All across the nation, families are struggling to get ahead. For some, the rising costs of healthcare chip away at their gains. For others, stagnating wages and college bills are a real problem.
Then there are those who claim raising kids makes it impossible to grow wealth.
No matter where you go, you’ll hear stories of hardship – many of which are out of our control.
But, what if I told you some financial pain in this country is self-inflicted? What if I told you one financial decision in particular has been absolutely catastrophic for people at every income?
What if I suggested one simple change that could turn your finances upside down (in a good way)?
If you’re still reading this post, you asked for it.
Brace yourself; you might not like what you’re about to hear.
The One Monthly Payment Killing Your Wealth
The average car payment in US is now $499. That is straight up stupid. That much invested would be over $5M at retirement.
— Dave Ramsey (@DaveRamsey) September 15, 2016
According to a recent State of the Automotive Finance Study from Experian, the average new car payment reached $499 per month last quarter. Worse, the average new car loan is 68 months long! Like my man Dave Ramsey says, it’s entirely preposterous when you really think about it.
Have you ever imagined what you could do with an extra $499 per month? Let’s face it; probably not. These days, we blame everything but our car payments for our inability to get ahead.
We blame our employers for not giving us the raises we deserve, or our parents for not educating us enough. We blame health insurance premiums, the price of groceries, the housing market, and even the price of gas. But, do we ever throw shade at our car payments? Heavens no.
Somewhere along the line, we’ve become socially conditioned to believe a huge car payment is a fact of life. We tell ourselves that everyone has a car payment, and that it’s normal and okay. And heck, if we’re going to have a car payment, we might as well get the car we want, right?
This kind of thinking is so widespread it’s practically an epidemic. The thing is, it’s also absolutely wrong….and it’s killing our wealth.
Why the $500 Car Payment is a Bad Idea
I’m not saying all car payments are bad, as there are certain situations where a loan makes sense. Perhaps you really needed a new car under warranty and saved up a large down payment to make it happen. Or maybe you planned on buying a new car with cash, but chose financing to secure a sweet 0% APR financing offer.
But, let’s face it – these situations aren’t normal. While each situation is unique, the vast majority of people aren’t helped by their ginormous car payment.
In fact, a huge monthly payment might be the one thing preventing them from building wealth. Think about it this way. Imagine you started your first job at age 25 and settled on a $499 car payment for your entire adult life.
You would trade your car in over the years, but you would always have that payment. Each time you paid a car off, you would head straight to the dealership to pick up a new one.
If you did this for thirty years, you would fork over $179,640 in car payments!
And in the end, you would only have an older car worth almost nothing to show for it. Worse, this figure doesn’t include the extra money you’ll pay for auto insurance and register a brand new car as opposed to a used one. Now imagine you did something radical. You forgo a new car for your entire life and drive older, paid-off models the entire time.
Instead of spending $179,640 in car payments over thirty years, you limit yourself to spending $30,000 total on cars instead. The kicker with this scenario is, you invest all of the extra money instead. (I did this with an inherited Chevy Lumina, and became $2 million dollars wealthier in the process!)
If you did this – and invested around $1,000 less per year to save up the $30,000 for a lifetime of car replacements – you would have $394,335.91 after thirty years with just a 6 percent annual return. If you earned 8 percent on your money over those thirty years, you would turn 55 with $565,047.59! Now let’s say you earned 10 percent on your money.
Amazingly, you would have $820,483.03 after thirty years! Remember, this is easy money, people. Instead of paying that car payment, you would either…