Financial Analysis: How Many Years Of Work Would A Luxury Vehicle Cost You?

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I’m continuing the discussion from my last post on the cost of vehicles by looking at the differences in the total cost of ownership for different models – basic transportation and luxury vehicles – over time.  In April, I analyzed the impact of luxury homes on the number of years someone needs to work and reached the conclusion that trading up to a luxury home probably adds two or three years for the average person.

Even though cars are initially much less expensive than a home, they have several strikes against them: unlike a home, they depreciate significantly; they require regular replacement (3-6x over 30 years); and. there are no tax deductions for their financing.

Using the Total Cost of Ownership calculator, I looked at six different models of SUVs over five years of ownership with an assumption of 15,000 miles a year of usage:

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You can immediately see why Dave Ramsey says that the new status symbol should be a paid off house instead of a BMW.  Among these SUVs, a BMW will run you almost $35K more than a Honda Pilot every 5 years between now and your retirement.

Assuming a 30 year career (22+30 = 52 years old at retirement) and a 7% return rate on your savings and the difference in these two vehicles adds up to almost $700,000.  That’s an incredible amount of money – about $290,000 in today’s dollars (3% inflation rate) – that could save you FOUR YEARS of extra work – as most could live on about $75K  annual spending in early retirement.

You might say the analysis is silly because 22 year olds don’t drive BMW SUVs, but you could start the analysis 10 years later and the retirement age would then match the average American at 62 years old.  You could also discount the entire analysis by HALF and it would still be an incredible $350,000 in savings.  That would be the rough savings for people who might keep their cars for a full 10 years. 

Having driven a BMW X5 for the last 7 years, I was quite shocked at how much the cost difference added up to over the course of a career.   I am happy to have driven basic Toyota’s and Honda’s for most of my working days.  The luxury SUVs we have owned (an Acura MDX before the current BMW) were company cars – MegaCorp paid their lease, insurance, maintenance & repairs. I bought out our current BMW four years ago with an early-retirement MegaCorp discount that was more than 60% off of its residual value.

As I’ve written, we’re getting to the point of wanting to replace our aging SUV next year.  While I would love to get another luxury vehicle (a couple years old, with low miles), I’m not sure my enjoyment matches the tremendous cost.  I expect I will look to downsize either the size, performance, or brand name on the next vehicle we buy, although we budgeted for nice cars in our overall FIRE plan.  Since we hope to be retired for at least as long as we were working, the savings to be gained by driving a less luxe vehicle is the same as the analysis above. 

Does the cumulative difference in cost / years of working surprise you?

Image Credit: Pixabay



5 thoughts on “Financial Analysis: How Many Years Of Work Would A Luxury Vehicle Cost You?

  1. Chief, you have crunched these numbers to a fare-thee-well! I am surprised by the size of the total relative differences of ownership cost over time. Because I value cars only for performance as reliable transportation, I feel like a Mr. Smartypants to learn how much I “saved” by exclusively owning Hondas in recent decades. Perhaps I should pop a bottle of Dom Perignon from my wine cellar to celebrate! 😉


  2. One idea: use a “normal” /frugal car for your everyday driving. And then rent a luxury/fun car when you’re doing a fun drive or when you’re out to do some sightseeing/enjoying the weather etc.

    Liked by 1 person

    1. That’s a good approach. There is a local luxury car dealer that has a “sports car club”. Like a boat club, or fractional ownership, they sell 3-4 memberships for each sports car that is available to the group. I think it runs $5-$10K a year to belong, but you can see by these numbers that the math would be better than owning. And, you get the fun of trying different cars! 🚗


  3. I don’t have a car. We are living in a big city with metro station close to us. 2km walking in the morning is good for the health and good for my budget. For FIRE we estimate to use more the bikes, and 1 per month
    to rent a car, more probably from local people.

    When we bought the last apartment we calculated the cost difference to buy on the country side and buy 2 cars and the numbers said: smaller and more expensive but walking distance to the school/metro/hospital. And we didn’t calculate the long term costs of a car, as you…

    Liked by 1 person

    1. Not having a car at all is a huge savings. Even when you calculate in the cost of public transit and occasional car rental. I used to walk 1/2 mile to the bus line every morning and ride into our downtown business district. My wife and I only kept one small, used car. Saved a bundle for the first 6 years we were married.

      Liked by 1 person

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