI 10 years ago, and, in a moment of irrational exuberance, decided to buy a BMW 5-series, even though I knew about the reliability and maintenance issues, and was concerned about questionable engineering decisions such as “no dipstick; oil level is monitored electronically by a sensor buried deep in the engine”. We kept it 6 years, and put 130,000 miles on it. In the last year, after I paid $9,000 in repair costs, and the car stranded my partner twice, I dumped it.

    They say “if you can’t afford a new BMW, you definitely can’t afford a used BMW”. For many of us on this blog, this translates to “if you want a reliable car for long term ownership, stay away from the expensive German cars”. (I imagine that, if you’ll only plan to keep this type of car for a few years, it would be statistically reliable.)

    I am now a reformed BMW owner!! I am very happy with my replacement Japanese luxury car’s reliability and maintenance costs. (The tires even last twice as long as they did on my Beemer.)

    • UAPhil,
      Wow! Your story sounds similar to ours! We bought a used BMW X5 for “only” $15K before we had our first son, because we “needed the extra room.” We also paid $9K in repair costs the last year we owned it, and it left a very pregnant me and my 3-year-old stranded on the interstate just before that. Never again! I now drive a super sexy Honda Accord (basic model) with one missing hubcap and Bubble Guppies stickers on the window. And I’m so happy with my transportation. 🙂

  6. I inherited my mother’s 10 year old Delta 88 and bought a Mustang Convertible as well (still have the Mustang).

    Was it a 2001 GT by any chance? 😉

  7. Tip: Do not test drive a Tesla, especially a performance version – you will fall in love. I now have one (and no debt except a mortgage which will be gone in year 5 of a 15 yr mortgage)

    • I think you’ll be alright, Mike. If there were more options to charge an electric vehicle (or longer lasting batteries), I might own one already.


    • Mike,
      There is a great point in your statement. Never test drive something you are not ready to buy. If you are test driving it, you are already prone to fall in love with it. Then if you don’t buy it, you have the fear of missing out and might be disappointed with what you have. Test drives can be dangerous.

  8. I have always bought my cars in auctions. Talk about a great deal. In med school I bought a suzukii esteem for $4K that I drove until 2011 (7 years). I traded it in for $3K. Great return on investment.

    I then bought to new cars- a Toyota Camry and a Nissan Altima. Bought are paid off now and have been driven for 6 years and have less then 40,000 miles. Every time I discuss getting a new car in 5 years my lovely wife reminds me we have 2 paid off cars and that in 5 years they will still be paid off. Gotta love that women.

    • Dads Dollars Debts,

      Great tip, buying at an auction can save a ton of money. Be sure you know enough about the cars to understand if you are getting a good deal. Avoid getting carried away by the atmosphere of the auction. It is so easy to suddenly be bidding more than you planned. Auctions are so much fun!

  9. I have owned German luxury cars over the years (always used, but still expensive), but I have never been happier than I am now driving a Prius, for the last six years.

    The cost of ownership is very low, and there is (obviously) little concern for the appearance of the car (unlike the jet black BMW convertible I once owned) and no concern where I park, whether I get a scratch, a dimple from hail, etc. It has probably been a couple of years since I have washed it.

    Occasionally, I get the itch to replace it, but when I think of the not just the cost of the car, but the registration tax and fees, the increase in my insurance rate, and the ongoing personal property tax in my state, I can quickly talk myself out of it.

    • VagabondMD,

      You make some very good points about the additional issues we face if we buy what we consider to be an “expensive” car. It comes with more than a bigger price tag. If you are prepared for all of that, and have the money, then have fun! If those other issue way on you, then you should buy a car you will feel comfortable owning.

  10. I’ll be the first one on this comment thread to admit that I was infected by the new car bug in residency and leased a BMW 3 series. However, I don’t think that it’s necessarily as big of a sin as many of the financial blog world makes it out to be. Cars can be expensive, but relative to student debt and mortgages are more of a third or fourth string consideration.

    The most important thing in my opinion when it comes to wealth building is savings rate, with attention to debt management and cash flow. If you are putting enough money away every month it shouldn’t matter what you spend the rest on. If it’s organic vegetables, a bit of travel, high end wine, or even a luxury car lease…everyone has their vice and does not need to live as frugally as possible.

    In my situation my 14 year old Honda Accord with large dents, leaky seals and a front axle that vibrated over 30mph was driving me crazy. All calculated, total cost of ownership including depreciation, repairs and maintenance worked out to be around $160 per month for what turned out to be a rather painful and possibly dangerous final 5-6 years of driving experience. First, I paid off all med school loans. Then, when looking for a replacement I was simply unwilling to go back to the super old car lot, and in terms of average depreciation vs monthly leasing costs found an average cost of around $200-300 per month plus gas and insurance for cost of ownership of a “frugal” vehicle, and $400-500 + gas/insurance per month for a more luxury fun vehicle. Assuming 7% interest and the opportunity cost of “saving” that $250 per month, I calculate a difference of approximately $290k to drive a 3 year old Honda Accord EX vs new BMW or Lexus lease etc. If you are willing to drive an older car for longer, have really good negotiation skills (which you could have likely used for LeaseHacking etc on the higher end too) then the difference may approach $400k in missed retirement assets. That is a large number. However, in a two physician household like mine with a high net savings rate of around 60% (150-200k per year), and similar expectations for investment growth over 30 years would result in retirement assets at around $20 million. This made my decision to drive a nicer car work out to an expected contribution of about 1.5-2% variation of expected retirement assets or probably a few months difference in time to financial independence. There is also the benefit of a fixed monthly payment for stable cash flow, all repairs/maintenance being covered and the fun of having an amazing sporty car along the way. Well worth it in my option.

    The main point of this article however is something I totally agree with. You still have to be able to afford the car overall, and recognize that all spending involves trade offs and opportunity costs. Cars, like any luxury good, are also an opening into other purchases and a slippery slope of increased consumption and rising budgets. My advice: set your savings rate according to your financial goals, and then spend the rest according to your passions and family needs. If you love cars then go for it. Otherwise travel or do whatever makes you happy within your budget.

    • Put more succinctly: with a large monthly budget of 30-50k per month, $200-300 extra for a nice car isn’t going to make much of an impact. With a resident budget of 4-5k per month this was a much tougher call, though I still think it was a good decision given my relative frugality in other areas. However, one should be cautious about the slippery slope of American consumerism and the WCI popularized “hedonic adaptation” leading to more and more spending.

    • NH,
      With an income like yours, you could pay cash for a really nice car and be money ahead over a lease. You are destined to have too much money in your retirement plan for your needs if you keep that up for 30 years. My next book covers this issue of stockpiling money. When you cross the finish line, saved more money than you will need, you can stop stockpiling the money and use it for some other good thing like you mentioned. Most people do not have your high-income and savings rate so the extra $400k in the retirement plan could be very important for them. It could mean the difference between retiring when they want and having to work another five years.

      Thanks for your comments.

    • I appreciate that perspective, NH.

      I did a similar projection and realized I should have north of $10 Million on one income within 30 years. In that case, a few hundred a month is a drop in a lake full of money.

      But then I realized I didn’t necessarily want to keep doing the same thing for 30 years and with a smaller budget, I could afford to slow down or retire completely at any time. So I’m choosing to “spend” that unearned money on time instead of more car. With a two physician income and the sound money habits I’m hearing, you should be able to have it all without any trouble.


  11. Incrowd_surveys

    Physicians and pharmacists, Register with Incrowd for the opportunity to earn easy money with quick "microsurveys" tailored to your specialty.

  12. Great post. I can relate. Once I started making good money, and got the big promotion, I questioned my stingy ways. I found myself at a Mercedes dealership looking at an $80K car. I was THIS close to pulling the trigger. But I hadn’t even talked to my wife about it! All of this is VERY unlike me because I’ve always been a penny pincher. Not sure what came over me that day, but good thing I stopped to think about it. Settled with a Honda Accord when I decided to part ways with my Hyundai Elantra. Both are/were great cars.

    • Tim Kim,
      I wonder what would have happened if you showed up with a new $80,000 car without discussing it with your wife? Good move not testing that question. A Honda Accord is a pretty good car. I don’t think you settled.

  13. I waited till I finished my fellowship (Interventional radiology) before the “I deserve a new car after all this time” bug hit (had been driving used cars from medical school through residency/fellowship). First week as a newly minted attending I took the plunge and bought a new Mercedes (was at least smart enough to get the smallest model (2004 C320) and put in on a 5 yr payment (I ended up paying it off in I believe 3). Drove that car for 11 yrs (and 235k miles) so believe I got my worth out of it. Next car was my biggest vehicle splurge, a Tesla Model S 90D (pretty much with all the bells and whistles). I had been debt free for a couple of years and recovered from a very painful and financially devestating divorce 6 yrs prior, building back up to a 7 figure portfolio. Paid for it in cash (still was painful to see an almost 10% drop in net worth at the time) but to be honest I would do it in a heartbeat again (truly amazing vehicle and eventually money has to be enjoyed doing something, right?).

    • Xrayvsn,

      Glad to see you enjoying your money, that is what it is for. Also good you bought the Tesla with cash, and yes it is a nice car.

    • I had a similar experience, in the first month of IR fellowship in 1996, buying a then extravagant Volvo 850R, bright red, before I even landed my first paycheck! I loved the car but was embarrassed when I went to partners meetings, and I had, for no short time, the fanciest car in the group.

      I also bought the car with payments, owned the car for nine years, until it was totaled when a late term pregnant women lost control of her car because of contractions. At the time, it was being driven by our sitters. We replaced it with a used Camry purchased off the lot of one of the national car rental companies, and it was the worst car I ever owned.

  14. We got into the same “everybody is doing this” trap when we came to the States. Everybody around us was driving nice, brand new cars with “a moderate” monthly payments. We even were told, “You will get it, it’s how we live here in America”

    And we pulled the trigger, we made this mistake and financed our car, it was 2014 Dodge Journey SXT. A month later my wife called me and told that she was laid off. That was a wake up call for us.

    And now, every time when I see a 25 years old engineer with 80K in student debt “buying” Tesla I feel really bad for him. And in my areas there are more Teslas than regular cars

    • Friendly Russian,

      You story is so true. There is nothing easy about those “easy monthly payments,” especially if you loose your job. You never know what might happen. I know a hospital employee who asked if his job was secure, so he could buy a house. They told him yes and he bought the house. A few months later they laid him off.

      There is a doctor at a nearby hospital who just got out of residency last year and now parks his Tesla in the doctor’s parking lot. So sad.

      Buying with cash is always safer than having payments.

  15. Thank you, Dr. Fawcett, for another great perspective. I always appreciate your posts on WCI.

    With a fourth child having just arrived, we recently had to bite the minivan bullet. It’s used and low miles. Most importantly, we just wrote a check. It was freeing to not deal with any sales gimmicks, pre-approvals, loan officers, or worrying what the final payments might be. The final pitch about buying a warranty began with, “Being a cash buyer, this may not work on you, but I’ll at least offer it.” HA!

    • Toby,

      Thanks for the kind comment. I’m glad you like my posts and I hope you are also getting my blog from DrCorySFawcett.com. Great job on paying cash for the minivan. It is true, the dealers treat you like a more sophisticated customer when you pay cash for a car.

    • Great story, Toby. Our other vehicle is a Chrysler T&C, purchased used with about 40,000 miles. Still going strong more than 100,000 miles later!


  16. When talking to dealers they know all about this, it’s why they shift the discussions to monthly payments and trade in. The more data points you have to consider the less likely you’ll be to notice the number at the end of the day and it’s income. It’s why I always decide on what I want and negotiate on total price remotely before even visiting for the purchase.

    • Full Time Finance,

      Good point. Never negotiate about the monthly payment, always on the total price. They can manipulate the terms of the loan, length and interest rate, to get you to your monthly payment and into the car. But the total cost is what counts.

  17. It’s so tempting to buy a new car although we can’t afford it. Mr. FAF and I fell into this trap a few years ago. Luckily, we paid off the car after 6 months, but the dealership gave us such a hard time even to pay off the loan that we hated every second of it.

    Our new philosophy now is that we won’t go into debt to buy a car again. We will either pay with cash or buy a used car.

  18. My first car was a $3000 used 1986 Buick Century. The gear shift (on the steering column) would begin to vibrate violently above 65 mph, creating the optical illusion that it grew 3x in size. I wonder how many times my life was in serious danger driving that car. Though I did have a sweet tape deck with a sony walkman adaptor.

    Great points about the total cost vs monthly payment point of view. It never dawned on my parents that one could purchase a car for cash, even if it saved interest in the long run (rates were higher back in the 80s). It never really occurred to me either until I thought seriously about purchasing my first car as an adult.

    Dr. C

    • Dr. Curious,

      Most people in America don’t think it is possible to buy a car without car payments. The car dealers have done an excellent job of promoting cars by the monthly payment. If you look at car adds, it is usually hard to find the actual price of the car, only the monthly payment is shown. The dealer makes money selling you the car, and then makes more money on the loan you used to buy the car. I’m trying to get the word out that you don’t need to participate in that system. “Yes Virginia, you can buy a car with cash.”

  19. I can definitely relate to these stories in feeling like someone would judge me for my 12-year-old Jetta with 200,000 miles. Approaching college graduation, I borrowed about $12,000 and bought a 2012 Chevy Malibu at the end of 2012. It had been a fleet/lease vehicle so it had about 24,000 miles at the time. Currently sits in the driveway paid off with 75,000 miles and has been a very low-maintenance car, so I feel like it wasn’t the worst choice I’ve made. The car payment was definitely a gateway to more debt for me, by the time I realized I was hooked, I had about $14,000 in credit cards to pay off too!

    • Ryan,
      The car I bought when I passed on the Mercedes was a one year old program car with 12,000 miles. I drove that car for eight years.

  20. I love the disorder you coined! Made me laugh out loud this morning. It’s so easy to fall into this trap because we do see it as normal.

    I remember making about $20k/yr when I bought a car for $14k. Ridiculous. I was 19 years old and had all the intellect and reasoning capabilities you would expect from someone that age. Oh well, it’s a funny story now. And, I did drive that car into the ground.

    A few years ago, as a mid-career professional, I was driving around in a ’99 Chevy Malibu with 207k miles on it and a broken air conditioner. I decided to trade up. I went for a pre-owned Mazda 3 for $14k. It’s paid for. And I feel like on driving around in luxury when I flip on that AC. People can have fun with their comments. I’m laughing all the way to the bank. Perspective is a wonderful thing.

    Nice work on avoiding that Mercedes!

    Mrs. Mad Money Monster

    • Mad Money Monster,

      You can learn more about Alzheimer’s Debtmentia, Debtabetic Neuropathy and Malignant Credit Carcinoma in my book “The Doctors Guide to Eliminating Debt.”

  21. We have always had to factor in a steepish driveway (tricky in winter to get traction) , long commutes and the weather of New England to factor into our car buying purchases. We currently drive a Jeep Cherokee and Subaru Impreza. It’s our second Jeep and third Subaru. And fine fine cars they have been.

    Speedy, zippy little cars are always in the boy racer mindset. Growing up in the U.K., a classic Mini convertible has always been in my mind….need to negotiate with Mrs. PIE……

    On speed, yes, there are always the naysayers. However, speed never kills. It is decelerating ultra quickly where you meet your demise!

    • Mr. PIE,

      Once you are debt free and Financially Independent, Mrs. PIE will not have much to say about your desire to buy a speedy car. When we were trying to become debt free, every time I tried to buy a toy my wife would say, “Are we debt free yet?” After we were debt free I bought a sports car and she didn’t have a reason to say no.

  22. While I agree with the concept of the article, the article fails to mention the key factor – the interest rate. Years of very low interest rates have nearly made the argument obsolete. Specifically, the doctor waited until he could pay cash for a $30k car. Well, our last two autos were purchased at 0% and 1.9%, so we paid $0 (the same as cash) and $1,400 total in interest. And rather than lose all our cash to the dealer up front, we kept our cash, let it work for us and then made the monthly payment. The key for us is we keep our cars at least 8 years or more so there are years without making any payments. I know the low interest rates won’t last, but I think articles like these are too simplistic unless there is a discussion of interest rates.

    • I appreciate your perspective, John.

      I’m not the author, but to me, it’s not so much about how you pay for the car but whether or not you can afford to pay cash for the car.

      If you’ve got your emergency fund set up, are maxing out available retirement accounts, not drowning in student loan debt, etc… spend how you want to spend. Whether or not you pay up front or finance it has more to do with personal debt aversion and risk tolerance.

      How you pay for it more akin to the “Should we pay off low interest mortgage or student loan debt versus invest?” question than whether or not you can afford to buy a new car.

      I think Dr. Fawcett doesn’t want to see people (like his residency buddy) dig an even deeper hole. If you do buy a car (used or new), pay attention to the total cost, not the monthly payment, and make an informed decision.


    • John,

      Interest rates usually don’t play much of a factor. Almost always, if they offer you 0% interest, the purchase price will be higher than they would sell it for if you offered to pay them cash. You must factor in the cash discount and that usually wipes out any savings in interest differential, especially today with low interest. I did have a time when this came up for me. I was buying a $36,000 car and came in with the cash. They then offered me 0% financing for 36 months. I would have a car payment of $1,000 a month. At the time I had a loan on a piece of investment property that was about the same amount and at 8% interest. I calculated the options and the cash discount did not offset my guaranteed 8% return to pay off that other loan. I took their offer for 0% financing and used the cash to pay off that loan. I was guaranteed to be money ahead in that deal. In fact, I made a few thousand dollars on that deal.

      Three things must be considered before playing the “I can get a better return” game. First, your monthly cash flow must be able to handle the payments on the 0% car. In the above case, I would need to be able to afford the extra $1,000 a month payments. Sometimes that is a deal breaker. Second, you must have a distinct place to put the money to get a greater return and make money on the difference. The interest rate differential should be substantial. With today’s low interest rates, it’s hard to find a good place to get a substantial guaranteed return on the money. In the above case it was a guaranteed 8% difference in return. Third, you must calculate what effect the cash discount will have on the deal.

      As long as you actually can afford to pay cash for the car, and the other three factors are good, then you can go for the 0% deal. If you don’t actually have the cash, you can’t afford the car as you need to borrow the money to make the deal. If borrowing 0% money puts your monthly budget in the red, you are risking going deeper in debt each month as you are likely to use credit cards to make up the difference.

      Be very careful about a 0% finance deal. It is not free money as it seems to be and it can be dangerous. Remember, the people offering you that deal are making money on the deal, and they are making it from you.

      • I’ve recently been corrected by some people on WCI about this concept. You don’t need to actually get a “guaranteed return” on the money to justify using the cheap financing, you just have to be able to do better than the finance charges on the loan over time. Time in the market is important. So, sometimes it can be advantageous to immediately invest and use cheap financing (assuming you can truly afford the purchase, which I agree means you need to have the cash for it). If you take 30k and buy shares of Vanguard total stock market (for example) and let it sit for 20 years, chances are very good that you’re going to do way better than the $3-4k in finance charges that you pay on a low interest car loan over 4 or 5 years. The key is that you actually invest the money and don’t keep spending on other things.

  23. The vehicle that I probably want most at this point is a Jeep Wrangler. I’ve loved the look of them since I was 16 and started paying attention to cars. Recently I read that they are one of the #1 stealth wealth cars as well.

    However, I have no reached FI yet like Mr. 1500 so I have been eagerly awaiting the time that I do so that I can get the car I’ve been dreaming about all these years. But I know I need to be disciplined first 🙂

    • Mustard Seed Money,
      With a little patience, waiting until you reach Financial Independence, you can buy any car you want and write a check for it. It will feel really great driving down the road in a paid for Jeep Wrangler.

  24. Got very close to making this mistake of buying an expensive car, but for good reasons the little voice in my head said not to do it.
    As a car enthusiast it’s always a difficult debate between spending the money and the joy you get and the operating/opportunity costs and freedom on the other side.
    Might still end up with a small sports car at some point, but it should be in a similar setting as Mr 1500 where FI is in the bag and the car does not affect it.

    • Team CF,
      I’m glad you didn’t fall into the trap. I did later get a small sports car, a Toyota MR2. I bought it right after we paid our final mortgage payment and became debt free. It felt very good to walk into the dealership and write a check for a sports car.


Leave a Comment


Doctor Loan up to 100% Financing

Related Articles

Join Thousands of Doctors on the Path to FIRE

Get exclusive tips on how to reclaim control of your time and finances.