Friday, November 16, 2018


What If I Told You That Brand New Dream Car Is Costing $800k Over The Next 30 Years? Still Want It?|

October 31, 2018 by  
Filed under Business, Money, News, Opinion, Weekly Columns

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(ThyBlackMan.com) Have you noticed how many new car commercials are on television EVERY day?  The automobile manufactures spend $ BILLIONS advertisement dollars annually.  They hire young, good-looking actors, leaping for joy to acquire a 72-month car payment!  Because the car manufacturer and dealers want YOUR HARD EARNED MONEY!

If you resist these ads and YOUR own excuses, and invest 30 years of new car money, you will grow YOUR Net-Worth, versus that of Lexus, GM, Ford, etc. Believe me, they have plenty ($ BILLIONS) sitting in their bank accounts.

PUTTING YOUR MONEY TO BETER USE

In 2018, the average new car payment is $530.  That does not include: maintenance, gas, repairs, insurance, etc.  If you add those factors in you are paying around $750 per month.

As car prices have increased, car manufacturers simply extended the number of months you can borrow, so that today the average loan length is 68 months or six and one half YEARS!!

What are the excuses we make for spending $750 per month ($51,000) for 68 month?

  1. My office peers drive better cars than I do and I need to fit in.
  2. I can afford the monthly payment if I extend the loan to seven years. I will trade it before the seven years.
  3. I have always dreamed of a black BMW 700 series, $85,000 car.
  4. I will have better luck getting dates in this car.
  5. My neighbors all drive better cars than I do.
  6. My family believes I made it – I need to look the part.
  7. I lied to my husband on the cost and monthly payments.
  8. I expect to get small raises each year of 15% annually. Right?
  9. The Sales Person tricked me.
  10. The Sales Woman offered zero percent interest. But my credit score did not qualify so I am paying 6%.
  11. We are getting married and need a more reliable car.
  12. It was just a dumb decision and I know that Styron guy is going to calculate how much money I could have had. Here he goes again!

But what if you ignore these excuses and others urging you to buy that new car?  What if you saved the $530/month new car payments, that some people will pay for the next 30 years?

Assuming an average of eight percent return, you end up with $795,157 added to your investment portfolio or Net-Worth, in 30 years.

How many of you believe an extra $800,000 would help you retire in a sustainable (HAPPY) manner?  I certainly do!

YOU HAVE TWO CHOICES

  1. Let’s for the sake or argument assume the new car payment stays flat at $530/month for 30 years.  Which we know is not going to happen, due to inflation.  If you pay $530 every month for thirty years, you will pay over $190,800 in car payments! Worse, this figure doesn’t include the extra money you’ll pay for auto insurance, maintenance, fuel, etc. on a new car.
  2. Now imagine you did something Un-American -AVOID DEBT. You buy used cars, versus spending $190,800 in car payments over thirty years.  You then invest all the savings.  Amazingly, you would have almost  $800,000 after thirty years! Remember, this is easy money.  Instead of paying that car payment, you could either:
    • Increase contributions to your 401(k) account by $530 per month.
    • Add an additional $530 per month to your SEP IRA, ROTH IRA, etc.
    • Invest $530 per month in a taxable account if you’re maxing out retirement already

The GREAT NEWS, you end up with ~$800,000 in 30 years.

WHY DO SO MANY WANT (NOT NEED) THAT NEW CAR?

The car industry has learned to present the cost of a car (used or new) as a monthly payment, – not the overall costs of the car or the long-term financial consequences/interest paid on the loan.

People ignore their budget and begin to rationalize  – I can afford this monthly payment. The Car Salesman, Jack, even figures out they can lower the monthly payment by stretching the payments to 84 months [SEVEN YEARS}!  Wow-what a friend!

We should stop and ask ourselves can we really afford a $50,000+ car or truck that will depreciate the second we pull off the lot?  What would my savings look like if I purchased used and invested the rest?

CHANGING YOUR NEW CAR MINDSET BY DELAYING INSTANT GRATIFICATION.

I love instant gratification, but, if we want to grow our wealth in the process, you have to: MAKE YOUR MONEY WORK HARDER THAN YOU:

  1. Celebrate Quick Wins {Pay off a debt.  Max out your 401-K Contribution, etc.}
  2. Create your budget where Income Exceeds Expenses.
  3. Pay yourself first! Automate your weekly or monthly savings.
  4. Create an emergency fund- Target growing to six months or more expense dollars.
  5. Know your Credit Score and take steps to improve, based on your report data. This reduces the interest rate you will pay on your home, car, etc.
  6. Contribute enough money to your 401(k) (or similar retirement plan) to get the employer match — and take the steps to reach maximum contribution amount. ($18,500 in 2018, unless you are 55 years or older, than $24,500).
  7. Pay down your debt (and avoid high-interest debt, like credit card debt).
  8. To increase wealth, start a Roth or traditional Individual Retirement Account (IRA).
  9. Invest in a taxable brokerage account. Consider the S&P 500 ETF (low cost and out performs majority of the managed and expensive mutual funds).
  10. Build Multiple Streams of Income {Rental Properties; House Flips; Side Hustle; Dividends; Start your own business…}.
  11. RETIRE HEALTHY WEALTHY, HAPPY AND EARLY!

BUY USED CARS

 

One of my readers is interested in a new 2019 Mercedes E Class, a very nice car.  I am trying to convince him to instead buy a Certified Pre Owned Car. [Certified Dealer Cars come with good warranty protection.}  Today, I found a 2016 Mercedes 350 E Class with 12,200  miles listed at $34,750. The brand new 2019 model is selling for ~$65,000.  Is a new car smell  (the dealers are happy to pump that smell into a pre-owned certified model) worth almost $30,000?

CAN YOU IDENTIFY THE 2019 VERSUS 2016 MODEL?

Today, there are numerous used cars for sale. Because so many people now lease cars, the volume of pre-owned cars has increased and it is projected used car prices will drop ~ 2.5% each year for the next few years.  If you are in the market for a vehicle and looking for a good deal, now may be the best time to buy used.

 

CONCLUSION

Only 23% of US Millionaires buy a new car. REGAIN YOUR CONTROL!

Planning for a secure future is fairly simple, but incredibly hard to achieve. Having a clear concept of spending and what money means to you is a necessary first step. U. S. families ARE struggling to get ahead.  One needed change is elimination of this new car mindset!

Some of my readers can afford a new car, WITHOUT sacrificing their financial security. Here is a simple test to see if you should spend your HARD EARNED MONEY on a new car:

  • Will you have to take a loan?
  • Will this depletion of cash impact your financial security?

If you answered NO to both questions, then you are fine to buy that new car.  Keep in mind 90% of Americans cannot answer those two questions with a NO, nor should they test drive that brand new destruction of your wealth!

YOU CAN NEVER OUT INVEST POOR SPENDING HABITS!

DISCLAIMER

Thank you for reading the above blog and any others.

I am a proud nerd (my beautiful wife and daughter told me so) investment and finance blogger, with a Rutgers, MBA and Harvard, Advanced Management.  I am a successful investor in equities and real estate and happy to share my personal finance and investment lessons learned with you.  I am NOT however, a licensed financial advisor.  Please do not construe my suggestions on this blog, as recommendations for your personal situation.  For individual finance advice please seek your own licensed CPA or financial advisors.

Staff Writer; Styron Powers

One may visit this brother over at; Powers Investments Management and also connect via LinkedIn; S. Powers.


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