I came across this chart and it got me thinking how much do luxury cars really cost?

The chart compares the net worth of individuals and the brands of cars they drive.

It shows people in the middle tier of net worth tend to drive luxury cars, while those in the lowest and highest net worth categories tend to drive brands like Toyota.

Although this is a hypothetical chart, it highlights a trend observed in real life. According to an Experian study, 61% of people with household incomes exceeding $250,000 drive non-luxury car brands such as Toyota, Ford, and Honda.

The Trade-Offs in Personal Finance
Let me start by saying I’m not trying to spend-shame anyone. You can’t take your money with you and it should be spent on things you enjoy. But if you drive an expensive car and your finances are a mess, there’s a pretty simple fix.

Personal finance is all about trade offs. Transportation costs are typically the second biggest expense in people’s budget. The decision to own an expensive car can make a huge dent in your finances.

So what is the true cost of a luxury car? For these examples let’s assume the following prices:

New luxury car: $70,000
New standard car: $35,000
Used standard car: $25,000

With current car loan rates are around 7% or higher, here are the estimated monthly payments for a 5 year loan:

New luxury car: $1,320/month
New standard car: $660/month
Used standard car: $377/month

As you can see there’s a significant gap between the costs of these cars. And remember this doesn’t even factor the maintenance and insurance which is normally higher for luxury cars.

So, is paying double or triple the amount for a luxury car worth it? That depends on your financial situation and priorities.

If you are not already saving money, the tradeoff of owning an expensive car is significant. Instead of spending more on a luxury car, consider what would happen if you invested those savings over the next 30 years with an average annual return of 7%:

These figures can be eye-opening. By investing the money saved from choosing a more affordable car, you could accumulate over $1 million over 30 years! Opting for a more affordable car not only reduces your monthly expenses but also provides a significant opportunity to grow your wealth over time.

Bottom Line
A solid financial plan involves setting specific goals and priorities. There’s nothing wrong with prioritizing spending on luxury cars, boats, homes, etc as long as you’re saving money too. Every financial decision has a trade off and understanding the true cost of those decisions is crucial.

George Maroudas, CFP®

George Maroudas, CFP®

Twitter @ChicagoAdvisor

Disclaimers / Sources:

Car payments calculated using the Auto Loan calculator from Calculator.net.

What The Rich People Really Drive from Forbes.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.

This is a hypothetical example and is not representative of any specific investment. Your results may vary.