Why You Should Never Finance A Car #Finance

for many of us our cars have become a super important part of our Lives it’s how we go back and forth to work it’s how we run our kids to their various events it’s our transportation but for many of us it’s a lot more than just Transportation it’s also a signal

a societal signal to who we are kind of like the clothes that we wear signal who we are and how we want people to perceive us and for many of us we’re also using our cars to for that signal but un unfortunately it’s a super expensive signal and the Debt is starting to

cause problems for individuals I don’t want to see that happen to you I think there’s a better way so let’s jump into the problem and as a financial adviser for over 20 years I’ve talked to hundreds of clients about this for those that it’s a match for what the

strategy I’m going to share with you today has been a game Cher for them and for some folks have allowed them to retire 3 years earlier 5 years earlier or even more so let’s jump in according to the Wall Street Journal the amount of money that Americans owe on their car cars has now

exceeded how much we owe on our student Loans for most American families if car Loans are not the number one expense they’re number two or three it’s a major and important expense in the United States this chart here from uh Kelly Blue Book shows what

the average new car uh price and you can see the new car price before the pandemic went from just under $40,000 to now just under $50,000 that’s a 25% increase and for most of us 85% of people are buying a new car with a Loan and the problem with that is and and I should say

a little over half by used cars with a Loan and the problem with that is car Loans are expensive this this report here by bank rate research shows what the car Loan rates are the interest rate rates based on your Credit score and

you can see even for people with the best Credit they’re paying more than 10% a year for their car Loan so we have a big balance right we’re financing something that costs $50,000 on average and we’re paying a high interest rate over 10% even if

you have the best Credit so what that ends up resulting in is expensive car car Loans as I write this here according to this article um the average car Loan is just under $750 a month that’s that’s a big payment $738 is the average

payment for a new car and $530 is the the average payment for a used car and believe it or not almost 20% of all new car Loans have payments of over a, ,000 a month that’s $122,000 a year you know if if if you’re making $48,000 a year that is 25% of your before tax

salary right so if if you’re making a fourth more than that $60,000 you can see it’s still 20% it’s a huge chunk of your pre before you even pay Taxes salary uh and as I said it’s expensive Debt and it’s it’s also in aggregate a

huge number you can see uh the the challenge is getting bigger in 2020 Americans owed $1.25 trillion in Debt that has gone up to $1.5 trillion just for car Loans uh the average auto Loan balance you can see here is $24,000 and then the average auto

Loan balance by FICO score you can see see even even people with poor Credit which typically means their lower Income you know is right around $220,000 between it I find it interesting that it actually goes down as your Credit

score goes down I find it interesting but not surprising and I think the reason for that is the people that have these higher Credit scores they’re making these tradeoffs and they’re saying you know what maybe I don’t want as much car which is is one of the main

points that I have here is I think we’re buying too much car so stay with me just a couple more facts I want to share with you and then we’ll we’ll jump into this so you know the part of the challenge is once you’re in this new car cycle or the car payment cycle for many

Americans it just never ends you know they go from one car alone to the next car alone and you buy your car down the street from the dealership whether it’s new or used you you drive it 3 four 5 years and you get a phone call from the car salesman saying hey I can get you a great tradein for

your existing car come on in let me tell you how much I can get you for your tradein and it’s appealing right I mean it’s okay I can sell this car for more than I thought it was worth and I need to eventually buy a a different car anyways so they get you to come in and then they talk

you into U buying buying another car and and buying more of a car that you can afford so how do I know this as I said I’ve been a financial adviser now for over 20 years and I’ve helped hundreds of families prepare for which really means save money and invest wisely and also some of the

mental challenges uh that comes for preparing for retirement but I’ve helped hundreds of families do this and the ones that this clicks for getting rid of the car payment can have a significant significant impact on your life it’s the difference between Maybe retiring at 50 and retiring

at 60 or 65 okay again so I’m a financial adviser but the other way I know this is not only do I do YouTube CashNews.cos but I watch a lot of YouTube CashNews.cos and I want to introduce you to a guy by the name of Andy Elliott I’m actually a big fan of Andy he’s a very

motivational person like when I’m ready to go for a run Believe It or Not sometimes I’ll watch this guy’s CashNews.cos because um he’s he’s just come from nothing and he works hard uh and he’s very motivational now his his target audience where he’s chosen

to exercise his skills is helping salese and there’s nothing wrong with that I think it’s great to help salespeople but one of his uh Target Markets is is car salese so I hear him

talk about all the tricks that they use to to get us to trade in our car to to get a new car to accept a payment that’s higher than what we probably should and to make it feel like it’s a good idea right so often times like a technique anyways this is Andy’s website if you ever

get a chance to watch it if you want to know the tricks of the trade how the car sales people talk you into um taking taking on another car if you’ve ever come home from a car dealership and say how the heck did that happen you know I was just I was just killing time on a Saturday afternoon

and I came home with a $50,000 brand new car if that’s ever happened to you watch it Andy ell at station again I’m a fan of Andes um but these are very trained salespeople that are going to make it seem to you like your best financial decision is to buy this expensive car I don’t

think that is your best financial decision I think Americans are buying way more car than we should be so how much do I think Americans should should be buying there’s a rule of thumb in my industry 25 to 35 and what that rule means is look at your anual ual salary onee salary your gross

before Taxes and look at 25 to 35% of it and that’s the range that your upper end should be it doesn’t mean you can’t spend less I spend less I always have uh even when I was making minimum wage I spent less than that but so you know if you’re making $40,000

a year 25% of that would be $110,000 35% of that would be about $114,000 if you’re making $60,000 that would be your budget for your next car would be $15 to $21,000 and you might be thinking hey I can’t buy a new car for that and you’re right unfortunately you can’t right

when we we looked at the numbers earlier the average new car now is selling for almost $50,000 but could you buy a car that’s four or five years old could you buy a car that looks great that’s been wellmaintained for $15 to $20,000 I think you can I mean even if if you’re making a

$100,000 you’re not buying the average car right that’s 25,000 to 35,000 so somehow we as a society at least here in America have fallen into this trap where we’re spending way too much money on a car now I’m not telling you how much money you should spend I’m just

saying as a financial adviser if you want to be able to save a meaningful portion of your salary if you want to be able to save for retirement if you’d like to be able to retire before 65 for many people this is the least sacrificial way to do it you know back when I was growing up the the

rule of thumb was save 10% of what you make and you’ll be fine and that might have worked in our grandparents era where they where they had three legs to the retirement stool right they had they had Social Security and Social Security wasn’t taxed they had the money that they saved but

many people people also had a pension from work you know our reality for many of us our social security is going to be taxed about 85% of it for many of my viewers in addition we’re saving our money um but I think we need to save more money because most of us don’t have that pension

anymore so we we need to provide more of our retirement funds than our many of our grandparents did now my grandfather was a farmer so he didn’t get a pension either but you know what but he was fortunate he was able to sell the land his farm uh when he retired and that’s what paid for

his retirement but for that his retirement plan was not a 401k his retirement plan was not an IRA my grandfather’s retirement plan was was a four-letter word k i DS it was going to be my mom and her three sisters that were going to support their mom and dad and that’s how it was done

back then right fortunately now many of us have the opportunity to save more and to be independent and not have to rely on our kids okay so I talked about that um that previous rule the 2535 rule but here’s the thing that can really move the needle for you and here’s what I want you to

think about could you sacrifice for a couple years and buy this used car and instead of making a $750 payment that’s going to some Bank or some Finance organization pay cash for your

next car whatever you could afford even if it’s 10 or $15,000 I’m telling you I have bought personally used cars my whole life and for $20,000 you can buy a car that presents itself well that has been taken care of could you do that once I’m not saying do that the rest of your

life could you do that once and take that $750 that you would have paid to the bank on your Loan you would have paid $10 10 10% interest on that I showed you what the Loan amounts were could you do that and pay yourself so now let’s let’s look at this

Loan calculator U that uh I found online at nerd wallets and I want you to look if let’s just say I’m trying to get a $750 car payment so you can see my monthly payment is $ 74365 so to get that I put in a car that’s $35,000 the interest rate 10% which is based on

what I showed you earlier I have a 5-year car Loan um it’s starting right away in this case I’m putting no money down there’s no trade in so it’s just to see what would happen if you paid yourself $750 a month for the uh what do we say 60 60 months so for

five years at 10% interest if you paid yourself that you would have at the end of this almost $45,000 $4,618.00 y that I think can help us break away from this cycle that I see is trapping at least here in the United States trapping so many people into these monthly car payments that makes it hard

to to save that 20% that I was talking about earlier right I I mentioned 10% is not enough my my my goal for you is 20% and I know it’s aspirational I know it’s hard to save 20% but if we can get rid of the car Loan we’ve gone a long way towards that and to to

save 20% one of the ways to think about this is could you look at your after tax take home pay but before any contributions to a 401k could you look at your after tax take home pay and say we’re going to budget 50% of this on our needs our needs are uh our rent or our mortgage payment our

utility bill gasoline for our car Insurance for our car right so all of your needs and then could you so 50% budget half of your after tax pay take home pay for that could you then keep your wants things like going out to dinner going on a nice vacation all the stuff that comes in

the Amazon cardboard boxes could we keep that to 30% or less of our after tax take-home pay if you can do that guess what’s left 20% and that’s the goal so there’s there’s two ways to get there the easy way in the hard way the easy way is every time you get a raise every

time you get a promotion at work I want you to set aside half of that for future self and I want you to enjoy it and I want you to set aside the other uh the other half for future self so half for current self and half for future self and if you do that over time you should start approaching that

20% level so that’s the easy way the hard way is you know rip off the Band-Aid it’s kind of like living the early days of the pandemic which is really just cut back to the bare minimums for 100 days and and see how low you can get your wants to right your needs are you got to pay those

anyway so you likely don’t have much control over that but carve back for a 100 days see where where you’re at it’s almost like a detox uh a purchasing an overp purchasing detox and overspending detox so you really focus just on your needs for 100 days three months we can do

anything for 100 days so the first two weeks are easy it’s a challenge right and so you’re 15% of the way done by then by the end of the following week you’re almost 25% of the way done we can we can do almost anything for 100 days so go through this detox understand what your

wants and needs are and get to 20% I think a key to doing that is this car payment getting this car payment as low as you can or even better aimit minate it so if you have found this helpful I also do other CashNews.cos about enjoying the journey not just sacrificing I’ve talked a lot today

about sacrificing and not buying that fancy new car but this CashNews.co up here talks about seven things that I want you to stop doing in your 50s in order to enjoy the journey more it’s not just about getting to that starting line which is what I call retirement your starting line not your

Finish Line but enjoy the whole journey so I’ll see you in that CashNews.co thanks for watching this one bye-bye