I'm not going to lie. This past week has been one heck of a wild ride -- but in a fun sort of way!
Normally the only wild rides I take part in are the peaks and troughs I might experience if the broad-based S&P 500 swings up or down by 2% or more. That all changed on Tuesday, when I purchased my dream car, a 2009 Mercedes-Benz C63 AMG.
As I sop up my drool yet again, the only reason I'm even bringing up my own personal car-buying experience is that I noticed quite a lot of useful investing correlations with the steps I undertook to purchase my car that I suspect other investors out there might find useful. Obviously, every person's financial situation is unique, but there's probably a car out there that we'd all love to put in our garage. Here are the five steps I took to make it happen.
Step 1: Understand that it's an investment ... in fun.
The very first thing you have to understand about buying the car of your dreams is that unless it's a vintage automobile or an extremely rare vehicle, it's probably going to lose value over time. In other words, you're buying the car for your own personal enjoyment and not as an investment, so kiss the money you've been setting aside goodbye.
I also recently offered up similar advice about purchasing your very first home by calling it one of the worst things you'll ever do with your money -- from a strict investing perspective, that is. A first home shouldn't be viewed as an investment, but as a place to live and a stepping stone toward a number of other factors, including a happier lifestyle. Once you understand that you're only making an investment in your happiness and not in your future wealth, then you're ready to move on to Step 2.
Step 2: Set goals.
What? You thought goal-setting was used exclusively in the workplace?
I have found that setting a goal, in this case the purchase of the car of your dreams, takes an incredible amount of conviction and a number of constant reminders, since there are numerous other wants and needs that will creep into the picture as well. Goal-setting to purchase the car of your dreams is actually quite similar to what you might do when you plan to purchase your first home, send your children to college, or sit down and figure out what you need to do to retire comfortably.
This means you'll need to sit down and figure out a game plan that will keep you on track to achieving your goal of dream-car ownership. For me, the goal was always in sight, since my previous car, a 2002 Kia Optima, had 142,000 miles on it and was starting to cost more in repairs than the car was worth. This served as a constant reminder to me that it was time for a newer vehicle. When you find your motivation, use that to keep your goal(s) in perspective.
Step 3: Save and invest for the long run.
Much like investing for retirement, saving enough to purchase the car of your dreams is going to take a time -- it doesn't just happen overnight. This entails entering into your car-purchasing decision with a long-term view in mind and staying disciplined (see Step 2) so that you don't stray too far, if at all, from your previously set goals.
Think of this like Warren Buffett managing Berkshire Hathaway's (BRK.B 0.93%) (BRK.A 1.01%) investment portfolio. Buffett has a pretty concrete set of criteria that he looks for when purchasing a stock. He looks for solid business models that sell inelastic products and also happen to pay a dividend. You might see some small divergences from this model, such as Berkshire's token holding of DISH Network, which doesn't pay a dividend and doesn't appear to be all that inexpensive, but you'll find that the vast majority of Buffett's investments are founded on brand-name businesses such as Wells Fargo and Coca-Cola.
It's OK to deviate a bit because, as I said, wants and needs can and will come up. However, you need to always have your long-term goal in focus so you can stay motivated to invest toward and save for your future car.
Step 4: Buy within your means.
If you're already up to Step 4, chances are that you're getting somewhat ready to purchase your dream car. Before you do that, though, you should stop and make sure that you have adequate capital to make your purchase as well as handle other unexpected expenses that may come your way.
What this means is that you should always be prepared to expect the unexpected. You should have emergency cash on hand for -- you guessed it -- emergencies, and you shouldn't have to dip into your retirement savings or stock investment portfolio to fund the purchase of your dream car. The point is that even after you buy your dream car, you'll still be investing in your future, so make sure there's plenty of investable capital left over to cover emergency expenses as well as to build your retirement nest egg.
Step 5: Don't swing at every offer.
Finally, as Warren Buffett also said, "You don't have to swing at everything -- you can wait for your pitch." By the time I finally had saved up enough to purchase my dream car to the time I actually purchased it, a good six months had gone by. Why? Because I was on the lookout for a very specific model and color, and I wasn't willing to fly halfway across the country just to test-drive it. I'm not going to say it wasn't painful waiting, but being patient was the correct decision, as I got exactly what I wanted.
The same applies to your investments and your car search. You certainly don't have to swing for the fences every time you purchase a stock, and you don't have to jump at the first sales offer you see, regardless of how badly you want the car. Be patient and wait for your pitch -- in this case a more favorable price, model, or car color -- to come to you, and then knock it out of the yard, so to speak.