When you see someone driving down the street in a sleek BMW you likely say “Wow, nice car! I bet he’s loaded!” But have you ever stopped to wonder which would help you out more a BMW or a degree?
Is a normal car an investment?
By definition, an investment is something you put your money into and expect to at least get that money back, ideally with interest. It is assumed here that investment actually means good investment. You can invest in a savings account – you put money in, and when you take it out later it has increased. Does the same ever happen to a car? When you buy a new car of any type, simply driving it off the dealer’s car lot loses you 17% of the initial value. That means if you paid $20,000 for the car, and decided to turn around and try to sell it, you would loose on average $3,500 in the first few days of your ownership. From there it does downhill as the value of the car depreciates each year until it is essentially worth zero. So your $20,000 has completely disappeared. Plus it did this while you were paying for gas and insurance and maintenance to your “investment”. Over the life of a car, you have paid far more than just the sale price of the car. Your $20,000 investment could easily end up costing you $30,000 or more. That is not an investment. Imagine your reaction if a friend told you they bought a blue chip stock at $200 a share and ended up paying $100 per share to the company? You would call that person crazy, but that’s the same as “investing” in that car.
Is a degree an investment?
Using the same definition of investment, let’s look at a degree. You go to college or university to get a degree to help you advance your career. People who have a degree in their field get paid more. And each year if you get a cost of living pay raise, that difference in your pay keeps increasing. Let’s look at two people in the same field of work. One has no degree and earns $30,000 a year, and the other has a degree and earns $40,000 a year. If they both get a 3% cost of living raise each year, that is $900 for Mr. No Degree, and $1200 for Mr. Degree. You can see how each year Mr. Degree’s pay will get farther and farther ahead of Mr. No Degree’s pay. After 5 years with no merit pay raises Mr. Degree’s pay won’t be $10,000 more, it will be over $11,500 more! So not only did the degree get a higher paying initial job, but the pay increases result in an even higher salary. Yes, a degree is an investment and generally it is a good one.
Are there times a car can be an investment?
If a normal car isn’t an investment, can any car be an investment? There are some specific situations when a car can increase in value. An antique car is a good example. If you buy a car when its 10 years old, it is worth next to nothing. But that same car in the same condition, if it is 30-40 years old is worth considerably more. You still have to maintain the car over those years, so unless you have a very rare car and you never drive it (that means almost no insurance and no gas) you will still be paying more than its worth. Used sports cars might be an exception as well. If you are looking at a high end sports car worth $100,000 new, but is a few years old and going for $50,000 there is a chance that you can turn around and find a buyer willing to pay $60,000 for it. That would be a good investment. However that is much like going to Vegas – you can’t bet on those odds to keep food on your table.
What can you get form a car besides money?
Some investments return things of value other than money. For example you invest time in your children and the return is happiness and good memories. Can cars return things other than money? That is the main purpose of a car – to provide you transportation, storage, and possibly status. If you work in a place where there is no local bus service, you need to own a car and drive to get to work and earn your pay. Some people get a car or van to store their things in, such as a traveling salesman. And many people buy a car as a status symbol with better cars showing people that you are better off. People could try to use this aspect of the BMW to their advantage. For example if you drive up to a job interview in a BMW, the interviewer may think you are successful and want you to work for them right away. This compares to diving up in a smoking old junk heap that makes the interviewer think you don’t have two dimes to rub together and fix your car up and would look at you as unsuccessful. This situation is stretching things considerably. It’s just as easy that the interviewer will think a BMW is a waste of money and a bad decision, or that old junk heap shows you are careful with your money. Again, while it is possible these types of benefits are not ones you can count on getting a return on.
A degree wins out nearly every time
While there is a very rare situation where you can make money off a BMW, you can almost always make money from a degree.