If you have seen the news headlines recently, then you know many people are in debt up to their eyeballs.
What you may not have known is that car loans are starting to become an even bigger drain on finances than people ever thought possible.
It was reported that 7 million Americans are 90 days delinquent on auto loans. It was even in the news that in the UK financing is become all the norm and putting lots of people in debt. Similar to American consumers, British consumers are driving themselves into the red.
It makes you wonder if financing or leasing a vehicle the fast lane to debt?
Many seem to think so. Myself included.
If you have been reading my posts, you know how I feel about cars. They put you on the fast track to bebtville, if you are not careful.
So, how can financing cars cost you $1 million dollars?
I’ll show you.
A LOOK BACK THROUGH TIME
I may not be able to take you back in time by going 88 miles an hour like in the movie Back to the Future, but I can give you a glimpse into what things cost by providing you the data here.
Back when Henry Ford was working on the Model T vehicle for the Ford dealership, he believed in pricing his vehicles at a rate that even his employees could afford. He said to pay a fair wage good enough so that his factory workers could afford to buy his car. Oh how things have changed.
CEO’s used to make 20 times their employees wages on average, now they make 300 times more.
As wages have stagnated since the 1970’s, but the cost of everything has gone up, it has made it very difficult for people to afford the price of a vehicle today.
Let’s talk about the average cost of a car in 2019.
COMPARISON SHOPPING
I will give you a quick rundown of the average cost of homes and cars over the last few decades.
This is a comparison of prices over the last 70 years.
Average Cost Of New Home Homes
1930 $3,845.00 , 1940 $3,920.00, 1950 $8,450.00 , 1960 $12,700.00 , 1970 $23,450.00 , 1980 $68,700.00 , 1990 $123,000.00 , 2008 $238,880 , 2013 $289,500 ,
Average Wages
1930 $1,970.00 , 1940 $1,725.00, 1950 $3,210.00 , 1960 $5,315.00, 1970 $9,400.00 , 1980 $19,500.00 , 1990 $28,960.00 , 2008 $40,523 , 2012 $44,321 ,
Average Cost of New Car Cars
1930 $600.00 , 1940 $850.00, 1950 $1,510.00 , 1960 $2,600.00 ,
1970 $3,450.00 , 1980 $7,200.00 , 1990 $16,950.00 , 2008 $27,958 , 2013 $31,352 ,
Average Cost Gallon Of Gas
1930 10 cents , 1940 11 cents , 1950 18 cents , 1960 25 cents ,
1970 36 cents , 1980 $1.19 , 1990 $1.34 , 2009 $2.051 , 2013 $3.80,
Average Cost Loaf of Bread Food
1930 9 cents , 1940 10 cents , 1950 12 cents , 1960 22 cents ,
1970 25 cents , 1980 50 cents , 1990 70 cents , 2008 $2.79 , 2013 $1.98 ,
Average Cost 1lb Hamburger Meat
1930 12 cents , 1940 20 cents , 1950 30 cents , 1960 45 cents ,
1970 70 cents , 1980 99 cents , 1990 89 cents , 2009 $3.99 , 2013 $4.68
Prices retrieved from http://www.thepeoplehistory.com/70yearsofpricechange.html
If you focus just on the average cost of new cars, you will notice that a car that was $600 in 1930 is now $31,352 in 2013. The cost of a car has gone up over 5000% in 90 years. Wages have gone up 2250% in the same amount of time.
According to the U.S. Census Bureau, median household income in the United States is $56,516 in 2015. The price of cars have outpaced the increase in wages.
That’s something to think about right there.
WHY SHOULD I FINANCE OR LEASE A CAR?
People used to get around by horse and buggy until the combustion engine was invented around 1885. Before that, people would rarely go more than 10 miles from home. That meant you worked, lived, and played within a 10-mile radius of home for your entire life.
Once the automobile was introduced, people were then able to work further from home. This provided more opportunities.
However, the price of cars has become so inflated that people are having to decide between paying for utilities or car payments.
If having a car was so great, then why have wages not kept up with inflation enough for people to truly be able to continue to afford and enjoy them. I feel the same way about clothes. If your job wanted you to dress in couture, then they should pay you couture wages.
My sister once said that if a job wanted you to dress in suits, then they would pay you enough for that. If they want you to wear designer clothes, but only pay minimum wage, then they get Target and Walmart. Haha. I laughed so hard at that. Cause it’s true.
When you find yourself needing a car, why not buy what is affordable?
You could finance a car that you plan to own or lease a car you plan to trade-in and trade-up in a few years. Either way, it’s going to cost you.
I say finance to own. Actually, if you can, I prefer you pay cash for all appliances and that includes a car.
HOW TO SAVE $1 MILLION DOLLARS BY NOT BUYING A CAR
Let me tell you story.
I’ll paint you a picture, like Sophia would in Golden Girls.
Picture it: Washington DC 2003…
It was a brisk day in early Spring. A car salesman was trying to sell me a more expensive model of the car I wanted, but I declined.
While I waited to sign on the dotted line, I was so nervous my hands were sweating. It took all day, but I finally got my new car. Sticker price: $24,000.
I was informed that I would be paying $450 a month. I walked out and was happy to have a brand new car. Skipping merrily along my way before reality would sink in.
A mere three years later, as I wrote out that check, I was sick of writing it by then and told myself NEVER again!
I finally paid that car off in 2009. And am happy to report I have not had a car loan since. I spent about 6 years of my adult life paying car notes. I promised myself never again. I have not had a car payment in a decade. I used that money to pay off debt, save, and invest. I turned that car payment into $100,000 in the stock market.
See my post How I turned a $450 car payment into $100,000
And check out my other posts on cars.
I won’t stop now, cause it’s Ford cars for life
If you want to be wealthy, drive a Ford
I also started saving thousands of dollars in a rainy day fund.
Check out my ebook and See my post How Millennial Money inspired me to start saving $13,333.06 a year
After doing some math, I found out that $100,000 invested in the stock market could turn into $1 million dollars in 30 years. In addition, if you were to put $5,500 in a Roth IRA for 35 years at an 8% return, you could net a $1 million-dollar portfolio.
Don’t think you can swing that? I think you can. I’ll tell you why.
You could spend a couple hundred grand on cars in a lifetime.
Let me show you how.
The average car payment is over $500 a month. According to Nerdwallet, the average is $530 a month for a car note. That is $6,000 a year. If you are paying that, then that is your retirement money right there.
If you buy a new car every 5 years, at $34,000, then over 30 years you would have spent $204,000. And that is just the sticker price! That does not include interest, gas, maintenance, car washes or accessories like a steering wheel cover.
If you can just save a few thousand dollars and buy a car for cash, then you can save yourself thousands of dollars in interest and more. You could slowly trade up every couple of years as you save more cash and upgrade your car.
Do not give up potentially $1 million dollars on cars because no vehicle is worth giving up that.