Everyone has those two types of people on their team. You know it when they drive into the lot for briefing. One is the senior officer driving the 2000 Camry two-tone with the headlights have that incandescent yellow tint. The car has close to 120k miles on it, maybe less if we are counting the engine rebuild. Then there is probationary officer smith who just locked in a 72 month plan for that Ford Raptor with a brand new lift kit for only $500 a month and is on phase 2 of his FTO program.
The difference is Camry is not driving their money to work while Raptor is (or credit at least). Let take a look at the real cost of driving that (admittedly super sweet) Ford Raptor.
The $500 a month Raptor is spending of the vehicle is more then the actual $500. We have to look at the long-term "opportunity cost."
We have all heard of the term "make your money work for you." So what exactly does that mean in normal talk? Let take a look at two possible places that traffic overtime cash can go.
The formula to calculate the compound interest is P (1 + r/n)^(nt) (Credit thecalculatorsite.com). That looks complicated and since I have not used my TI-82 since high school, lets bust out the crayons.
Let me set my crayons down and do some math.
$500 over a year is $6,000. The average CONSERVATIVE return is 4% (.04). At the end of the year Camry keeps her $6,000 and banks $240, increasing her net worth by $6,240. That means at the end of the 72 months Ford Raptor has a five-year old truck with no return and Camry has gained $41,097.77 (BUT WAIT THERES MORE!)
Let's assume Camry completes her twenty year career. That means by forgoing the $500 a month Raptor payment she will add $90,050.27 to her net worth. Almost 10% of her goal of being a millionaire cop.
"Driving an inexpensive car is one of the biggest levers people can pull to free themselves up financially to save more." -Ben Carlson CFA (Is the Ford F-150 Partially Responsible For the Retirement Crisis?)
Lesson: Be reasonable and avoid car payments at all costs.
Bonus: Montana allows for a permanent tag = No more annual registration $.
-An Aspiring Millionaire Cop