Cars = #1 Wealth Killer
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in today's video we're going to talk about the number one wealth killer in america our cars hi if you're new to the channel my name is tay from financial tortoise where we learn to grow our wealth slow and steady you might be thinking hey what are you talking about aren't there so many other things that should come before a car payment that is destroying our wealth how about the rising cost of health care or stagnating wages and what about the crazy inflation rate that is destroying our purchasing power yes all true and i don't disagree that many of these items impact our wealth in detrimental ways however if you can hear me out for the rest of this video i want to help you understand why i believe our cars are really the number one wealth killer here in the united states but first let's start out with some history lessons so we have context regarding cars in america let's face it we as americans are obsessed with cars and nothing says american as our cars these days it's hard to see the distinction between car culture and american culture as cars have become such a significant part of our lives since they first came to be and a big reason for why they stuck around for so long is that they're the epitome of status this allura status that keeps drivers hooked dates all the way back to the ford model t the first affordable american car that changed america as we know it over 100 years ago and since then cars have continued to represent itself as an extension of ourselves and therefore our identity and our status symbol a way to show the world how successful we are when someone parks their lamborghini right next to our 10 year old honda civic don't many of us think man what does this guy do for a living how is he so wealthy he is so cool in my mid-20s i made one of the biggest purchases of my life a brand new volvo s40 i had just gotten my recent promotion in the army and i was making decent money of course i was still living paycheck to paycheck i justified the purchase by saying that i deserved it and i worked hard for it and while that might have been true the truth is that i could have bought a much cheaper car and used that extra money to pay down debt or invest in my future but i didn't because i wanted that status symbol i wanted the car that would churn heads when i drove by now a volvo wasn't really associated with turning heads but at the time i sure felt like i was somebody and that is really the core problem with cars they're most often emotional purchases we buy them with our heart not with our heads and when we do that we often end up overpaying and making poor financial decisions just like i did all right now that you had a good laugh at my money mistakes let's actually look at some numbers and see how cars are literally killing our wealth let's try to understand the average cost of owning a car at the time of this video the average price of a new car in the united states is around 48 000 and given that most new cars are purchased financed the average monthly car payment hovers around 700 however when we consider the ongoing costs like insurance gas or maintenance the true cost of ownership is actually much higher and we aren't even factoring depreciation when purchasing a brand new car a new car can lose up to 20 of its value the moment you drive it off the lot and it doesn't stop there on average a car will lose about 11 percent of its value every year for the first five years so if you bought that 48 thousand dollar car in just five years it'll be worth less than half of what you paid for and after 10 years you'll be worth less than a third so it's not a surprise that many people are upside down on their car payments the bottom line is that car payments in general are a bad idea especially big car payments like 700 a month there might be unique situations where a car payment might make sense for example you originally plan on buying a new car with cash but you chose financing instead because they were offering a zero percent interest however these situations are not normal the vast majority of people aren't using car payments to help out their cash flow situation imagine an average person who started their first job at the age of 25 and settled into a 700 car payment for their entire life this person would trade his or her car over the years but would always have that car payment each time the car is paid off we would head straight to a dealership to pick up a new one and if we did this for 30 years we would have paid over 250 000 in car payments alone and in the end we would only have an older car worth almost nothing to show for it and worse as i mentioned earlier this figure doesn't include the extra money we paid for maintenance insurance and other associated costs with owning a car now imagine that we did something radical and decided to forego or reduce this hefty new car payment for our entire life we decided to purchase a smaller new car or a reliable used car or even more radical use alternate means of transportation and rented cars only when we needed one in these scenarios let's reduce our monthly car expense by half the national average car payment instead of spending 700 a month we instead spend 350 per month and we invest the extra 350 in a good low cost index fund for next 30 years how much do you think we'll have in our investments after 30 years at an average eight percent rate of return over half a million dollars the total contribution amount is around 126 000 but the compounding added close to additional four hundred thousand dollars for investments for half a million dollars i personally don't mind driving a humble economical vehicle versus a car that supposedly shows my wealth to the rest of the world that really doesn't care about me anyways car payments are not a way of life and if we think that since we had one ever since we could remember it's time to change that mindset it's easy to blame external factors for our life and money problems but what is interesting is that most often we blame everything else but our high car payments for our inability to get ahead we blame our employers for not giving us the raise 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 how often do we focus our efforts on high car payments most often not so many of us myself included have become socially conditioned to believe that a huge car payment is a fact of life because having a nice car is a way of life it's an extension of who we are we wouldn't go out to the mall wearing tattered clothes so how can we be on the road with a rundown vehicle we tell ourselves that everyone has a car payment and that is normal and okay and if we're going to have a car payment anyways we might as well get the car we want right this kind of thinking is so widespread and so embedded into our culture that it's almost an epidemic the fact is that we don't need to think this way and in actuality it is very harmful to think this way because it's detrimental to our wealth alright now that we recognize the detrimental impact of having a car payment is to our wealth what can we do let me share with you some practical tips number one tip is a bit general but it is to delay gratification or learning delayed gratification if this is something we struggle with and i totally empathize with people who like buying new cars if we're completely honest with ourselves myself included buying a new car is fun not only do you get to enjoy the coveted new car smell but you get to show off in front of your family and friends and no matter how much the privilege costs it feels so good to drive your new car off the lot and cruise down the street unfortunately that is a short term thinking as many of us myself included might have experienced first hand the new car smell the excitement you feel when you get to drive a new car to work i'm sorry to say but these feelings are temporary and they're fleeting after a fairly short amount of time the new car excitement turns into mundane uneventful reality soon your car isn't so new anymore it's just something that you drive to costco on a weekly basis if we want to do something different and build our wealth in the process we need to change our new car mindset let's learn to delay gratification if you currently have a car and have been thinking about getting a new one see if you can drag it out for several more years the simple act of delayed gratification can mean hundreds of thousands of dollars in the long run second tip is a bit more practical and that is to consider buying used as i mentioned earlier one of the greatest negative financial impact of buying a new car is its depreciation a new car can literally lose up to 20 of his value the moment you drive it off the parking lot after five years it'll be worth no more than half of its original value a used vehicle depreciates at a much slower rate than a new vehicle this is because once you're behind the will of the car it will have already gone through the majority of its depreciation and it's much cheaper thus your monthly payment if you choose to finance will be much lower if you're worried about the condition of a used vehicle because you never purchased one consider a certified pre-owned vehicle you'll still save money by buying a used car but gain additional confidence the reliability of the vehicle in essence certified pre-owned or cpo are vehicles that meet manufacturers establish standards and carry some form of guarantee against defects similar to a new car warranty the third tip is to never lease a car leasing a car is tempting because the monthly payments are much lower than purchasing a car however it gets quite expensive in the long run when you lease you're basically paying for the use of the vehicle for the first two to three years of his life when the car depreciates the most when your lease is over you either have to lease another car or purchase one starting the cycle all over again buying a new car might be expensive initially but once you paid off the loans you at least own the car and won't have any car payments as long as you continue to drive it with leasing you don't have this option you will always have a car payment the fourth tip may sound a bit extreme but is to consider no car if you live in an area where there is a good public transportation and you don't have to commute long distance for work it might be feasible to ditch your car altogether not only will you save on car payments but you also save on gas insurance and maintenance cost it may not be the most glamorous solution but it is a practical one that can free up a significant amount of money each month cars are one of the biggest wealth killers out there if you really want to build true wealth you need to be mindful of your car choices and avoid the temptation to overspend there's nothing wrong with owning a car but there is something wrong with letting the car own you think carefully about your needs and make smart financial choices that will help you grow your wealth over time thank you guys for watching if you'd like to learn more about some other ways to save money check out a few of my videos here until next time all the best [Music]
