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.
But as rapper 50 Cent has shown us with his bankruptcy filing, looks can be deceiving. Fifty says money in Instagram photos are fake.
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.
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.
Scouts honor.