I recently received a question from a reader who wants to know if he should buy a new car. Here’s his situation:
I’m 25 currently running a company on week days, and have a part time job on weekends. I am making roughly $60,000 a year (give or take). The last few weeks I have been on the edge of buying a brand new $22,000 car (give or take). After going through this blog many times I am not really not sure if I should do it or not. I totally can see how spending less than 20% of my yearly income on a car is definitely a super smart thing to do.
But for the longest time I want to look a certain way. (I guess on this blog we call that the disillusion of being successful).
Anyhow, I really want to live life a certain way. I want to wear wool suits, driving clean looking cars. By all means the car doesn’t have to be really expensive. My current car is a hand down from my parents. Toyota Yaris, which I have to admit I’m quite embarrassed when my employees and friends see me driving it.
Definitely feels a bit torn right now….
From what Will described, it sounds like he’s doing quite well with his career and he’s aware of the importance of this decision. Here are a few things that came into my head when I started thinking about his situation:
– Warren Buffett bought a house in Omaha, Nebraska in 1957 for $31,500… he still lives in the same house
– Sam Walton drove his old pick up truck and wore clothes from his own discount store even after he became rich
These are obviously extreme examples of very successful entrepreneurs who stayed very humble, but there are many more stories out there. The point is they focused their money and efforts on what was best for the company and they didn’t care what others thought of them. In fact, many rich people buy much less car than they can afford.
I reached out to one of my entrepreneur friends and asked him to add some input. Here’s what he said:
Your employees will respect you more for being frugal. The fact is, they know you’re making sacrifices to get the business off the ground. Case in point, the part time job…. if they see you buy a new / newer car and yet the business still isn’t producing big dividends then they’ll think you’ve got your priorities out of whack. Cash is king when running a business. The more cash you have, the longer your runway which equates to a greater chance of success. Don’t let a short-term gain/want jeopardize a long-term opportunity.
Here’s a funny story… when I was starting my business I seriously had to make a continuous decision to either “invest” in buying a boat or take $25k and use it to start the business (ie pay my bills and misc business expenses for at least a year). The boat would have been a BLAST and a lot more fun than watching my savings account dwindle away over the next year but I knew if I wanted to escape the corporate world I had to start investing in myself. Thankfully I made the right decision. Three years later I paid cash for a $65k boat and didn’t have to think twice about it!
You need to be comfortable with yourself and not worry what others think you “should” look like. In fact, Will should be proud he’s smart enough to keep his paid for car so he can focus his money on the things that will make more money!
Do you think Will should buy a new car?