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I hate car payments. With a passion. If you haven’t noticed, I don’t write about the best way to finance your car, which lease is the best option, or how to pay off your car loan with your home equity line of credit that you pulled out just before the housing bubble crashed, securing your car debt to your home, which you promptly wrecked while texting on your $100-a-month data plan phone that you bought with payday loans, causing you to lose your car, house and legs, all because you could buy a new car with a 0% interest. Nope, I don’t write about that stuff, because I don’t think anyone should have a car payment. Ever.*
If I Had A Car Payment
Let’s imagine, in another universe, I decided that getting a car payment was the only way to afford a reliable car. And of course, getting a new car was the only way to ensure reliability. Being the average American, I purchased a car for just over $25,000 and my monthly payment was about $450 (info from recent Experian study). Over the life of the loan, I’ll pay an extra $2,600 in interest, just because I really love giving my money away, and the car will lose 60-70% of its value over the next 5 years.
Assuming all things the same, here are a few things we would have to cut out of our budget because of our new pet car payment:
- Camping. We go camping every year with the family. It’s a really great time and something we look forward to all year. We only have to save about $50 to pay for it, but we would have to cut that item out. No more camping. But, you know, sleeping in our car in the driveway is pretty much the same thing, right?
- All gifts. We love giving gifts, especially during the holidays. We usually tuck at least $50 a month away for gift giving throughout the year and at Christmas. We buy for a LOT of people, but they are simple, frugal, heartfelt gifts that bring joy to others as well as ourselves. We would have to scrap this from the budget completely. Maybe giving people a ride in our practical 5-passenger vehicle is the best present they’ve ever received…?
- Vacations. We love to travel. And though we don’t have mich room in the budget, we do try to get out of state at least once a year for an enjoyable vacation. This year, we’re going to Florida, doing a day of Disney World and then hopping on a 4 night cruise for under $1,000. But, that would not be possible as our vacation money (about $100 a month) would be going toward our wonderful vehicle whose value is dropping faster than Felix Baumgartner.
- Dating. Forget dating my wife, we have a car to care for. Forking over the payment every month would force us to eliminate our date budget ($60 – $80 a month). I mean, a nice drive around town is a date, right? We could bring along sack dinners, and just park near a neighbor’s house who have a big TV in their window, and get a really good hearing aid, wire it into the car stereo and turn it up for sound. Let’s just hope a neighborhood dog doesn’t bark, blowing out our eardrums. You know, that, or a cop driving by…
- Feeding Our Dog. Dog food can be expensive. We pay about $60 a month for ours, and our dog is happy, healthy, and has never had any health problems. We would definitely have to cut that out of the budget to feed our car payment instead. Hopefully our dog can gain nourishment from sheer appreciation of our new vehicle. That, or we’ll just let her roam the neighborhood, hunting for food and eating garbage scraps to survive. At least she can find shelter under our new car…
- Freedom. I’ve said it before, and I’ll say it again, to me, budgets = freedom. But forget that, I would rather be a slave to the financier of my vehicle, sacrificing whatever I have to in order to make that payment every month. Freedom is too unpredictable, and I would rather come home to the ol’ ball and chain car payment any day!
Wait, There’s More
So what I sacrifice all of those things for a car that I paid a total of almost $28,000 that’s now worth $7.500? I love my practical car with all of my wallet, why would I change? Heck, I’ll just finance another vehicle once I’m done paying this one off, because I enjoy it so much. I mean, why wouldn’t I do this for the next 30 years, everyone else is, right?
Let’s run some numbers here. A car every 5 years = 6 cars over 30 years. Assuming I continue to buy a $25,000 car every 5 years, here’s how it turns out:
|Total Cost||Sale Value||Money Lost||Lost Money Invested At 8%|
|Vehicle 1||$ 28,000.00||$ 7,500.00||$ 20,500.00||$ 25,296.00|
|Vehicle 2||$ 28,000.00||$ 7,500.00||$ 41,000.00||$ 62,984.00|
|Vehicle 3||$ 28,000.00||$ 7,500.00||$ 61,500.00||$ 119,134.00|
|Vehicle 4||$ 28,000.00||$ 7,500.00||$ 82,000.00||$ 202,788.00|
|Vehicle 5||$ 28,000.00||$ 7,500.00||$ 102,500.00||$ 327,419.00|
|Vehicle 6||$ 28,000.00||$ 7,500.00||$ 123,000.00||$ 513,101.00|
I mean, it’s not that big of a deal. At least I had a “reliable” car for 30 years, right?
Don’t Sacrifice Your Future
Honestly, I don’t how you can look at the above numbers and not feel sick. Cars are one of the absolute biggest wastes of money on this planet, but marketing has really made having a car payment the norm, telling people they deserve new vehicles all the time. I really don’t see why anyone would sacrifice so many areas of their lives to pay interest on a loan for a depreciating asset, it’s just really bad math. I think there could be WAY more wealth accumulated in one generation by ditching the above method of purchasing cars than any tax break can ever provide. Don’t sacrifice your future because you are afraid of vehicles. Spend a bit more wisely on your vehicles and you can build the kind of wealth that passes from generation to generation if invested well instead of spent poorly.
Comments: Do you have a car payment? Why? Do you think that carrying a car note is a good way to build wealth? Here’s the kicker; How many people would take the money that they would have spent on a new car and invest it?
* I am not ignorant. I know that if you have enough money to buy a car with cash, and you opt to invest it instead and get a super low rate car loan, you can actually earn more with your investments than you spend in interest on your loan. However, I just don’t like playing that game. Also, if you are getting a loan, you are most likely buying a new car, which means your car is going to lose most of its value while you own it. But, I do want to thank everyone out there who buys these new cars, because they are subsidizing my future car purchases and eating all that depreciation for me 😉