Save & Invest

How to Get a Car for Free

Creative ideas from my millionaire friend Mary

I live in Austria, and the country is in the second lockdown. For years of my life, I have thought that we have one of the best healthcare systems in the world in Austria, yet our doctors are struggling with keeping up with ICU patients.

To help them fighting against SARS-CoV–2, everybody can stay home to avoid spreading the virus further.

That’s why I switched to video calls when I want to chat with my friends. We don’t meet, together we drink a glass of wine or two in a Zoom Call or MS Teams Call in the evening.

Paul and Mary, I know since ever. We were in high school together and got our master's degree a couple of years later. After that, we went in different directions but checked in every couple of weeks.

Yesterday Paul was very excited. He got a new car for his family and wanted to show his newest investment to us. His family is 3 kids and his wife. Paul and Sheila married right after high school and got their first kid after graduating with their master's degree. A lovely family.

Paul needed a big car to have enough space when the entire family wants to travel.

“I went for an Audi Q7 SUV”, he said with a proud voice in his tone. “I really never thought I can afford such a car when we were back at the university. But today was the day. I signed the contract and transferred the money.”

“Congr…. “I wanted to say how well he did, but mary interrupted me.

“Transferred the money? What money did you wire? Downpayment or what? She asked with a bit of a confused looking facial expression.

“Mary. You buy a car. You sign the contract. You wire the money. You own a car.” Paul joked around and spoke to her like she was a 7-year-old girl.

Mary’s face went pale white “Did… did… you … buy the car in cash?” she mumbled.

“Yes, of course. Everybody does that when he wants to buy something. Or do you think the car dealer gives me the car for free? Or what?”

“Did you… did you…. pay the entire amount in cash?”

“Yes, stupid. How else should I own the car?” Peter said confidently.

“YOU ARE SUCH A STUPID IDIOTIC MORON,” Mary shouted in the Mic, so loud that I had to mute my headset. Otherwise, I am pretty sure I would have ended up deaf.

I couldn't hear what she said, but I was impressed by her face's quick color change, from pale white to burning red. It took a couple of minutes. Paul was looking at her, confused. And I was sipping my glass of wine, waiting for her to cool off.

We knew her, a couple of minutes, and she is back to normal again.

A few minutes later, I turned on my headset and said, “Ok. Mary. You had your show. We all got it; you think Paul is stupid to buy the car in cash. Probably he spent all his savings on it. So let is drink from your millionaire well of wisdom. How would you have done it?”

And here is what she said in 5 digestible lessons without the swearing and cursing in between.

Get the Asset First

“An important distinction is that rich people buy luxuries last, while the poor and middle class tend to buy luxuries first.”

– Robert Kiyosaki

“The only thing you did right, saving first,” Mary said calmly. “At least this one you got right. You are not a complete Moron. Only 95% of a moron”.

“Mary. Stop it.”, I said, “just tell us your way.”

So getting the asset first is the thing she stressed very much, regardless that Paul got it right. Always save first, she said. I remember my mother saying something similar.

“If you don’t have the money, you can’t buy what you want”.

Mary explained that the most broke people do not even save first and take out a loan for buying stuff.

Her tone was not very friendly.

Mary’s rule number 1:

• Whatever you want to buy, you need to save the money first.

Buy the Used Version of Your Desired Car

“The old-money people, the long-term rich, build their asset column first. Then the income generated from the asset column buys their luxuries. The poor and middle class buy luxuries with their own sweat, blood, and children’s inheritance.”

– Robert Kiyosaki

“The savings you build are sacred,” Mary continued. “You don’t want to give them away easily. Hard work was required to build them. Blood, sweat, and tears….”

“You are getting carried away, Mary. Make your point.” I interrupted her. She has a tendency to make a short story long. Not the nice compelling storytelling long, more the boring going on and on and on the style of explaining something.

But she was a millionaire. So she knows what she talks about.

She opened up a web browser and shared the screen. Let’s check it out, she said.

When we look at the Audi page, a new Q7 is about 90,000 without extras. Now I open a site for used cars and look for a similar configuration. We don’t need the exact configuration, just something that is close.

Here we go—a 5-year-old Q7 with about 50,000 kilometers under his belt trades for about 45,000 Euros.

“45,000 Euros”, she repeated very, very slowly and paused.

“But I need a new one,” Paul said.

“Nobody needs a new one. The industry wants you to believe you need a new one. In fact, it is burning money.”

Paul was silent and listened.

“Unfortunately, there is no 10-year-old Q7 in the system. But let’s just look at an A4. Definitely, 10-year-old A4s do exist.”

Going for a new A4 is

• about 50,000 Euro
• after 5 years they sell for about 25,000 and
• after 10 years for around 12,500

It’s like cryptocurrency. Every 5 years, you have a halving event. She grinned.

Mary’s rule number #2:

• Go for a 5-year-old car. You get the same quality for half the price.

Get a Loan

“With money comes great power that requires the right knowledge to keep it and make it multiply”

– Robert Kiyosaki

“So Paulie boy,” she joked, “your 90,000 spent my way would be a car for 45,000 and remaining assets for 45,000.”

“But I have the car, so I have the 90,000 still”, Paul wanted to sound smart.

“No, Paul,” I said, “the minute you drive it is 10–20% less.”

“Right, Christian,” Mary agreed with me and continued with her explanation.

So instead of paying the 45,000 in cash, I would negotiate with my bank. Given your income, a 90,000 in savings, and a car that sells easily, I am confident of getting a loan for the entire amount. Throwing in fully comprehensive insurance will definitely seal the deal.

Mary sounded confident, and neither Paul nor I wanted to dig into the detail. Otherwise, we would end up with this story until early morning.

“Why should I get a loan,” Paul asked.

“Interest rate is about zero. Well”, mary explained, “the bank will charge you some interest, of course. But let’s keep it simple and say currently it’s zero.”

Paul and I kept our mouths shut. When the great explanatory machine, Mary suggested she keeps things simple, who are we to disagree.

“But why Mary. Make your point,” Paul got a bit impatient.

“So that you have the 90,000 of your asset at your disposal and not allocated at the car dealer or bank.”

Mary finished that part.

Mary’s rule #3:

• Finance the purchase of an old car with a loan or similar financial instrument

Invest the 90,000

“The poor and the middle class work for money. The rich have money work for them.”

– Robert Kiyosaki

“And what should I do after getting the loan?” Paul asked.

“Buy the car,” Mary laughed.

“Mary.”, I said, “that is not what he meant. Right?”

“No. Yes. What should I do with the 90,000 in that example? The interest rate on my savings account is zero as well.”

“YOU HAVE WHAT? ALL THAT MONEY COMES FROM A SAVINGS ACCOUNT?” Here we go. She shouted again for a couple of minutes.

“Yes.” Paul nodded.

“Stupid you. But I should have known. 90,000 in a savings account doesn’t make you money. You need to invest the amount in something that makes you money every year.”

She recommended taking the 90,000 and put it into an S&P 500 ETF fund, assuming that the ETF makes about 10% return on average every year.

Mary’s rule number #4:

• Invest your money in something that delivers a return, for example, an S&P 500 ETF

Sell the Car and Payback the Loan

“Take risks, be bold, let your genius convert that fear into power and brilliance — advice that will terrify some, because so many play it safe when it comes to their money.”

– Robert Kiyosak

After 5 years, you sell the car, pay back the loan, and cash in your profit.

“Profit? How why?” Paul was confused.

Breaking it down:

• After 5 years, the ETF will be about 145,000. Thank God for compound interest, and at a 10% average right, it might well be there. It is risky, but history shows that it is possible, and the likely hood of losing it all very low.
• Bank in the profit and take 45,000 to repay the loan. I know the example is oversimplified; however, the money will be there to repay the loan.
• Sell the car for about 25,000. It should have about this value after 5 years, as long as there was no severe accident or crash.
• All in all, doing it that way leaves you with about 125,000 in cash.

“Wow.”, Paul was mesmerized, “ I didn’t know that. When I sell my car in 5 years, I will get 45,000 and save another 45,000 to buy a new one. Or I get a used one, which is as good as not selling the car.”

“In your example, I would, on top of that, made a profit. Not only would I have the 90,000 but also 35,000 on top of that. Thanks to what you call compound interest”, Paul said with a bit of a sad tone.

I understand him, realizing that having this information a week earlier could have made a significant difference.

“Now you get it.”, Mary said happily.

In Pauls's mind, he most likely saw that the difference between 125,000 and 45,000 is 80,000.

Marys rule number #5:

• Take profits and re-allocate every few years.

We ended the evening right after, Paul wasn’t in the best mood, and I believe he needs some weeks to digest what he just heard. Maybe with a slight feeling of regret for not having called his friend Marie a bit earlier.

As Robert Kyosaki already said, the poor spent their money, and the rich let money work for them.

Marry explained a simple way to not only get a car for free but also make some money on top of that.

Here are her 5 rules again:

• Whatever you want to buy, you need to save the money first.
• Go for a 5-year-old car. You get the same quality for half the price.
• Finance the purchase of an old car with a loan or similar financial instrument
• Invest your money in something that delivers a return, for example, an S&P 500 ETF
• Take profits and re-allocate every few years.

I know that it is easy to bring up points that raise doubts or simply say it is not possible in reality. It is possible, may the reality be a bit more complex with interest rates and the stock market's swings.

Yet, there are risks that the market might plummet or interest rate rise, a war could break out, or a virus cause a pandemic. Ok, the last point already happened. As Erin Hanson says:

“There is freedom waiting for you,

On the breezes of the sky,

And you ask ‘What if I fall?’

Oh but my darling,

What if you fly?”

Join my email list to stay in touch!

More stories about financial literacy: Click here

This article is for informational purposes only. It should not be considered Financial or Legal Advice. Not all information will be accurate. Consult a financial professional before making any significant financial decisions.