Personal Finance

I'm 20 with a paid-off Tesla, no debt, and $11k in my 401(k) — here's how I did it

Joey Frenette

Published: January 4, 2025 1:06 pm

It’s nice to splurge on the things we’ve always wanted while we’re still young. And while I’m certainly not against spending money on the things that bring one joy, I do think that delayed gratification is one of the most underrated and unappreciated skills one can develop at a young age.

Indeed, it’s far better to learn how to delay gratification earlier on in life rather than later on. The opportunity costs of an extravagant purchase in one’s early 20s are high. For instance, buying a fancy car at such an age could take a great deal away from one’s future retirement fund. And for the many young people who just don’t see a need to ever retire (perhaps they love their careers), it still takes away from their financial freedom.

In this piece, we’ll look at a young individual who posted on Reddit about how it’s great to have a paid-off Tesla (NASDAQ:TSLA) electric vehicle (EV) along with $11,000 in their 401k, a fairly respectable amount for someone who’s still college-aged! Of course, given how pricey Teslas are, that 401k could have been four times, even more than five times larger. Of course, if it’s your dream to get behind the driver’s seat of the latest and greatest Model 3 or Cybertruck, you should certainly save up for the purchase if it fits in the budget.

You’re never too young to start saving and investing!

However, for someone who’s just getting started in their investment journey (they could be four, even five decades away from retirement), I’d argue that it’s a financial mistake to get a Tesla as a first car. Indeed, there are cheaper ways to get some point A to point B, and they don’t entail taking away several thousand from your 401k at such a young age. Though there’s no sense in regretting such a purchase now that it’s been made, I do think that the thrill factor from such big-ticket buys will fade very quickly.

Indeed, if you’ve purchased a new car and drove it off the lot, the depreciation in value can be nearly palpable. New cars, especially fancy ones, tend to be a terrible purchase for the long haul, especially for someone who should strive to gain a bigger headstart on their financial journey. Not to rain on the young Tesla owners’ parade, but I do think the individual may wish to consider selling the EV at some point in the future, perhaps when they need extra dough for college expenses.

The good news about Tesla EVs is that they tend to hang onto their value better than some other brands out there. Indeed, strong resale value for vehicles like the Model 3 may allow the 20-something to have their cake and eat it, too. While a Tesla is not an investment by any stretch of the imagination (it’s a depreciation asset), at least in my opinion, it is something that could fetch a handsome sum in the resale market should a hefty expense, like college, find itself in the road at some point over the next three to five years.

Fan of Elon Musk and company? Why not buy Tesla stock over the car?

In the meantime, any young folks starting off their careers should keep contributing to their 401ks while steering clear of debt and four-figure splurges. Perhaps investing shares of Tesla would be a better use of the funds you would have used to pick up that fancy Model 3.

With Tesla stock advancing choppily in the past few weeks, investors bullish on the company’s self-driving future may be able to get more value per invested buck. In any case, young investors should prioritize their financial futures over big expenses early in life. Instead of the Tesla EV, why not invest in the stock if you’re such a fan of the brand?

Additionally, check in with a financial advisor if you’re serious about setting yourself up right as you begin your multi-decade financial journey. Getting things on the right track as early as possible can really pay dividends later on as you embrace the phenomenon known as compound interest. If you’re looking to start your retirement plan on the right footing, take this free quiz. (Sponsor)