This week I’m featuring a post from my friend, Dakota Grady.
Do I Smell Money Burning or is that a Car Payment? Over the next couple of weeks, we will feature posts concerning cars and the money we spend on them. Traditionally, this time of year, cars are purchased when people start getting their income tax returns. A good friend of mine in the car business told me that’s not the case anymore. With the high prices of cars and the ease of credit (no money down), people can easily jump into the car debt trap year round! Look at the numbers Dakota uses and then think about your salaries as teachers. I want you to do what will make you happy and provide you with the most freedom for you and your family. And debt won’t do it!
Do I Smell Money Burning or is that a Car Payment?
by Dakota Grady
Image courtesy of Phil_Bird at FreeDigitalPhotos.net
Is That New Car Smell Worth the Car Payment?
Do I Smell Money Burning or is that a Car Payment? The holiday season is finally upon us!! Shoppers are at the malls selecting gifts to give to loved ones, Christmas parties abound, and traffic on the roads has exploded. During this time of year, I notice something: New car tags. As I drive, I see cars with paper license plates, indicating a new car purchase. People tend to buy new cars during December because they receive an average of 7.7% off of the manufacturer’s suggested retail price, according to Time.com. That discount is an incentive for car seekers to acquire a new car.
When I see one of those paper license plates, I think to myself, “I bet that person has a car payment.” The question I should be asking myself is, “How much money is that person losing on that new car?” I like cars too, but I know that cars do not keep their value. If you have recently bought a new car or are thinking about purchasing one, ask yourself this question: Is that new car smell worth the car payment? Consider these thoughts and make your own conclusion.
According to Experian.com, the average car payment in the fourth quarter of 2016 was $506. Let’s do the math on that new car.
- Annual amount spent: $6,072
- Life of loan (84 months): $42,504
The car will cost you more than $42,000 for seven years (yes, there are 7-year auto loans)!! What if you paid cash for a reliable, used car? What could you do with $42,504? Here are some ideas. You could save for a Rainy Day Fund. That $42K could be invested to save for your child’s college education. How about going on a vacation to a tropical island with some of the money? Or, maybe you could save for retirement (because all of us know that Social Security is not enough to live on for a quality lifestyle).
Image courtesy of Stuart Miles at FreeDigitalPhotos.net
Do you remember what you dreamed of doing when you grew up? I dreamed of being a certified public accountant, or a CPA. Dreams can become a reality, especially when you have money to support your start-up efforts (if you wanted to start a business). Well, instead of using the $42,504 to fund your car let that money fund your dream. Maybe you hate your day job; I encourage you to forego making that new car purchase this year and use the money to make your dream a reality. Envision your dream, go chase it, and make it happen!!
Ah….now we are talking big league stuff!! What is wealth? According to Thomas Stanley, author of The Millionaire Next Door, wealth is when what you own minus what you owe is $1 million. That is a lot of money!! Wealth is accumulated over time; it is not built by playing the lottery or gambling at a casino. To get wealth, you must be disciplined to put your money in investments that increase in value. Cars do not increase in value. Here’s an idea: Instead of throwing your money away in car payments, wisely put the money in investments like mutual funds that have the potential to amass millions of dollars to create the life you want.
Car payments are robbing people of joy that they could be having if they did not have hundreds of dollars leaving their bank accounts each month. I challenge you to buy reliable, used cars (paying with cash) and utilize the money that would be paid in car payments to enrich your life and the lives of others.
So, is that new car smell still worth a car payment?
You can check out Dakota’s portfolio at bestmoneycoaches.com.