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When you go and buy a $550 a month car payment on a car, you don't get this deep internal happiness. You're not having more fun. You might have a little endorphin trip while you drive the car off the lot that day, but it dies real quick. And that car, a week after you own it, it's just a used car like every other car in the world.
Welcome to the Stay Wealthy Podcast with Taylor Schulte. This is not Taylor Schulte, as you may have noticed. My name is Jeremy Schneider, filling in for Taylor for the month of July. Taylor was kind enough to let me take over his podcast while he is taking some time to hang with his family, taking a breather and re-energizing after a busy start to the year. He's also hard at work making some big improvements to the show. He will be back on the mic August 4th with some fun stuff to share.
Until then, you're stuck with me. So if you're a fan of the show, you might remember me from episode 64 when Taylor interviewed me. We did an episode called Why Rent vs. Buy is the Wrong Question. You can go back and listen to that. For some quick context, I don't want to talk a lot about myself, but for some quick context, my story, I started an internet company while I was in college. I grew it for 12 years. I sold it at the age of 34 for about $5 million. And then I quit my job at the age of 36 and
and have pursued my passion of personal finance investing, where I teach people about personal finance and investing on my Instagram account @personalfinanceclub or @personalfinanceclub.com. So that's kind of what I'm doing with my life right now. And I really love this stuff. I'm not a professional like Taylor is, I'm just a very serious hobbyist.
And so it might be a little bit of a different perspective than what you're used to on the show, but hopefully it's still valuable to you. So Taylor was kind enough to let me choose my show topics for these five shows I'll be doing in the month of July. If you want, by the way, to see the show notes or links that I have for this show, they're at youstaywealthy.com slash 75.
And this show, I wanted to start off by talking about the concept of frugality. I think living below your means, spending less than you make is so critical to building wealth that I really wanted to kind of set the framework for the next four episodes by
doing kind of a deep dive into one specific part of frugality, which is car payments. The car you drive, the true cost of a car payment, why the car you choose to drive and how you choose to pay for it makes such a massive difference to your financial future.
So I'm going to jump into some statistics. According to LendingTree, the average new car payment, so if you borrow money to buy a new car, the average new car payment right now is $550 per month. And the average term for that loan is 69 months. That is five and three quarters years, 5.75 years that you're paying $550 a month.
And if you're a used car buyer, you're not necessarily off the hook either. The average used car payment is $393 per month. So both of these are huge numbers that people are paying every single month to borrow money to buy a car. To put that in some context, the opportunity cost of putting that money into a car, which is a depreciating asset that
plummets in value if instead of putting $550 a month towards a car, you were to put it into an investment, getting an 8% return. And let's say you did that for the whole course of your career. So for 40 years of a career, instead of continually buying new cars and making car payments, you were taking that same $550 per month and investing it at 8% return. After a 40-year career, you would have $1.7 million. $1.7 million.
And that's with no other investing. That's just your car payment and nothing else. You never invest another penny. Only that $550 a month makes you almost $2 million over the course of a career.
And of course, this isn't realistic. You still have to drive a car, obviously. At least you likely need transportation. And so you can't necessarily put every single penny of your car payment into an investment. But I think it just shows how much money that is and what the opportunity cost is of these huge car payments that are the average in the US. And if you're thinking, hey,
hey, it's really easy to put numbers into Excel and assume an 8% rate of return and extend over 40 years. And that's what I like about it because it's easy and it shows millions of dollars. But I get what you're saying. And so what I want to do is tell you a quick story about my own experience with driving a car that has real actual dollar amounts. So in 2010, I moved from Michigan to San Diego, where I currently live. And when I got here, I actually sold my car in Michigan that I was driving. And when I got here, I needed a car.
So I went on Craigslist and I found a 1999 Ford Explorer Sport for $3,400.
And by the way, I'm the kind of nerd that saves everything related to my financial transactions. So you can see the actual Craigslist ad that I found back in 2010 when I bought this car that I've saved. And it's out again, the show notes at youstaywealthy.com slash 75. This car was a Ford Explorer Sport, which was, by the way, a two-door SUV. So it's that perfect blend of poor gas mileage and inconvenience that you really look for in a car.
They're asking $3,400. I negotiated them down to $3,000 and I paid cash for it. I went over to their apartment. I brought $3,000 in cash. They gave me the keys. We took 10 minutes to figure out the paperwork you needed to get that sort of thing done. And then I drove this car away. And for six years, I drove that car. It was a great car. I drove it down the coast of Baja, California to Cabo. I drove it across the country. I
Went on dates in it. It was a perfectly cool car. Never had any complaints about it. But it was an old car. It was a 1999. This was an 11-year-old car when I bought it and a 17-year-old car when I sold it. And so about once a year or so, something would break on it.
It would be a fuel pump or the radiator or a serpentine belt or whatever. And so I took it to a guy called Dave, a guy named Dave, and he ran Dave's Lamont Street Auto Repair. So I took it to Dave and Dave would tell me what was wrong with it. And he would tell me that it costs $500 to fix it. Now I'd give him 500 bucks and he would fix it. And then my car would work again for another year or so. It was great.
And so after six years of doing this, I eventually did buy a new car and I sold my, sold this existing Ford Explorer Sport and I sold it for $1,500.
So during those six years I drove it, this car only lost $1,500 in value, which is a very small amount of money to lose and depreciation for a car over six years. And the reason that number is so small is because it was the very inexpensive years to drive that car because there's an old car. You know, if you drive a brand new car off the lot, the first year it might lose three or four or $5,000 just in one year of value because a one-year-old car is just worth a lot less than a brand new car.
But if you buy an 11-year-old car and sell a 17-year-old car, it's about the same. You don't lose that much. So I lost $1,500 in the depreciation based on what I bought it for and what I sold it for. And then I also had about $3,000 in maintenance that I paid for. 500 bucks a year paid to Dave at Lamont Street Auto Repair over the six years is 3,000 bucks. So my total cost of ownership was $4,500. That's $750 a year or $62 a month.
That's a very low cost of ownership. And under $100 is a great deal to drive a car. This was a few years ago, so the average new car payment back then wasn't $550. Maybe it was about $500, which I could have afforded. I had an income. I had a job. I could have gone to the car dealership and showed them whatever I needed to to qualify for a loan. And they would have been happy to give me a car to drive off the lot that day. But I decided not to. I went with this used Craigslist route instead.
But what I did is since I had that $500 a month, there was $437 that I wasn't spending on my car because the car only cost $62 a month or $438. So at $438 a month, instead of paying towards a car, I invested in a Roth IRA and index funds. And so from 2010 to 2016, I was contributing $438 a month into a Roth IRA and index funds.
That money just from those six years is now worth over $91,000. And I actually have a screenshot of my Roth IRA that you can see online that I show you. It actually is about $140,000 in it now because I was investing before and after that as well. But just from those six years.
of driving this car. So from the age of 29 to 35, I drove this $3,000 Ford Explorer Sport. And now because of that, I have almost $100,000 in my Roth IRA. And that's just those six years, right? If you extrapolate that to every car before and after over the course of a 40-year career, and you see the compound growth of that money growing and doubling over time, not just six to eight years like it is now, but over the course of a whole career, then you start to get a feel for, okay, now that turns into millions of dollars. So that
is an example of real dollars that, looking back, that's one of the things I did right. I think I made plenty of mistakes too, don't get me wrong, but I think that one car has made me basically $100,000.
And when I talk about frugality in cars, I always get tons of objections, excuses. And so I want to dive into some of those excuses that I hear and talk about what I think about those excuses. One of my least favorite ones that I hear is I need to impress clients. I hear this all the time. If you're a realtor or if you're a business person or if you're in sales, you
They say, oh, I need a BMW. I got to roll up. I got to project success. I got to look the part, whatever. Here's the thing. I'm 39. I'm not a super old person with an entire career behind me, but I've seen a lot. I've done a lot of business. I have never done business with someone based on the car they're driving. And I don't think anyone has ever done business with me based on the car that I'm driving. In fact, I sold my company for $5 million. And at no point during that due diligence phase or the negotiation phase did they ask, what kind of car do you drive? Or I don't think they even looked at the car. You know,
I just parked in the lot and walked in the building. I don't think it ever even came up. They cared about, was I good at what I do or was my business good? As do I think your clients will be. If you want to project success, how about just have a very clean car? I think if you have
a messy BMW with French fries and grease stains and soda bottles all over, you're going to look pretty bad. But if you have a nice clean Toyota and you hand them a bottle of water, your client's going to think you're great. They're not going to care. You know, you're not going to do more business because you have a fancier car. I just don't believe that to be true at all. Okay, next excuse. I need a safe, modern car.
So I want to take you back to a time, an ancient historical time. The year, if anyone remembers this, is the year of 1990. I remember it. I think if you're over the age of 35 or so, you remember the year of 1990. I remember that when the turn of the decade in 1990, people started to think about the year 2000. And it was this far off futuristic time, change of the millennium, just this crazy time to be alive where you see the odometer roll over, the three zeros for the first time in generations. And
And people always talk about the year 2000, what a futuristic time that was. So now think, what if you could buy a car from the year 2010, 10 years after the change of the millennium? How futuristic is that? Well, here's the thing. 2010 was 10 years ago. And back in 1990, cars were good modern cars. You know, they had airbags and they had crumple zones. And so what I'm trying to do is just put some context into the fact that like,
Safety hasn't had this monstrous gap between 2010 and 2020. Cars from 2010 or 2015, if you buy a five-year-old car, are still very safe, modern cars. If you want to be safer, don't make an excuse about why you need a $550 a month car payment. How about just stop texting while you're driving? That's a good way to be safer. Don't use that excuse because you can drive a very safe car from five or 10 years ago without sacrificing any of these major safety features. Next excuse.
I don't want my car to break down. I get that. I don't want my car to break down either.
like I said, about once a year, I'd take my car over to Dave at Dave's Lamont Street Auto Repair. Dave is not sponsoring this episode, by the way. He doesn't even know that I'm talking about this. I'm not even friends with Dave. And on that note, by the way, I wouldn't recommend that you take your car to Dave's Lamont Street Auto Repair unless you live pretty close to Lamont Street. If you're on the East Coast, for example, the amount of hours and gas you'd have to spend to get to see Dave, it's just not worth it. Find a local guy. Preferably his name would be Dave, but his or her name is something other than Dave, but
he or she knows how to repair cars, that will work fine too. So, you know, don't get stuck on the Dave thing here. But you
But you don't want your car to break down. Yeah, I get that. I don't want my car to break down either. But here's the thing. I think that's another excuse. You know, very rarely does a car just stop in the middle of the road. And even more rare is it's somewhere unsafe. And if it does, you just pull over, you call AAA, you call tow truck, you call a repair place, and you fix, you'll deal with the problem. It's like a little bit of an inconvenience. But more likely what happens is a light comes on in the dashboard, or it makes a weird sound, or it's acting a little bit weird. And you take it over to your Dave and you have him take a look at it.
And he fixes it and takes a few hours, whatever. If you're able to every single week go get your hair done, your nails done, or go golfing, or go to your job for 40 hours a week, and go play beach volleyball, or do the million other things you want, once a year you can find a few hours to get your car fixed. It's not that big of a difference. And if $2 million is on the line, I think it's worth it. You're not going to get much of a better return on your time than doing a once a year car repair with Dave at Dave's Monster Dollar Repair.
Okay, next excuse. I don't want girls to think I'm poor. If you're dating, you want to have girls be impressed by your cool car. Here's the thing. If you go on a date with a girl and she decides not to date you again based on the car you're driving, consider yourself lucky. And if you think you need a cool car to get a girl to date you, you've already made some big mistakes.
If you're spending money to look rich instead of having money to be rich to impress a girl, you've got so many things backwards that you're in trouble for the rest of your dating career. So I would recommend instead of spending money to try and impress girls, just have a nice clean car, be more interesting, engage, ask them questions,
But don't just spend money to look rich. That's not a good way to date and it's not going to be more successful in the long run. Okay, two more excuses. Next one, I want to have fun when I'm young. This is for you YOLOers out there. YOLO, I get it. You want to have fun. You only live once. But here's the thing. Here today on this podcast, I grant you permission to have fun. Go for it.
hang out with friends, go on trips, go for a run on the beach, exercise, do whatever you want. But when you go and buy a $550 a month car payment on a car, you don't get this deep internal happiness. You're not having more fun. You might have a little endorphin trip while you drive the car off the lot that day, but it dies real quick. And that car, a week after you own it, it's just a used car like every other car in the world.
And so if you are going to mortgage your whole financial future just for this little endorphin trip that you get when you drive off the new car lot, it's just not worth it. And it's not worth the $2 million it's going to cost yourself at retirement. So go have fun, go enjoy your life, but don't make excuses to spend money just because you think that's what fun is. Because I assure you that isn't going to give you that deep sense of internal happiness, satisfaction, and fun that you're looking for.
Then here's the big one, the last one that I always hear. I have kids. I need to spend X dollars on a car because I have kids.
What did you drive around in as a kid? I bet you drove around in one of those wood-paneled station wagons where you sit in the back and you face backwards and it's made of steel. And if you crash, everyone in the car is instantly dead. But you know what? Did they have seatbelts back then? I don't know. It was all manual windows where you have to make that little put up the window motion with your hand that if you do that now and like someone in their 20s sees you, they don't even know what that means because I don't think manual windows even exist anymore. But the point is,
if you're listening to this podcast, you survived that car and it was fine. And even if it got a crash, it was probably fine. And so if you are a parent and have kids and need to get them to school and stuff, for sure, but buy like a reliable used car and set a good example financially for them, not just to be burning money, making excuses, but to...
show some character and say, hey, we're doing this for these reasons. Talk to them about money, about why you're buying this car, about what it means for your future. They're going to be annoyed. They're going to do what kids are doing and be annoyed that their friends have cooler cars just because that's what kids do. But it's going to sink in. And when they're in their 20s, they're going to have a little more character and they're going to decide to live below their means and build their own future. Okay, so that was my rant on frugality and why to avoid a big car payment. Now I want to do a new segment for each of my five episodes with a Q&A from listeners.
So I mentioned at the top of the show that I run an Instagram called at personal finance club. And I let my followers know that I was going to be on the show and I get a zillion questions from them. And so I said, Hey, ask me some audio questions and I'll answer some of them on the show.
And so I'm going to do some of these each week. And the first one today is coming from Nicole from New York City. Let's listen. I live in New York City, but I'm moving back to New Jersey for a little while. So I'm going to need a car and I have the money to buy a car in cash. But I was thinking about putting half of the money down in cash, but using the other half.
to put on an interest-free credit card, which will be about 12 to 14 months of interest-free payments, I guess. And I would pay it off within the amount of time so I wouldn't have to pay interest, but I can still get the points from the card. Is that a good idea or no? So Nicole is asking about buying a car with a credit card. And so first, I don't think it's ever a good idea to leverage a depreciating asset to try to build well. I know a lot of rich people, but
I don't know any of them who got there by buying things that go down in value on credit cards and then paying them back over time. That's just a bad math equation. It's just not a big enough amount that it's going to move the needle in terms of your wealth. If you're borrowing this little bit of money for this little bit of time and then paying it back,
instead of just paying it off in cash and investing your income going forward, it's just not going to move the needle in terms of your future wealth. And I think it's way more likely to encourage you to buy too much car and puts you at risk of missing a payment or accruing interest or just having more complexity in your life. And so no, that's not something I would do.
pragmatically, car dealerships just won't let you do that. Someone has to pay for those credit card points you get. And I've never heard of a car dealership that will let you put down more than a very small down payment on a credit card because they have to pay a huge credit card fee, which is 2% to 3%. And so if you walk into a car dealership and suggest paying for half of it with a credit card, they almost certainly will not let you do that. And if they do let you do that, you have to think they must be
have a pretty healthy profit margin. Normally, cards have relatively small profit margins, and so they don't want to give away 2% to 3% to the credit card company. And so if they're letting you put down half on a credit card, you might just want to negotiate and say, hey, if I write you a check, will you knock off $500?
Because that 500 bucks is going to be much more than your credit card points would be coming back to you and might be better for them as well. Our next question is coming from Veronica. My name is Veronica and I'm from Illinois. My question is, is leasing a car ever a good option?
So Veronica is asking about leasing a car. Financially, the answer is almost certainly no. Leasing is just a different form of financing with the cost of the loan built into the payment. Plus, you're driving the most expensive miles and years of that car. You lease new cars and then turn them in two or three or four years later. And so those first few years are the most expensive cars.
Plus, you're locked into this weird contract with penalties if you drive too many miles. Plus, you're generally expected to return the car when the lease is up, thus continuing the cycle of the car payment and that missed opportunity of investing those dollars by driving a paid-for car.
That said, so the answer is no. Financially speaking, no, leasing a car is not a good deal. I think when you see that it looks like it's a good deal, like, oh, only $250 a month. But when you see those really good deals, usually there's some other trick built into the lease. Like you have to put several thousand dollars down and it's only a two-year lease or something. And so then when you actually work out the real effective cost payment of those tiers, it's
it's much higher, closer to that $550 payment that we talked about with the average of the year. So at least in the car, not a good financial move. But if you're a millionaire, if you have a net worth of one or two or three or $4 million, and you just choose to spend your money that way, that's okay. A lot of things aren't necessarily purely financial decisions. Like if you go out and buy a nice bottle of wine, there's no return on that wine. You just drink it and enjoy it. And if you go on a trip, there's no return on that trip.
And so if you're living below your means, and if you're a millionaire and you can live on a very small portion of your income and still afford to lease a car, then sure. I'm not the moral arbiter of how you decide to spend your money. You can do whatever you want. But if you have a net worth of zero or less than zero, or you're not living below your means and you're not able to save or invest every month, then no, I definitely would not be leasing a car. I would be buying a used car in cash
and then putting that extra payment every month that you're not paying to the car dealership or to the loan company into investing and saving. So that's how you build wealth.
At Personal Finance Club, I always talk about my two rules of building wealth. Rule number one is to live below your means, which is what we talked about basically all this episode. And rule number two is to invest early and often. It's really that simple. All the other stuff that we talk about in this podcast, I love it because I'm an academic and I think it's really interesting to get into. But at the end of the day, the things that matter is spend less than you make and invest the difference. That's how you build wealth.
So that's all I have for you today. Again, if you want to see the links or resources I mentioned in that show, like you want to see a picture of my sweet 99 for Explorer Sport, you can head over to youstaywealthy.com slash 75. Thank you so much for listening. I know I don't have Taylor's silky smooth voice or delivery. So thanks for bearing with me. He will be back for the shows starting in August.
This podcast is for informational and entertainment purposes only and should not be relied upon as a basis for investment decisions. This podcast is not engaged in rendering legal, financial, or other professional services. ♪