Automobile Purchases Calculator Tutorial

Learn how to use the automobile purchases calculator with this tutorial.

Automobile Purchases can be a useful calculator for helping your clients understand powerful financial concepts, like opportunity cost and the value of “other people's money” when properly applied. Let's talk about some ways to use the Auto Calculator to your benefit.

To open the automobile purchase calculator, launch your Truth Concepts software by double-clicking the desktop icon, then selecting Automobile Purchases from the dropdown Calculator menu.

Using Automobile Purchases

There are a few ways to use Automobile purchases. You can put in the value of a person's current assets or leave it blank initially. For this example, let's say the client has a total account value of $50,000 and is saving $10,000 every year. If illustrating to a client for the first time, sometimes it's wise to use “imaginary” numbers rather than their own. That way the client can focus on the concept, rather than their own feelings about their money.

To start filling out the calculator, Then include the net rate of return on their savings for that asset. Depending on where your client keeps their assets, this will be anywhere from about 2% to 5%, give or take. For illustrating to a client, we like to go ahead and use 5%. If a client questions it, you can share that some assets deliver roughly 4-5% consistently, even if theirs does not. Then under “Years to Illustrate,” type in 40 years.

If the client is buying a car roughly every 4 years, that's about 10 car purchases to look forward to over the next 40 years. You can of course adjust this buying frequency however you like, depending on your client's habits.

If the client is buying a $40,000 car every 4 years for the next 40 years, that's $400,000 he has transferred to the car company over 40 years…right? Well, not if you include interest. If the client mentions 0% financing, this could be a good moment to pull out a rate calculator and share how 0% financing doesn't really exist. However, it's your responsibility to gauge whether your client is ready for this, or if it would be too much to absorb. You'll have a lifetime to educate your client.

Additionally, if the client wants to buy cars that have the same value as a $40,000 car, they're not actually spending $40k each time. With inflation and interest, the cost of a car of similar value is going to rise over the years. After all, how likely is it that the client is downsizing if they're buying a car every 4 years? So we've got to account for that. So let's put 5% in the “% Increase” box.

automobile purchases tutorial


As you can see, if the value of the car rises every year, the cumulative cost of purchasing a car every 4 years is actually $1.257 million. Meanwhile, the “true” cost of the automobiles would be $2.815 million, because you're losing 5% EARNINGS on that money if you had put it into savings instead. In other words, you're also costing yourself 5% if you had saved the cash. (So by changing the earnings rate on your assets, you change the opportunity cost.)

You'll also notice that currently, the client's assets don't make this car habit sustainable—they'll run out of money! Of course, if they started with a higher asset base, this could make a difference. It also makes a difference if they're able to increase savings each year. If the client increased their savings contribution by even 3% each year, their ability to purchase cars becomes greater. (Alternately, what if they bought a new car every 6 years, instead of every 4 years?)

auto purchases

Additional Considerations

An even better way to do this is to add some things we've overlooked. For example, what about sales tax? In Texas, that's 6.25%. And, what about car insurance? Let's say insurance for this car is about $1,800. Now, that cost has increased to $3.22 million.

Hopefully, this helps people to understand just how much car purchases can deteriorate wealth. The cost isn't just the cash price, it's also the loss of savings and what that could have earned. While these numbers can change drastically depending on your client's assets, habits, and location, the concept remains the same. Buying cars in cash with frequency can get pricey.

So, is paying cash really better? Not necessarily, if you're losing out on the ability to grow your capital. Yet, by becoming proficient in the art of financing through other people's money, like the insurance company, you can finance your purchase AND continue to earn a rate on your cash. It's the house of both/and, not either/or.

The best way to understand complex topics is through narratives.


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