When Can I Buy My Dream Car?

“When can I begin to splurge on my dreams?” This is an almost universal question that comes to mind as soon as we start earning a living. As such, it is one of the first things we address during my Total Financial Makeover Coaching Program: Dreams and Goals. If your financial planning is not heading you toward your dreams and goals, then what is the point of planning? What exactly are you planning for?

This is not a theoretical topic for me as it was a real issue in my life. I wanted to buy a convertible sports car. It would be an extra car and only for my enjoyment, since my wife didn’t want one. This can be otherwise categorized as an expensive toy. If you read on, you will learn my outcome on this issue.

Many people in the FI/RE (Financial Independence/Retire Early) movement make the mistake of assuming life begins at retirement. They live their life such that everything that costs money gets postponed until after retirement, at which time they will begin to enjoy their life. If retiring as soon as possible is your driving goal, you will likely have a less than satisfying life pre-retirement and may not find retirement everything you thought it would be. That could be a lose-lose proposition.

If enjoying life takes a back seat to saving for retirement, every time you want to buy something fun, like a dream car, you will tell yourself “NO,” as every unnecessary purchase will delay your retirement date (your actual goal). When retirement is your overriding goal, you will never do anything simply for fun. What kind of life will that be? Will you look back with fond memories of the money you saved from all the fun things you didn’t do?

You need a plan that is developed with multiple goals in mind.  Some goals will be far into the future, such as retirement. Others very close, like a nice anniversary weekend getaway.  Still others will be mid-range, such as buying your dream car.

Any budget that does not take all your wishes into account is likely to fail. Self-denial will not hold up in the long run. You will fall off the wagon at some point and blame yourself for not having the willpower to stick to the plan. You get a twofer out of that one; you fall off the wagon and beat yourself up for it. The real problem was having a bad plan.

The first step in formulating a great budget/plan is to list your wants and needs. Needs must be entered first into the budget, such as food, clothing, and shelter. Once the needs are in place you can begin to budget for your wants and dreams.

Make the first want securing your future. Buy the right types of insurance including health, term life, malpractice, disability, home, car, liability and umbrella. Avoid all other types of insurance like Universal life, extended warranties, cell phone glass breakage, accidental death, and any other plan a salesperson tries to get you to add on at the time of purchase. Only insure loses you can’t afford to pay. You can certainly afford to replace your phone’s glass if it breaks. 

The next step is to be sure you have a solid plan to handle your debts, paying them off ahead of schedule. Be sure to avoid playing the interest rate arbitrage game. That is keeping a low interest loan because you can probably make more money in the market. The amount you make from the difference in the interest rates is not going to make you wealthy. By the time you retire, it is not likely to even make a significant difference in your nest egg. Work to get yourself to the position of earning interest and not paying interest. The mental health benefits and momentum created by becoming debt free are highly underrated. 

Then you must calculate an adequate retirement savings rate so you can live out your retirement years without scraping by. In order to do this you need to have an estimated retirement date and an estimated retirement budget. Once you account for any income you will have during retirement, such as social security, then you can back into the amount of money you should be saving every month to meet your retirement savings goal.

Once you have these big issues covered, you can move on to your dreams. It is not necessary for all the previous things to be fully funded before you start saving for your dreams. For example, you don’t need to have your retirement fully funded or your debts all paid off before you go on a dream vacation. What you do need is to have a monthly budget that accounts for your retirement and your debt management needs. You are setting aside the right amount each month to reach financial independence by the time you reach your desired retirement age.

Now if you want to buy that dream car, or special vacation, or the forever home, you can begin to accumulate the money for that dream. You might even work on more than one dream. 

If you want to buy a house and a dream car, then calculate what you need to save for the down payment on the house and for the purchase price of your dream car. If you have $5,000 a month left over after covering the more important issues, then allocate that extra $5,000 for your dreams.

You might set aside $3,500 a month for the house downpayment and $1,500 a month for that dream car. At that rate of savings, without accounting for interest earned, you will be accumulating $42,000 a year towards your house down payment and $18,000 a year toward your car purchase.

It should not take long to save enough for the home down payment or to pay for your dream car. Don’t buy consumer goods, like dream cars, with borrowed money. Be sure you actually have the money in hand for those purchases. Only borrow money for things that you have no other way to achieve, like paying for medical school or your first home, or assets that will make the loan payments themselves, like a cash flowing real estate rental.

Living without achievable dreams is not much of a life at all. You work hard for your money; it should be earning you more than the ability to stop working sooner. Use some of your money to have fun and enjoyment along life’s highway.

I like to tell my coaching clients to move one item from their bucket list to their calendar every year. You never know how long you will live, so make every year count. 

So, circling back to the original question: When can you buy your dream car? When you are covering all the important life needs each month and you have saved enough cash to pay for the car without a loan or a lease.

So how did I finally get my convertible sports car? We were in the process of becoming debt free and were nearly at the end of the journey when this desire hit me. (More on this in my book, The Doctors Guide to Eliminating Debt.) My wife and I came to an agreement that once we were debt free, I could buy any car I wanted as long as I paid for it with cash. No car loans allowed. I bought the car two years after our final house payment. I was 40 years old when I drove my dream car home, just three years after I said I wanted it. 

We hadn’t reached financial independence and it was years before my retirement date, but dreams need to be realized throughout our lives. Just plan to get them in an affordable manner without sacrificing anything important.

How about you? Have you ever worked an expensive dream into your budget? 

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