“You’re always gonna have a car payment.”
Not really. I know there’s a lot of people out there that think this.
I’ve never had a car payment. My mom bought me a car when I went to college. That was in 2003. I’m still driving that honda accord with nearly 260k miles on it. Is it busted? Oh yeah. I don’t give a shit. I care about not having a $500 a month car payment, which is now the average in this country.
Vehicles are what’s called a depreciating asset. Meaning that it’s constantly losing value. The majority of this loss happens in the first year of ownership. After that the depreciation is around 15% a year for the next few years. So after five years you have an asset that’s worth roughly half of what you paid for it. More like 45%, but at that point, does it even matter? What’s really funny/sad is that you’re (usually, depending on things like your credit score, etc…) paying interest on this asset the entire time that it’s losing value.
Know what you’ve won?
A new car!
That’s right. Now it’s time to trade your old beat up, five year old car in for something newer and shinier. Sign on the dotted line and get yourself a fresh set of car payments.
Feeling like a mouse on a wheel? You probably should.
“Well dude, I like keeping new vehicles. I make plenty of money. It’s not that big of a deal.”
I suppose you’re right. But humor me. For just one second.
Let’s say that instead of that car payment, you take that $3,000 down payment and stick it in a Roth IRA.
Then let’s say you take that $500 a month payment and add that to your account until you max it out at $5500 a year.
You’ll have over half a million dollars in 30 years. About 850k after 35 years. Not exactly chump change, is it?
So what’s the solution?
I’m gonna get all Dave Ramsey here for a minute. Mostly because he’s right. Pay the car off. Drive that car until the wheels fall off. Then when it comes time to buy another car, buy a used, reliable vehicle. Pay for it outright. Then drive it until the wheels fall off. Or give it to your kids when they are able to drive. Or give it to me. I’ll take it. And I’ll drive it until the wheels fall off.
61% of people who earn $250,000 or more drive Hondas, Toyotas, and Fords. If I had to guess, I would say they’re buying these vehicles outright and not dealing with any kind of car payment. Why do I make that assumption? I dunno…maybe it’s because they make over a quarter million dollars every year?
So every time you see 4 luxury vehicles drive by, remember that six people who are likely millionaires have already driven by in a civic and you didn’t even notice.
So how did we get into this vicious cycle in the first place?
We live in a consumerist society. There’s people who go to work every day and they have one job. That job is to convince you to buy something. Now don’t get my wrong. Advertising is a good thing. People should buy stuff. People should know what’s new and what’s hot, what’s going to make their lives easier/better, etc… So do not blame the advertising and marketing people. They’re brilliant and hard working Americans.
I’m just saying that’s where this starts. YOU want the shiny new toy because a very smart person or team of people is convincing you that you want it. You think it’s going to make you happy or you want to show off status (or half a dozen other reasons) and advertisers have convinced you that it’s a possibility. All you need to do is buy what they’re selling and all of your dreams will come true. It’s YOUR job, as a consumer, to not fall for every shiny object you see on TV.
Here’s what I do:
Remember when you were a little kid and you would see a toy and you would grab it and try to sneak it into the cart? I know I do. And the conversation would usually go like this.
Mom: “Put it back.”
Me: “But why?”
Mom: “Because I said so.”
Me: “But why?”
Mom: “You wanna get beat in front of all these people?”
I didn’t care who watched. The fact is that I did not want an ass-whippin’. I did and still do think my ass is just fine the way it is…
Have this conversation in your mind. Don’t do it out loud. That would be weird. You know you don’t need to buy that car. You want it. It’s pretty. It has whatever new cars have that convinces people to buy them. I don’t even know what those things are these days. Cassette players, maybe?
Justify buying a new vehicle in your mind. Then think about everything else you could be spending that money on. Think about what you could be investing in. Your future. Your child’s future.
What’s more important? Your legacy or your depreciating status symbol?