Drive Free, Retire Rich

This is plain awesome.

The Scenario

  • 6-year loan at an average rate of over 9%
  • 26,000 car
  • 475/month payment
  • Loses about 25% value
  • After four years, lost about 70%, and there are still two years of payments left
  • After six years, you’ve paid 33,000 for a 26,000 car that’s worth maybe 6,000

But…

  • Let’s say you have a car now worth 1,500
  • If you save 475 for ten months you can get a used car for 6250
  • In another ten months, you save another 4750, and can re-sell the 6250 car and get a car worth 11,000

Over the six years of the original loan

  • If you put the money into a mutual fund (at 12%*) you’d have 32,000.
  • Your $11,000 car is finished
  • There is enough money left to keep buying new 14-18,000 cars every five years for free!

It boils down to a flash presentation on the magic of compound interest, just done in a very nice way :)

* Eight percent is more realistic, I think.

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