How Much Money You'd Make in the Stock Market Instead of Financing a New Car

If you can hold off buying a new car — and have the discipline to reinvest the savings — you could turbo-charge your retirement savings. When you purchase through links on our site, we may earn an affiliate commission. Here’s how it works. Profit and prosper with the best of Kiplinger's advice on investing, taxes, retirement, personal finance and much more. Delivered daily. Enter your email in the box and click Sign Me Up.You are now subscribedYour newsletter sign-up was successfulWant to add more newsletters?Delivered dailyKiplinger TodayProfit and prosper with the best of Kiplinger's advice on investing, taxes, retirement, personal finance and much more delivered daily. 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We've all read stories about the budgetary wonders of self-restraint. You know the tale: If those darned millennials gave up Starbucks and avocado toast, we'd solve the housing affordability crisis or something.I don't actually know. I don't read those stories.That's precisely why I laughed when my editor brought up a question she'd seen a few times from readers: "I can afford a nice car. But should I suck it up for a few years with my current vehicle, and use the money I'll save not making payments on a new car to invest instead?"Become a smarter, better informed investor. Subscribe from just $107.88 $24.99, plus get up to 4 Special IssuesProfit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.Profit and prosper with the best of expert advice - straight to your e-mail.Well, that's partly why I laughed.It's also funny because both my family rides are on track to be paid off (early!) by the end of the year, and I've already been thinking about which 2026/2027 models I'd like to use the trade-in value on. Because if I have a financial weakness, it's the allure of stepping into a new car every few years.But after going through this exercise, I begrudgingly have to admit the financial rewards of hanging on for a few more years are too sweet to resist.Let me walk you through exactly how much money you can make by taking a significant pile of monthly savings — in this case, the hefty difference between financing a new vehicle and hanging on to a paid-off car — and putting it toward building your personal wealth. First, I need to determine just how much I'd save by holding on to my current hooptie.If we're calculating the costs of owning a car, we're typically looking at five main categories: 1.) Car payment, 2.) insurance, 3.) repairs/maintenance, 4.) fuel and 5.) registration/license/etc. But we only need to consider the first three; the final two won't differ much based on whether your car is paid off or not.Let's look at those first three factors through two different lenses: a new vehicle being financed over five years, or a five-year-old car that is already paid off.CategoryNewUsedFinancing$9,204$0Repairs/maintenance$370$1,326Insurance$1,692$1,300Total$11,266$2,626Annual savings$8,640Monthly savings$720In all, I'm saving $8,640 per year, which comes out to $720 per month.That's a lot of investment ammunition. And all it will cost me is five years of tearful gazes while pawing glass as I drive by the local dealer's lot. Next, let's look at what happens when I put that difference to work in the stock market.Here are the ground rules:Let's see how things look after five years:YearContributedFund A interestFund A balanceYear 1$8,640.00$313.94$8,953.94Year 2$8,640.00$1,033.84$18,627.77Year 3$8,640.00$1,811.61$29,079.39Year 4$8,640.00$2,651.92$40,371.31Year 5$8,640.00$3,559.79$52,571.10Not bad! In short, I've taken $43,200 worth of savings and gained nearly $9,400 on top of it.This isn't a real-world result. The stock market isn't going to perfectly compound at 8.04% for five straight years. There'll be ups and downs, so my actual savings could be more or less. But this starts to give us an idea of how contributing and compounding significant additional sums can add up quickly.Anyway, at this point, I will have owned the same car for 10 years. Even if we're assuming I own a Honda or a Toyota, I'm probably not going to push my luck past a decade.Plus, I'm only human. New-car smell eclipses all.So, I finally wave goodbye to my old vehicle and purchase a new one. Goodbye, future monthly savings. But my tidy $52,571 isn't going anywhere, so there's no reason why I shouldn't let it remain invested.Let's say I'm 48 years old at this point in my theoretical timeline. Here's what another 15 years could do before an early retirement at age 63.YearInterestBalanceYear 6$4,226.72$56,797.82Year 7$4,566.54$61,364.36Year 8$4,933.69$66,298.06Year 9$5,330.36$71,628.42Year 10$5,758.92$77,387.34Year 11$6,221.94$83,609.29Year 12$6,722.19$90,331.47Year 13$7,262.65$97,594.12Year 14$7,846.57$105,440.69Year 15$8,477.43$113,918.12Year 16$9,159.02$123,077.14Year 17$9,895.40$132,972.54Year 18$10,690.99$143,663.53Year 19$11,550.55$155,214.08Year 20$12,479.21$167,693.29By age 63, my original $43,200 in savings is now worth almost $168,000.But I say to myself, "You know what? My other retirement savings — which at this point are more appropriately/conservatively positioned than an all-S&P 500 portfolio — have done exactly what I need them to, and I don't need to touch my automotive IRA. Let's let it ride another five years!"YearInterestBalanceYear 21$13,482.54$181,175.83Year 22$14,566.54$195,742.37Year 23$15,737.69$211,480.05Year 24$17,003.00$228,483.05Year 25$18,370.04$246,853.09I've tacked on an additional $80,000 in just five years. My final balance of $246,853.09 is now six times the size of my cumulative five-year car savings.That said, I want to run one more calculation. All of the above assumed my real current age, which — sigh — has a 4 in front of it. But let's say a younger, spritelier version of myself decided to make this intelligent choice when I was 30 — and let's assume I was aiming for a retirement age of 65. All of the above tables would still apply; I'm just adding another 10 years' worth of investment.YearInterestBalanceYear 26$19,846.99$266,700.08Year 27$21,442.69$288,142.76Year 28$23,166.68$311,309.44Year 29$25,029.28$336,338.72Year 30$27,041.63$363,380.36Year 31$29,215.78$392,596.14Year 32$31,564.73$424,160.87Year 33$34,102.53$458,263.40Year 34$36,844.38$495,107.78Year 35$39,806.67$534,914.44I'd be looking at gains of more than 12x. What started as $43,200 in automobile savings would have blossomed into more than $535,000 … which, at least today, would be enough to purchase a brand-spanking new 2026 Aston Martin Vanquish Volante.A fitting return on my younger self's sacrifice.Profit and prosper with the best of Kiplinger's advice on investing, taxes, retirement, personal finance and much more. Delivered daily. Enter your email in the box and click Sign Me Up.Kyle Woodley is the Editor-in-Chief of WealthUp, a site dedicated to improving the personal finances and financial literacy of people of all ages. He also writes the weekly The Weekend Tea newsletter, which covers both news and analysis about spending, saving, investing, the economy and more.Kyle was previously the Senior Investing Editor for Kiplinger.com, and the Managing Editor for InvestorPlace.com before that. His work has appeared in several outlets, including Yahoo! Finance, MSN Money, Barchart, The Globe & Mail and the Nasdaq. He also has appeared as a guest on Fox Business Network and Money Radio, among other shows and podcasts, and he has been quoted in several outlets, including MarketWatch, Vice and Univision. He is a proud graduate of The Ohio State University, where he earned a BA in journalism. You can check out his thoughts on the markets (and more) at @KyleWoodley.