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Buckle up, kids. Today we're talking about how that hoopty parked in your driveway can steer your finances in the wrong direction. You see, car payments are highway robbery to the tune of $6 million. Meaning it's time to pump the brakes and look at why you're stuck in neutral financially.
When you do that, you can shift gears, get out of the fast lane to financial ruin, and start cruising on the road to success paved with $100 bills. Life is a highway, my friends, so let's hit the gas. And that is the world record for most puns crammed into one intro. But before we rev things up, take your clicker and click on that like and subscribe button so we can keep the wheels turning here on the Tubes. Let's start by talking about car culture. Buying a car is one of the largest purchases you'll ever make, likely behind a college education
and a home. And because it's such a large purchase, you've got to think about ROI. And no, I'm not talking about the Republic of Ireland. What are you, fluttered? Oh god, you wouldn't belong getting frostbite. I'm talking return on investment. You see, with a home, getting a return on your investment typically happens thanks to the long-term appreciation of real estate. Even getting ROI on your education is possible.
unless you majored in anthropology and are still working that unpaid internship at the State History Museum. Honestly, at this point, you should just get a job at anthropology. I'm going to anthropology. You get paid there and you get 40% off. But unlike your home or education, cars are what we call a depreciating asset, which is nerd speak for goes down in value. Now, I know what you're thinking.
But George, as long as I can afford the monthly payment on this car, who really cares? I care. And here's why you should too. By having a car payment, you were actively saying, "I don't wanna be wealthy. I'd rather look wealthy, but stay broke."
Let's just do in life our sways. Okay, I get it. The Irish accent isn't working. I was giving it a shot. Now, most people wouldn't admit that, but it's subconsciously what they're saying by keeping a car payment hanging around their neck. And if you think I'm being dramatic, look at this number. There are $1.55 trillion worth of car loans in America right now.
That's 1-5-5-0-0-0-0-0-0-0-0-0. I'm just gonna, I don't know when to stop at this point. I don't even, I lost track of how many zeros are in a freaking trillion dollars. That number is more dramatic than Taylor's breakdown in Real Housewives of Beverly Hills season two. Show you guys!
I take it back. It's almost as dramatic as Taylor's breakdown in Real Housewives of Beverly Hills season two. As of today, the average new car payment is $717. The average used car payment, $563. And if you don't believe how much wealth that car payment is costing you,
Let's run the numbers. So let's take that $717 car payment for the 2023 Ford F-150 that you can afford. Well, what if you stop the cycle of getting a new car and a new car payment every few years during your adult life, and instead you invest that monthly payment into mutual funds in the stock market from age 22 to 62? Let's see what you have.
So I've got my investment calculator up right here. Current age, 22. Age you plan to retire, 62. I've got $0 to my name. I'm going to start investing $717 with an assumed annual return of 11%. Hope you like the freaking truck, Tim McGraw, because a lifetime of payments just cost you over $6 million.
And yes, I realize that math assumes an 11% average annual rate of return. That number is based on the historical track record of the S&P 500, which is considered the benchmark index for the U.S. stock market. And from 1928 through 2022, the S&P 500 had an average annual return of 11.51%. Now,
Now, even if you just invest that $717 payment for just the average car loan term of 70 months, you'd still have over 60 grand in actual dollars instead of a piece of metal on wheels that's lost 60% of its value thanks to depreciation. And what could you do with $60,000? Well, you could buy yourself a nice car outright with no payments in cash.
Heck, you could get two of them. You could get 75 full-body electric zero-gravity Shiatsu massage chairs with Bluetooth heating and a foot roller for your home or office. And why would you need 75 massage chairs? I don't... Listen, it's none of my business. Maybe you got a big family. Maybe you just want to be hospitable when they visit for Labor Day. Maybe you're franchising out your nail salon. Not that I know what kind of chairs they have in nail salons. Like I said, none of my business. I didn't see it. You see, we've been conditioned to believe that car payments are just a way of life.
like filing your taxes and doing your laundry and struggling to find size 30 by 28 jeans. With more than eight out of 10 people purchasing new cars with a loan or a lease, it's clear that everyone has taken the bait here. My friends, listen, car payments are not just a way of life. Let me introduce you to a far, far better option called buying a car with cash.
I know it sounds borderline dangerous in our day and age. You might even think it can't be done. But your budget should dictate what kind of car you get, not the other way around. Too many of us are using the car to dictate the budget and then going to debt for it. So go with me here. What if...
What if in an alternate universe or current reality, you bought a cheaper used car that you budget for just to get around for 10 months, a cheap beater car. And that way you can have something to drive while you save for a better one. Then if you take that $717 car payment that you would have spent on a car loan and you put that into a savings account every month, after 10 months, you'll have saved well over $7,000.
Now add that to the one or two or three or four grand you can get for that old beater car you're driving, and you'd have well over $8,500 to buy a new-to-you car in cash. Now, this is not going to be your dream car with heated seats on Australian Siri, but that's a major upgrade in just 10 months without owing the bank a dime in interest. But we're just getting started here. Let's keep this ball moving. If you keep consistently putting away that $717,000,
for 10 more months, what would you have? Another seven grand to put towards a car. And in today's current car market, you could probably sell your current $8,500 vehicle for about the same price you paid for it 10 months ago. Meaning you now have more than $15,000 to pay for another new to you car just 20 months after this whole process started. That's less than two years. Now, if you're keeping score, that's you, $15,600, car debt, zero. We like it that way.
Oh, and a side note about shopping for a car. A good rule of thumb is that the total value of all of your vehicles, anything with a motor and wheels on it, should never be greater than half of your annual income. So, let's say you make 80 grand a year. Your car, your boat, your Harley, your John Deere, and anything else with a motor should add up to no more than $40,000. Now, if you're watching this, you fall into one of two categories. Either you have a car payment currently or you don't. Now, if you don't, I'm proud of you. Gold star. High five. Let's keep it that way.
Cashflow those upgrades over time. And with the money you're saving by not having a car payment, you can use towards other financial goals. And if you do have a car payment, pay it off ASAP or sell it and buy something cheaper with cash. Now let's take a look at what this can do for your wealth if you follow this advice for your adult life. If you invest the money you would have had as a car payment, that's 717 bucks, into good mutual funds in the stock market, here's what that can turn into.
with that 11% rate of return. In just 10 years, you'd have over $150,000 in that account. In 20 years, you'd have over $600,000. In 30 years, you'd have over $2 million.
And in 40 years, from age 22 to 62, that mutual fund would have over $6 million. There's no telling how many massage chairs you could get with that kind of money. Just kidding, it's 7,023. It's super simple, you guys. The less money you're spending on your car every month, the more money you'll have to put into more important things.
like paying off any other debt you have, saving money for retirement, putting money away for your kid's worthless anthropology degree, and so much more. Now, I know the idea of not having a car payment isn't as easy or as flashy as the idea of just dropping the kids off at soccer practice in a finance Land Rover while the other parents roll up into some Camrys. But with some patience, and maybe even the help of a Camry, your life could be dramatically different 10 years from now if you committed to a life without payments.
I mean, this is the stuff wealthy people know that broke people don't. Broke people ask, how much down, how much a month? Wealthy people ask, how much? That's it. That's where the question ends. If they can't afford it in full, they don't buy it. And according to the National Study of Millionaires, the average millionaire drives a four-year-old car with 41,000 miles on it.
not brand new cars. And you'll probably find a Toyota or a Honda in their driveway because those are the two most popular car brands among millionaires. Not Lamborghini, not Lexus, not Mercedes. And more importantly, eight out of 10 millionaires buy their cars with cash. And that's because they figured out that trying to build wealth while being saddled with a car payment is like trying to run a marathon in Crocs.
Sure, you can do it, but it's going to be a whole lot harder and you ain't impressing anyone. Actual real rich people avoid car loans and leases like I avoid anyone from high school that I see in public. And they do that not only because they know cars are a terrible investment, but because they know they can save and invest for the future if they don't have a car payment.
And I promise, getting rid of car payments is not some kind of fairy tale. It just takes planning and patience and some sacrifice and intensity. And isn't the future you and your bae worth a $6 million retirement? No car, no matter how fancy, can give you that kind of wealth and that kind of peace of mind.
If you like what you heard today, there's plenty more where that came from. I'm going to throw two links at you that can help you take the right next steps. Number one is my favorite investing hub that's got all kinds of articles and tools and that great investing calculator that you saw that's going to help you build wealth without debt.
And I've also got a free car buying guide for you that'll help you buy a car the right way, sell a car the right way, and make good decisions when it comes to your vehicle. And honestly, because I'm curious, I'd love to know what you're driving and what your car payment is if you've got one. So let me know down in the comments. As always, be sure to share this video with someone who you think might enjoy it and hit that like and subscribe button before you click away so you get more content like this. Thank you guys for watching. I'll see you next time.