Car Guide

 

“I’ll always have a car payment.” You’ve probably heard a friend, coworker or your Uncle Bob say that at some point. And if you’re honest, maybe you’ve thought the same thing yourself. 

But here’s the thing. It’s wrong with a capital “W.” The truth is you can kick car payments to the curb for good!

How? We’re glad you asked!

Kicking Car Payments to the Curb

Here are the steps to living payment-free:

1. Buy a cheap used car. Listen, you don’t need to drive a BMW or a Jaguar—at least not right now. Get yourself a $2,000 car (or whatever you can pay for in cash) just to get around for 10 months. Remember, this is temporary. You won’t be driving this hooptie forever!
2. Save what you would’ve spent on your car payment. For example, take that $749 (the average car payment) and save it every month to pay for a new-to-you car (with cash!) instead of giving it to the bank. After 10 months, you’ll have almost $7,500 set aside to buy a new ride! Add that to the $1,500–2,000 you can get for your old beater car, and you’ll have $9,000 saved up. That’s a major car upgrade in just 10 months—without owing the bank a dime!
3. Sell the second cheap used car and buy the car you want with cash. Take our example above. If you keep saving for 10 more months, you’ll have another $7,500 to put toward a car. You could probably sell your current $9,000 vehicle for about the same price you paid for it 10 months ago. That’s more than $16,500 you can use to pay for another new-to-you car—in less than two years since you began the process.

Another principle to keep in mind when building wealth? Don’t let the cost of all your motorized vehicles (think cars, boats and lawnmowers) total more than half of your annual income.

The Real Cost of a Car Payment

The truth is, your car payment is costing you more than you think—a lot more.

According to our National Study of Millionaires, 8 out of 10 millionaire car buyers drive debt-free without a car payment. They know that tying up hundreds of dollars a month in payments on a depreciating asset keeps them from using their number one wealth-building tool (their income) from actually building wealth. 

Let’s go back to that average monthly car payment of $749 one last time. What would happen if you were able to save that car payment instead, splitting it in half between saving for a future car and retirement savings?

If you did that, you’d have enough saved every five years to buy a reliable $22,000 used car with cash. And, if you just invested the other half of that payment into a Roth IRA with good growth stock mutual funds every month for 30 years, you could have more than $1.3 million in retirement savings.

Let that sink in: That average car payment could be stealing your chance to become a millionaire. We hope you like the car! A SmartVestor Pro can help you take advantage of the money you save from not having a car payment.  

We can’t say this enough. Millions of Americans are throwing away hundreds of dollars every month to drive a car they can’t afford to impress people they don’t even like—and then they wonder why they don’t have any money saved up for their kids’ college funds or their retirement accounts. Don’t let that be you!

You can break the vicious cycle of never-ending car payments and change your family tree forever. You can drive like no one else now so you can drive like no one else later. It starts with making a decision to only buy cars you can pay for with cash and never take on a car payment again.