I recently came across this article The #1 Payment Killing Your Wealth by a personal finance contributor for Forbes.
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.
Draining your wealth faster than Julie Andrews could sang supercalifragilisticexpialidocious in Mary Poppins!
And it’s not just here on American soil.
I have seen news about families struggling to get from under sky-high monthly car payments across the pond as well.
Canadians and European car buyers are stuck in the rabbit hole of long term high monthly car payments
Car buyers in Canada are stretching out loans pushing damn near a decade!! Eight-year car loans drive sales and deepen Canadians’ debt problems.
The personal debt boom has economists shook about the UK economy. The Financial Times (FT) showed a correlation between increased personal borrowing and car ownership.
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.
Back in the States, Americans are not only in debt but barely able to keep their heads above water as 7 Million Americans Are 90 Days Behind on Their Auto Loan Payments, which is just ridiculous!
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?!
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.