Just one huge monthly payment could be killing your ability to build wealth. He hit the nail on the head with that statement.
I have first-hand experience with this one. I shared my experience on how I put like $200,000 in my retirement accounts just from paying off my $448.65 monthly car payment.
Cars are a financial suck for sure.
The average car payment in US is now $499. That is straight up stupid. That much invested would be over $5M at retirement.
The FT is basically doing the math that consumers need to do before making any major purchases like a new car. It was noted that, “The quality of the car park has gone up.” Meaning if you walk down many British streets you are more likely to see expensive cars.
That came straight from a report from the Federal Reserve Bank of New York stating Americans are unable to pay their bills.
Considering that the jobs report that recently came out stating job growth has surged by 266,000; it is missing key metrics in regards to whether or not families are staying above the poverty line.
If you are working multiple jobs and in line at the soup kitchen because you can not make ends meet, then something is seriously wrong.
For families that are employed, they have to get back and forth to work. Meaning a car is almost a necessity these days.
California Dreamin’ is better in a Mercedes-Benz than a Hyundai
The West Coast is infamous for its pricey luxury cars. Especially in places like California. Think Fast and the Furious.
Did you see Vin Diesel rolling around in a Prius?!!! Of course not.
Lift up the hood of any of those cars and you could find $100,000 worth of product.
As the F&F series progressed, the cars got more expensive not less!
Movies are prone to production inflation just as individuals are to lifestyle inflation.
For example, the 2014 Audi R8 featured in Furious 7 has a 4.2 coupe with manual transmission starts around $119,150 while the V10 model starts at $155,450, each including destination fees and a $3,000 gas-guzzler tax. Say what??!!!
And my favorite on the Fast & Furious list, the Lykan Hypersport, which was been unveiled at the 2013 Qatar Motor Show. W Motors will limit numbers of the car, which it heralds as “the first Arabian hypercar,” to just seven, each priced from US$3.4 million. What the heck will an oil change cost on this beast?!
Lycan Hypersport
Did the cast of The O.C. drive down to Tijuana (TJ as they called it) in a Kia? Absolutely not! Those young high rollers were riding around in high-quality luxury vehicles!
Places like San Diego and Silicon Valley do not have a mass public transit system the likes of the ones on the East Coast in New York or Washington DC metro. No sir. Those folks have to drive.
And if you have to drive everywhere from the In-And-Out Burger to CVS, then who wants to sit all day in traffic rolling around in a tiny Chevy Malibu.
You want the creature comforts you have at home on the road.
You are willing to buy all you can afford if you have to drive around every day in a car.
I understand why people are shelling out BIG BUCKS on the West Coast to drive Cadillac Escalade’s and BMW’s. Not only are they impressive driving machines, but comfortable too!
Luxury cars have a price beyond just the pricetag
Prestige vehicle sales are driving borrowers bankrupt. If you have to put $500, $600, $700 or even $900 into one household bill on top of a mortgage, then you can drive yourself right into the poorhouse quite literally!
Let’s do a little math. If you save $500.00 per month, your savings may grow to $2,797,302.30 after 40 years. This includes a starting balance of $0.00 and a 10% annual rate of return.
Starting amount
$0.00
Years
40 years.
Additional contributions
$500.00 per month
Rate of return
10% compounded annually
Total amount you will have contributed
$240,000.00
Total interest
$2,557,302.30
Total at end of investment
$2,797,302.30
That is a high price to pay just to have the BMW emblem on your steering wheel.
A lifetime of luxury car ownership and payments can leave your savings tank on $0.
Don’t do it.
With more American retirement savings on life support or at $0, you can make sure this doesn’t become your fate.
Forget buying expensive fast cars. I’d rather you drive a paid off Honda and get rich slow.
You ever drive by a neighborhood that ends in Estates or Hills and look in the driveway?
There are usually enough European cars around for these folks to start a dealership down the street and give Audi a run for their money.
You figure places like Beverly Hills, Miami Beach, and New York are places that can afford these types of cars, but what about places you would think those people may not make the type of money it requires to have those vehicles?
Unfortunately, in my few decades on this earth, I have seen things that you would not believe.
Since, many of you out there know my absolute fiscal pet peeve is new car ownership, you understand my ire as I write this.
I can teach you to get rich without having to sign a car loan document or sell your soul. I’m not Ursula. I will give you back your voice.
I rejected that notion that I must own a luxury car to feel good about myself and feel important. I paid off over $50,000 worth of debt so I could start investing more money in Mr. Market.
The goal was to try to always be increasing my investment portfolio by $20,000-$25,000 or more per year. It took me a decade, but I hit that goal. It’s raining dividends right now. All from just rejecting new car ownership.
I am going to share with you a few car buying horror stories that may very well give you nightmares. So hide the wife. Hide the kids. This is the part in the movie theater where you turn your heads, close you eyes and take a deep breath.
I am about to lift up the hood on the numbers behind what buying new cars will be in opportunity costs in this series of posts on rejecting new car ownership. So buckle up, sit back, and enjoy the ride.
Drip so hard or broke so much
First let me explain what drip is.
It is a slang term many rappers use and there are more or less elaborate definitions of “drip.” Offset and Cardi B use the term to refer to their diamonds and wealth, while Atlanta rapper Gunna told Billboard that “drip” refers to fashion: Drip is your attire, the clothes you wear.
For instance, he doesn’t own like 50 Rolex watches or chains, but only rotated the same like three on Instagram because on the world of gram it’s all about appearances.
He also has stated he had $8 million in Bitcoin, but really he owns $0. He just made up $8 million out of thin air! Why put on this show? For likes of course, what else?
This is nothing new. People inflate their salaries, income, accomplishments, and credentials all the time. What makes this case so sad is that he is telling the world, not just a few friends having a round of drinks while playing a poker game down at the local watering hole.
I have noticed that once you actually stop looking and start listening to what people have to say about their finances, that is when you uncover the truth. Behind all the expensive cars, clothes, and homes most people are stressed and broke.
What is wealth
I gave my definition of wealth in a previous post. Really it means you can meet all your basic needs and have some left over to last you several decades without you sweating whether or not the bills get paid.
For regular folks, a good week looks like this – there’s milk in the fridge, none of the kids got into a car accident or ran over any mailboxes this week, and all the bills got paid on time.
For the wealthy, a good week looks like this – enough food in the cupboards to feed an army, you taking the Rolls to work this week cause the Jag is in the shop being detailed, and you earned more in dividends than you spent last month.
Wealth is every bit as good as it sounds. Let us see the other side of the coin and how the lack of having enough coins can cause despair.
Dream cars are only for those with money in the bank
Here is where the horror stories are about to begin folks.
Brace yourselves.
I knew a guy who loved his dream car so much that it was keeping his bank account in the red. Let’s call him Edgar. Edgar grew up without a father. At one point, he was living in a shelter. After years of toiling in the salt mines, he was able to get an apartment and get on better financial footing.
At the ripe old age of 28, he decided to “treat himself” because he “deserved it” to a $30,000 BMW convertible and eventually he got a girlfriend to ride in that car beside him.
He felt that he had paid his dues so he should have a nice car.
I don’t know about all of you out there, but I look at paid dues as 10, 20, 30, or 40 years of busting your hump to build a security and a solid foundation for your future self and family. Buying a luxury car that costs $500 a month is not the way to having a life of abundance.
How else could he have spent that money?
Let’s say he saved up the $30,000 ($6,000 a year over five years) by taking public transportation to work and invested that money instead of trying t impress people with his wealth…er uh I mean debt that is masquerading as wealth in the form of a nice financed luxury vehicle. He could have also saved up a few tax returns and got a beater to get back and forth to work.
If you save $100.00 per month your savings may grow to $731,411.74 after 30 years. This includes a starting balance of $30,000.00 and a 10% annual rate of return.
Starting amount
$30,000.00
Years
30 years.
Additional contributions
$100.00 per month
Rate of return
10% compounded annually
Total amount you will have contributed
$66,000.00
Total interest
$665,411.74
Total at end of investment
$731,411.74
Year
Additions
Interest
Balance
Start
$30,000.00
$30,000.00
1
$1,200.00
$3,064.06
$34,264.06
2
$1,200.00
$3,490.46
$38,954.52
3
$1,200.00
$3,959.52
$44,114.04
4
$1,200.00
$4,475.46
$49,789.50
5
$1,200.00
$5,043.01
$56,032.51
6
$1,200.00
$5,667.32
$62,899.83
7
$1,200.00
$6,354.01
$70,453.84
8
$1,200.00
$7,109.45
$78,763.29
9
$1,200.00
$7,940.38
$87,903.67
10
$1,200.00
$8,854.41
$97,958.08
11
$1,200.00
$9,859.87
$109,017.95
12
$1,200.00
$10,965.86
$121,183.81
13
$1,200.00
$12,182.43
$134,566.24
14
$1,200.00
$13,520.67
$149,286.91
15
$1,200.00
$14,992.74
$165,479.65
16
$1,200.00
$16,612.02
$183,291.67
17
$1,200.00
$18,393.24
$202,884.91
18
$1,200.00
$20,352.54
$224,437.45
19
$1,200.00
$22,507.80
$248,145.25
20
$1,200.00
$24,878.59
$274,223.84
21
$1,200.00
$27,486.45
$302,910.29
22
$1,200.00
$30,355.08
$334,465.37
23
$1,200.00
$33,510.59
$369,175.96
24
$1,200.00
$36,981.65
$407,357.61
25
$1,200.00
$40,799.79
$449,357.40
26
$1,200.00
$44,999.79
$495,557.19
27
$1,200.00
$49,619.76
$546,376.95
28
$1,200.00
$54,701.76
$602,278.71
29
$1,200.00
$60,291.92
$663,770.63
30
$1,200.00
$66,441.11
$731,411.74
Back to Edgar’s story.
One night while going to see his soon-to-be ex-girlfriend, he was so tired (he would get tired doing like two sit-ups) that he fell asleep at the wheel. He got into a major accident, the car was in the repair shop for months, BMW lent him a loaner, him and the girlfriend broke up (she may have been with him for the car) and he got to drive that DREAM car for all of like 8 months!
He did eventually get it back, but I noticed that every couple of months or so the car would have an issue and need to go in the shop.
He bragged how he was so smart to get an extended warranty or the repair bills would be like $2,000 or more. However, what he is failing to realize is that when that warranty runs out, you will be the one paying those expensive repair bills because luxury comes at a price. A very expensive one.
Last time I laid eyes on him; he still had that car, was still single, and had moved into a more expensive apartment. Instead of investing money, he spent every dime and his bank account stayed on empty.
If he would have been willing to give up the car, he could have saved a small fortune. I tried to run the numbers with him, but he wasn’t really interested. Little did he know that his dream car was turning his life into a nightmare.
After he lost his job, he couldn’t afford to make the payments. His mother had to step in and help him. Maybe if he put the money he spent on those expensive Xbox video games in the bank instead, he might have had the money to pay his bills himself. He needs to keep that devil-may-care attitude in the video games where it belongs.
Dante in Devil May Cry for Xbox
And his motto was “live for the day.”
If living for the day means being broke for a lifetime, I’ll pass. He may have had a great car that made him feel like he had arrived and look like he had money, but he was really BROKE.
Do cars really equal freedom or are they a debtor’s prison on four wheels
I have owned only two cars in my entire life.
They are expensive money-pits with all-wheel drive.
I have seen people spend so much money on car repairs that it makes me want to cry. I have also seen people own three, five, or even seven cars by the age of 25!
Many people never even go on to pay the car off. They just roll over negative equity onto the latest new car purchase. Putting them in a never ending spiral of debt payments.
And do not even think about not purchasing gap insurance.
Gap insurance is an optional, add-on car insurance coverage that can help certain drivers cover the “gap” between the amount they owe on their car and the car’s actual cash value (ACV) in the event of an accident.
Even this can be something only the well-heeled can afford.
Gap can cost hundreds or thousands of dollars additional on top of what you are paying to purchase your vehicle. It must be paid for up front at the time of vehicle purchase. If you cannot pay out of pocket, they will add it to your loan. You are now paying interest on this insurance coverage.
Why do you need gap? I have a friend. Let’s call her Pam. Pam likes nice cars. However, Pam is in-between jobs right now, is several months behind on mortgage payments, and has been in two car accidents in two years.
At one time, she owed an Audi. When a maintenance issue arrived and the repair bill came in at $3,000, she couldn’t afford it so she sold it.
Speaking of repair bills, I have heard stories of people leaving the Jiffy Lube or car dealership after getting the repair quote, which they cannot afford, then go on to say, “I know someone that will do it for cheaper” or “I’ll fix it later” or “I’ll take it to my mechanic.” All just mean the same thing: Broke.
When you cannot pay the repair bills on your car, then how can you possibly afford to save for retirement?
Getting back to Pam, she ended up with gap insurance from a third party. Therefore, she was going back and forth trying to get the money for the car for over four months!
I don’t know many folks that can go without a car for this long. Her quality of life immediately went down. You could feel it with every passing month when you were around her.
One word. I will give you one guess. You give up? It rhymes with repair. Of course I mean despair.
She also has no cash savings and no retirement.
She was very young at the time. Maybe 22. This is what she could have done if she saved up that money and invested it instead.
If you save $100.00 per month your savings may grow to $1,464,646.73 after 40 years. This includes a starting balance of $20,000.00 and a 10% annual rate of return.
Starting amount
$20,000.00
Years
40 years.
Additional contributions
$100.00 per month
Rate of return
10% compounded annually
Total amount you will have contributed
$68,000.00
Total interest
$1,396,646.73
Total at end of investment
$1,464,646.73
Year
Additions
Interest
Balance
Start
$20,000.00
$20,000.00
1
$1,200.00
$2,064.06
$23,264.06
2
$1,200.00
$2,390.46
$26,854.52
3
$1,200.00
$2,749.50
$30,804.02
4
$1,200.00
$3,144.46
$35,148.48
5
$1,200.00
$3,578.92
$39,927.40
6
$1,200.00
$4,056.80
$45,184.20
7
$1,200.00
$4,582.47
$50,966.67
8
$1,200.00
$5,160.72
$57,327.39
9
$1,200.00
$5,796.80
$64,324.19
10
$1,200.00
$6,496.47
$72,020.66
11
$1,200.00
$7,266.12
$80,486.78
12
$1,200.00
$8,112.74
$89,799.52
13
$1,200.00
$9,044.00
$100,043.52
14
$1,200.00
$10,068.42
$111,311.94
15
$1,200.00
$11,195.25
$123,707.19
16
$1,200.00
$12,434.76
$137,341.95
17
$1,200.00
$13,798.25
$152,340.20
18
$1,200.00
$15,298.06
$168,838.26
19
$1,200.00
$16,947.87
$186,986.13
20
$1,200.00
$18,762.67
$206,948.80
21
$1,200.00
$20,758.93
$228,907.73
22
$1,200.00
$22,954.83
$253,062.56
23
$1,200.00
$25,370.31
$279,632.87
24
$1,200.00
$28,027.34
$308,860.21
25
$1,200.00
$30,950.07
$341,010.28
26
$1,200.00
$34,165.09
$376,375.37
27
$1,200.00
$37,701.60
$415,276.97
28
$1,200.00
$41,591.74
$458,068.71
29
$1,200.00
$45,870.92
$505,139.63
30
$1,200.00
$50,578.02
$556,917.65
31
$1,200.00
$55,755.83
$613,873.48
32
$1,200.00
$61,451.41
$676,524.89
33
$1,200.00
$67,716.54
$745,441.43
34
$1,200.00
$74,608.19
$821,249.62
35
$1,200.00
$82,189.02
$904,638.64
36
$1,200.00
$90,527.91
$996,366.55
37
$1,200.00
$99,700.71
$1,097,267.26
38
$1,200.00
$109,790.79
$1,208,258.05
39
$1,200.00
$120,889.85
$1,330,347.90
40
$1,200.00
$133,098.83
$1,464,646.73
I have actually seen people own multiple cars even though they can only drive one at a time. However, you have to maintain and insure all of them. Just give up the ones you are not using and fund your retirement with that money.
Instead of that money going into a 401k, the lender and insurance company was getting rich off these never ending payments they receive. Put that money to work for yourself by investing it.
Tow truck companies are winning
Have you ever seen that show on A&E called Parking Wars? Some of the saddest things I have ever seen to do with cars was on that show.
The struggle is real in the city of brotherly love. So many people in Philadelphia were getting their cars towed and booted for failure to pay parking tickets it was crazy.
Those meter maids were making like $20,000-$30,000 a year and they were on a mission! Giving out those tickets like gumdrops! And making revenue for the city in the process.
I have seen and heard some stories so heartbreaking it made my eyes start watering. I have seen or heard people lose their jobs, then their homes, and finally get their car repossessed with all their belongings in it.
One guy came out running to his car while they were lifting it on the tow truck. He had almost every valuable possession he owed in that car including the photo albums of his deceased family members.
All he asked is if he could go in the trunk and get his stuff (clothing, personal hygiene, photos, credentials). The tow driver said no.
Unfortunately, once the car is on the lift, it can’t be stopped unless you pay or have already paid and can PROVE IT!
And that guy went from being homeless and living in his car, to being homeless on the street.
I have seen people give up their cars due to debt, gambling, substance abuse, you name it.
I know someone who saved up $8,000 and sink every penny into a new car just to have a $100 lower monthly payment. Never mind that she was still living with her parents at the age of 42.
I have also seen people have to choose between paying the gas, electric, or phone bill on-time or pay the car note.
I even had an ex-coworker get her car repossessed twice! She just had to have an SUV. She was making like $12 bucks an hour at time and was only 20. She destroyed her credit and the possibility of home ownership for at least a few years just for the sake of looking rich instead of actually saving towards becoming rich.
She was broke. She had no wealth whatsoever! The little she had, she mailed in monthly installments to Chevrolet.
Society would like you to believe that owning a nice brand new luxury car will make you look like you have achieved success.
It really only means someone has allowed you to borrow money from them and pay them back with interest for the privilege of loaning you their money.
Real wealth cannot just been seen by the naked eye in the form of fancy condos, clothes, jewelry, furs and luxury cars. It is usually shielded from prying eyes in the form of investments and inside bank accounts.
For most folks, a luxury car does not mean you have wealth; it means you have debt. Reject new cars like I have and I promise you will actually start to build wealth.
The other day I overheard people talking about being 90 days late and past due…blah blah blah I couldn’t make out the rest, but I heard enough to fill in the blanks. Debt, debt, and more debt.
Two of the biggest culprits are house and car loans. Some may disagree with me, but cars are wealth killers! At least Dave Ramsey agrees with me.
Then it hit me.
After three years of blogging, I found my niche.
This blog is really all about rejecting new car ownership to become financially independent (FI). That’s right. I refuse to buy new cars so I can become FI.
When I hear people complain about having no money but paying $600 a month for their car, all I hear is the same sound Charlie Brown’s teacher makes. Cut the excuses!!!
Obviously, reminding people why they should reject buying a NEW CAR bears repeating.
However, you and I both know that those are small potatoes compared to what some folks are shelling out. We gotta Keep Up With The Joneses’ today or life just plain sucks!
There are now new luxury vehicles coming off the assembly line with an MSRP of $80k! MSRP stands for the Manufacturer Suggested Retail Price — also known as “sticker” price — which is a recommended selling price that automakers give a new car. A dealer uses the MSRP as a price to sell each vehicle; it’s different from invoice price on a car, which can stand thousands below the sale price.
Vehicles have become so expensive that dealerships are offering 84 month car loans! I have no intention of owing the man that type of moola.
Especially, considering that the REPO Man is out there lurking in the shadows, ready to take my car if I miss even one single car payment.
And BTW the REPO Man tends to show up at the worst possible times; such as when you are already 20 minutes late picking up your kids from soccer practice, while the Walgreen’s pharmacy is texting you that this is the last day to pick up your $600 EpiPen or else it goes back on the market.
I actually have a friend that was unable to continue making payments on her BMW. Before, we get into this story here is a little background. She owns a home with an ARM and payments can fluctuate wildly from $1500 to $2400, is finishing her bankruptcy payments, and calls herself a Glam Ma and not Grand Ma.
She used to use dating apps after her divorce, but stopped after one guy told her he was looking for a place to stay. Hard pass. No more Bumble Bee for her! She likes her independence. Always has, always will.
For instance, her son recently asked if his mother would be willing to watch his newborn infant after she is born to save on daycare costs, which is astronomical in America and can cost people one whole paycheck, to which she replied, “not unless she got ID to sit with me at the bar on Friday’s, then no I can’t watch her.”
Getting back to the car situation, she decided to stop all car payments due to financial constraints.
Therefore, she stopped paying for two years.
Two whole years!!!
Since she knew she could no longer afford it; she just strategically stopped paying and put that money towards other obligations. The same way a squatter strategically walks away from an underwater mortgage. No reason to raid the retirement accounts and then end up completely broke now is there.
Anyhoo, she kept the car clean and left nothing in it in case the repo man ever showed up to take it. Well that day finally came and they took it right out of her driveway.
She then decided to hail cabs, and take Lyft and Uber rides until she got her tax refund and then she bought her next car with cold, hard cash baby! Lesson learned. If you own it, no one can take it.
Setting money on fire
Cars are making people go broke. SUV’s are some of the priciest on the market.
According to Business Insider, Ford made a game-changing decision in April when the company announced it would dissolve its entire line of sedans and compact cars that includes Focus, Fusion, Fiesta, and Taurus by 2020. Other cars that will be discontinued this year and beyond include the Alfa Romeo 4C Coupe, Chevrolet Sonic, and Cadillac ATS.
Maybe this is why Aston Martin has rolled out its latest car with a pricetag of this: New $189,000 SUV.
You could wind up spending $2500 a month just to own this luxury monster!
Let’s do a little math
I’m going to pull back the curtain on this and show you why you need to take off your BMW rose-colored glasses.
Buying a 2020 BMW truck will cost you about $176,000 after all is said and done.
Item
2020 BMW X6 SAV M50I AWD
Interest:
Maintenance:
Gas:
Total Cost over 7 years:
Cost
$104,095
$104,095 x 3% = 31,228 BMW of Alexandria website
$3,122.85 x 7 = $21,859.95 Setting aside 3% of purchase price
$50 x 52 = $2,704 x 7 = $18,928
$176,110.95
You get to basically drive to work, the grocery store, gym, and Pottery Barn for the low, low price of almost the cost of a house in Georgia.
20 Marietta St NW Unit 6B Atlanta, GA 30303
$179,000 Price 2 Beds 2Baths 1,156 Sq. Ft.$155 / Sq. Ft. Redfin Estimate: $175,558 On Redfin: 70 days Status: Active
Redfin Listing
That is also more than three times the median salary of an American adult making $56,000. Even Rappers are buying into this crap before the ink is even dry on that million-dollar deal they just signed!
That video came out the same year I bought my car.
Maybe if I had seen this, I would have done something different.
Hopefully seeing this here will help all of you out there.
Put that money into Mr. Market
I know this is the part where your eyes glaze over but please bear with me.
Here’s my story. In 2003, I decided I needed a new car. BIG MISTAKE! I previously had an Nissan Altima that cost about $8k and I was paying $229 per month for it. Then it started having problems so I decided to trade it in for a new Ford Explorer.
Original MSRP was $30k, but I got it on sale for $24,000. Stupid. I had a negative equity balance on the Altima so I rolled it over onto the new loan. I went from owing $6k to $32k in the span of 5 hours at a car dealership from the time I walked in until I signed the papers.
The payment on the Explorer was $448.65 a month for about 5-6 years. Therefore, from 2003-2009 I was paying on this car instead of investing that money in Mr. Market. DUMB!!!! For 6 whole years, I could not do much of anything because the car payment was always due.
Want to go on that trip to Dominican Republic? Sorry guys, can’t do it. The gas guzzler has got to get paid.
Want to buy new socks and clothes because yours are worn out and have holes in them? Sorry, no can do. The car note is due on the first, which is same time as the rent. Sucker! They got me good.
I was even paying over the phone for faster processing at the tune of $5 a pop!
All that changed once I paid it off. I got down to $1500 and just paid it off. I was free b#tche$!! Can’t nobody hold me down…oh no…I got to keep on moving!!!
I haven’t had a car payment in over 10 years! Not since Steph Curry was selected as a draft pick in the NBA.
I took that money and started investing in stocks. Before I know it, I had like a couple hundred grand in Mr. Market just from rejecting new car ownership.
How would you feel having $200,000 working for you everyday 365/24/7 in the market paying you just for having a pulse?
Here I am back again talking all things on four wheels. I’m talking about cars of course!
So I will say to you what they always like to say in Welcome Back Kotter’s theme song, “Welcome back!”
And less like Agent Smith in The Matrix saying Welcome back.
However, we did miss you.
After my last post on on the price of luxury cars, it is time to bring you the sequel! Just like The Matrix Reloaded. This posts sequel is all about cars so Buckle Up!!!
Why another post about cars you ask? Because apparently folks out here are still lining up at the dealership every summer ready to take on these 5, 6, 7, now 8 year car loans!
You read that right. Lenders are now allowing borrowers to repay car loans for 8 friggin’ years!
That is enough time to do the following:
1. Graduate from college twice, including graduate school
2. Get married
3. Watch all 14 seasons of Supernatural on Netflix
4. Have the President of the United States finish two-terms
5. Write the next great American novel (hey it’s possible as it took J.R.R. Tolkien 12 years to pen The Lord of the Rings) 😉
I am here to remind folks that cars will not make you look, feel, or be rich.
Hey, don’t get mad a t me. I am just the messenger. Like Loreali Gilmore, I am A Messenger, Nothing More. Please just take the letter Dean or in this case, just read this post. 😁🙏
MAKE PEACE NOT CAR PAYMENTS You must make peace with your finances. It is the only way to come to terms with reality and set your sights on the bigger picture. You must choose a path. Rich or Broke. Never poor because poor is eternal.
All things are temporary. However, life is not short, it is long. And like Chris Rock said, “life is long especially, if you make the wrong decisions.”
Therefore, I want you to make good financial decisions from the starting gate. Paying 8 year car payments is like going to war with your bank account. And you know here at Greenbacks Magnet, we are all about the love. So make peace not war. So I am here to tell you: BACK AWAY FROM THE CAR PAYMENTS SLOWLY, TURN AROUND, AND RUN AWAY!!! You need to stand on firm financial ground. Your financial footing has to be so good that not even the Big Bad Wolf could huff and puff and blow your finances over!
When you constantly have to worry about how to make the mortgage payments or paying for the Range, then you have a serious problem. No car is worth going into foreclosure over. Should the home get foreclosed are you prepared to live in that Range Rover? A car that luxurious should be parked in a driveway and not on a freeway off ramp. Paying a $700 car note is outrageous. Then again, so is paying a $6,000 mortgage. Both of these high fixed expenses could leave you in the poor house.
Tons of bankruptcy filings include not only credit card debt, but high mortgage payments and out-of-control luxury car notes! People, people please don’t forget what Ferris Bueller said about priorities!
RANGE ROVERS ARE OVER RED ROVER Why discuss and name my post about Range Rovers? Let me tell you a story and paint this picture for you. In the illustrious words of Sophia from Golden Girls, “picture this.” 🤣
I have heard several separate stories about Range Rovers and the cost of ownership.
In one story, the owner had the car in the shop for an entire year because he could not pay the repair bill. That’s right. A car that you are still paying the payment for, including auto insurance is sitting in a repair shop.
Now how are you gonna be a number one stunna, if you can’t ride around in your car to impress all the people out there, while only having $100 in the bank? It’s like Birdaman said, “Ride Bentley’s ’round the city on buttons.” “I’m the # 1 stunna!”
Oh and why only $100 in the bank? because it took almost every dollar in your paycheck just to keep the car on the road. And speaking of keeping the car on the road…let’s talk about maintenance and repairs on a Range Rover.
If you didn’t already know, then let me be the first to tell you. Luxury cars are more expensive to repair. Why you ask? It’s simple. Luxury comes at a premium. You have to pay the cost to be the boss.
Repairs will also cost you more for luxury models. The parts are more expensive and not easy to find and replace like American made cars, as repairs and upkeep are cheaper on these models. Why even buy a Range? That is because nobody wants to wear platinum Rolexes and canary diamonds while pushing a Honda!
However, if you drive that Honda for a decade and invest that $40,000 you spent on the Range, then you could have a million more in retirement in 35 years. That Range will be long gone by then. But you know what? If you have money to burn, then play on player or should I say drive on driver!
In another story, I heard that a mechanic left a stable transit authority job with excellent benefits to go repair cars for the Range Rover dealership. When asked why he did it, he replied, “because I can make more money fixing Range Rovers because those cars are always in the shop.” What the F*ck!!! You spend enough to put a kid through college to get that car only to have it in the shop! Unbelievable. You would think with all the dough you had to drop to get that ride it would at least hold up better than a Rav-4 or Honda CRV.
SITTING PRETTY WITH MONEY IN THE BANK OR WITH YOUR CAR ON BRICKS I will end this post with some news I have heard from around the water-cooler and then some.
One lady told me that she didn’t know what her husband was going to do because his BMW was in the shop and he couldn’t afford the $8,000 to get it out! Holy crap! So you want luxury but you cannot actually afford luxury. Then it’s simple: Sell the car. Take the $15,000 check that Carmax will cut you for the trade-in, get you a Ford or Toyota for $6,000 and put the rest of that money to work in the stock market. That is how I turned my $450 car payment into over $100,000!
It is far more important to have money in the bank than a Range in the driveway or the repair shop. Put your money where your values are. Far more people are impressed by those than can afford to buy Range Rovers, but actually don’t. The most important thing you can do with your money after you earn it is to actually have and keep some of it in the bank.
When it comes to cars, people can blow more money than a newly signed NBA player or first round pick of the NFL draft.
It was recently reported that Americans are spending $18,000 a year on non-essentials. Which makes it pretty hard to stack those Benjamins; and even harder to be saying stuff like Drake and Lil Baby : Got M’s in the bank, like: “Yes, indeed.”
I have found that either you can be rich or act rich; you cannot be both.
However, don’t feel bad. Lots of people take years to learn that lesson. That is why this latest post is going to be a two-parter. 😉
So don’t drop that top just yet playboy or playgirl, cause we’re equal opportunity like that here, because we’ll be right back later with part two of this post.
As soon as Springtime hits, more people are lining up at the convertible dealership faster than Punxsutawney Phil can make his prediction and see his shadow.
People are blowing major dough on their rides. If you are old enough to remember the MTV show Pimp My Ride, then you know its serious out here in these streets. $5,000 rims? You know it. Got to have that tint too? No problem. $2,000. Custom sound system? It will only set you back $8,000. And have to be like Three-Six Mafia and Stay Fly in the new whip by dropping $2,500 for a new pair of tennis shoes, $250 for Illesteva sunglasses, and $700 for new gear.
A new BMW can run you $40,000 and fully loaded could cost you over $100,000! Why not invest that money you say? The problem with investing in stocks and bonds is they’re boring as hell. A boss turns their garage into a Bentley dealership, stockpiles platinum Rolex watches, collects houses like chess pieces, turns their closets into a fashion house, collects $500 shoes like monopoly pieces, and opens up nightclubs. Got it, nerd? So light a Cuban cigar with a hundred dollar bill, pour your most expensive champagne in that crystal glass and put your feet up on a diamond-encrusted ottoman as Greenbacks Magnet presents Beamers, Benz, and Bentleys or a GMC Truck?
THE PRICE OF LUXURY All things come with a price tag. Food. Water. Houses. But when it comes to cars, people are willing to drop some serious coin. I’m talking enough to put down a 10-20 percent down payment on a half a million-dollar home.
Remember cars are now coming more high-tech; like Lil Baby says, “Brand new whip got no keys.”
So what is the price of all this luxury?
Let’s take a peek.
For goodness’ sake, a GMC truck will run you $20,000-$30,000. Buy a decent quality car one-time and you’re done for like a decade!
When you have to start putting gas and groceries on plastic, then you are in some serious trouble.
If you can drop $75,000 on a new S-Class Mercedes-Benz, but your credit card gets denied while in the drive thru for a double-cheeseburger, then you need to check your priorities at the door of the Range Rover dealership.
If you are only able to make the minimum payments on $55,000 of credit card debt, then at that rate it would take you over half a century to get back in the black. No one should stay in the red that long!
TURNING HEADS LIVING LARGE AND TAKING CHARGE If your theme song starts off like this, “rain drops drop top,” then you may be in trouble.
Trying to impress people with stuff usually leads you down to a life of misery and penury.
Personally, I have seen too many people get taken to the cleaners trying to impress family, friends, and acquaintances at stop lights for 20 seconds. That is a quick way to end up in bankruptcy court. Don’t believe me. Check out the NBA or NFL player’s union, stating that over half of NBA players are broke within five years of their retirement and even less for NFL ballers (there’s is three years).
I even read an article discussing how men that drive fancy sports cars are less likely to want long-term relationships! Is that why so many pro athletes owe millions in alimony and child support! Then show up in court crying and telling the judge they can’t afford payments like T.O. After making more M’s than the M&M’s can put on its candy, it’s hard to feel sorry for you. But we hear you out there. It’s hard out here for a pimp.
FINANCIAL DISASTER ON FOUR WHEELS I guess I don’t have to tell you that overspending on cars is dangerous. What I do not get is when I see people not bat an eye at paying $50,000 for a new car, but then loss their minds if they get overcharged $0.50 for an ice cream sundae (um, what?)
Pinching pennies on small items and dropping G’s on blackjack tables and designer car seats. That makes no sense.
You want to keep your fixed expenses low. That includes mortgages and cars. Why? So you can save and invest of course.
In order to try and retire early, it usually takes most folks saving 50% or more of their income.
Tough to do if you have to spend $3,000 every 3 months on repair bills at the BMW dealer. But because you are unwilling to negotiate at the farmers market or wait in line at Target or Costco, you spend like your life is made up of 75 hours instead of 75 years.
In order to avoid this fate myself, I paid off my car in 2009 and have not had another car note since! I then went from saving $1 a day to over $1,100 per month! I calculated that if I could save $13,333 a year, then I would have over $100,000 of cold hard cash within 8 years! And I would be that much closer to saying “Got M’s in the bank, Yes indeed!”
There’s always tomorrow and it does get better. – Ariana Grande
That statement reminds me of something Scrooge McDuck says, “there’s always another rainbow.”
Nothing is permanent. All is temporary. So, stay calm and keep moving on.
I remember it like it was yesterday. The car payment had to get paid. If I paid late, I had to pay a late fee.
So, it was either be late with the phone bill or the car. I chose the car because my cell phone could wait.
I couldn’t stand making this payment after the first year.
It took me 6 years to pay that car off!
My lesson was learned. A car payment isn’t worth it.
I cannot tell you how many times I had to make payment arrangement, pay a late fee, or forgo making a payment to one creditor over the other. It royally sucked!
There had to be a better way. It had to get better. And it did.
Once I got down to the last $1,500, I just paid the car off. I immediately asked for the lien and a copy of my payment history.
The last payment had been made. I no longer owed a penny on my car. I was a free woman!
That was about a decade ago.
I wanted so bad to start shopping, traveling, or just do anything with that money. But then I stopped. I remembered all the sleepless nights and the time I spent worrying over how to make my car payment.
That’s when it hit me.
Why not put that money to work? I could max out a IRA or put the additional funds into my 401(k).
So, I looked into doing just that.
WHERE TO INVEST
“If you’re saving,
you’re succeeding.” ― Steve Burkholder
I did some research. The money could go into a Traditional or Roth IRA. In addition, I had the option of my company retirement account.
I chose the latter.
Then, I had to decide what brokerage account. I could go with several including Fidelity and Vanguard.
Vanguard had the lowest fees. So, I went with Vanguard.
Next, I had to decide what fund or stock to actually invest my money.
I though a mutual fund looked pretty good and went with the Vanguard 500 index fund (VFINX).
WHAT’S THE GOAL
Money can’t just sit. There has to be a plan or like idle hands, good things do not happen. Money can’t be idle. It has to be put to work. Save it, spend it, or invest it. Either way, you must choose.
“The habit of saving is itself an education; it fosters every virtue, teaches self-denial,cultivates the sense of order, trains to forethought, and so broadens the mind.” — T.T. Munger
I had read enough about wealth building to know you need to invest your money.
But, I also needed something to aim for. A target.
That’s when I did some more research.
Then, I saw it. The first $100k is the hardest. I had my goal.
THEY SAY THE FIRST $100K IS THE HARDEST
You will find many stories written about getting to the first $100k. It seems to be this is a very important number.
Many have said once you hit that six-figure mark, you are
able to build wealth from compound interest faster.
So, okay.
I just had to find a way to get to five zeroes.
What could I do? How long would it take? How can I get to
$100k?!
HOW DO YOU GET TO $100K
Hitting that magic number.
Once I decided $100k was what I wanted, I had to see how I could make it happen and how long it would take.
I used an online calculator to determine my time horizon to hit the six-figure mark by investing my now retired $450 car payment. That just feels so good to say.
Before, we get to the numbers, I just want it to be known that I did think about buying a new car.
However, remembering how painful it was to write that check every month for years sobered me right up!
“The way to stop financial joyriding is to arrest the chauffeur, not the automobile.” —Woodrow Wilson
Yes, investing was the way to go.
The calculator informed me that if I invested $450 and got a 9% return (wishful thinking as the average is about 7%), then I could hit my target of $100,000!
That money could set me on the path to financial independence.
You start earning way more compound interest at $100k.
Take a look.
Once I hit $100k, without even putting in another penny, at that same interest rate, my money would double in 8 years!
It took 10 years of investing $5,500 a year to get to $100k.
Without investing another dollar, my earlier dollars are doing all the heavy lifting and have gotten to the same $100k it took me 10 years to build in less time than that. It only took 8 years!
All this only involves my car payment.
This does not include any other invested funds.
I excluded my company match and additional funds I am investing.
This was just to show you what could be done with what you’ve already got.
Literally, by just shifting that money to your retirement account has made a huge difference in your 401(k) balance.
From there, if you continue to let it ride, this means no cash
outs, you could again amass another $100k in 5 years! You could even double
$200,000 to $400,000 in 8 years. That is only three more years!
Are you starting to see a pattern?
For every dollar you let sit and compound, you just grow your money without you having to do any additional work. Your money grows every year.
Money you earned and invested over a decade is still paying
you dividends!
Think about how you can also double your $200k in just another 3 years!
“Twenty years from now
you will be more disappointed by the things that you didn’t do than by the ones
you did do.” — Mark Twain
I cannot press upon you any further the importance of investing money and letting it stay invested for the long term. Investing is along game. It can take 10-20 years before you see a significant increase or return on your investment.
“Try to save something while your salary is small; it’s impossible to save after you begin to earn more.” — Jack Benny
Remember, I was able to do all this by just by investing my old car payment.
