Why Is No One Talking About America’s Wealth Killer?

This might seem like a big statement, but the car you drive can destroy your chance at building true wealth. Car payments are one of the true wealth killers of today that nobody wants to talk about. Over 100 million Americans have auto loans, many of whom are drowning in crazy amounts of debt with ridiculously high interest rates. Why? Because they thought that's what everybody does. They buy an expensive car because it feels good, so they can impress people, and that's what they saw their parents doing. I don't want that for you. It doesn't have to be this way. You can have a nice car and you can build true wealth. So in this video, I'm going to break down for you in four main parts. How to calculate how much car you can afford, how to save money on a car, A better approach to car buying, and why you should always negotiate. Let's get into it with part one. Calculate how much car you can afford. Look, a lot of you cannot afford the big ass trucks that you're driving. I see it all the time with couples on my podcast. Oh, I need this F350. Why do you need that, sir? Oh, duh. So I could go camping once every 18 months and drive my trailer that I take to the beach filled with three lawn chairs. Why do I do this? Why did I pick this career? You know how most people buy a car? They literally look at the monthly payment from their neighborhood car dealer chat to decide what they can afford. But this is a huge mistake. Looking at the monthly payment is not how you ever want to buy a car. The dealership can literally make your monthly payment lower or higher simply by changing the terms of your loan. Like, your monthly payment can be stretched to turn a $35,000 car into a 45 or $50,000 car. Let me show you how this works. According to Cox Automotive, the average price of a new car is around $47,000 in 2024. Now, if you have a prime FICO score, a really good credit score, the average new car loan is 7% for you. Now, you're not laughing because you don't understand this math, but I'm laughing because I'm about to have a heart attack, okay? That's my way of showing stress. If you get a 36 month auto loan, most of you are getting a 60 month, but I'll just be generous. You're getting a 36 month auto loan. Your monthly car payment would be about $1,450. And after paying off your car, you would have paid a total of $52,000 with interest. But if instead the dealership stretches your loan to 96 months, why? Because you say, I don't really want that high of a monthly payment. They go, how much do you want it to be? Why don't you just tell me? You'd pay $640 a month, but you would end up paying a total of almost $62,000. That is $15,000 more than the original price of the car. And of course, these numbers can change dramatically depending on your credit score or, or how much money you put down on the car. So instead of looking at the monthly payment when buying a new car, the best way to determine how much you can afford is to use ratios. Let me show you what I mean. If you use my conscious spending plan, which you can get for free in the link below, your fixed costs, like housing, groceries, car payment should be between 50 to 60% of your take home pay. Let's use 60%. Just to be conservative. It's kind of like I'm giving you a puzzle right now. I'm showing you what the end result should be. And now you have the freedom to put the puzzle pieces however you want to fit in to 60% of fixed costs. So here's what you do. Subtract your total housing costs. That's your rent or mortgage, your utilities, all of it. Subtract your groceries. Subtract your subscriptions. Subtract anything else in your fixed costs, including any credit card debt or student loans that you're paying. Paying off. What's left over is how much you can spend total on a car, not just a monthly payment. That includes gas, maintenance, DMV registration, the occasional parking ticket, whatever, everything. Let me show you how this works with real numbers. Let's say you take home $5,000 after taxes each month. Easy math. Your rent, utilities, debt payment, groceries, phone, subscriptions, they add up to $2,396 or 4,48% of fixed costs. Okay, so if you're trying to keep your fixed costs at 60%, that leaves you with $600 to spend on your car, total per month. Remember, it's not $600 for the monthly payment, it's $600 for the car payment, the gas, the maintenance, all of it. This is how you decide how much you can actually afford. You work backwards and you know your total costs. And it is completely different than how everyone else spends money. And it will set you up for success in your financial life. Now that you've calculated how much you can spend per month on your car, that brings Me to part two. The best way to save money on a car using math can show us how to get the best possible deal on a car. You know, it's funny. People make huge efforts to save on things like dessert or clothes or eating out. But when it comes to huge purchases like a house or car, it's literally like people walk outside, trip, fall, and buy a $500,000 house or a $70,000 car. What? There's also this unspoken expectation in America that we should get a new car every three to five or six years. Again, sometimes I feel like I was born on another planet because I look around and I go. I just look at people like they're Martians. And I'm like, where'd you learn this? What the hell is wrong with you? If we're going to decide how to do something arbitrarily, why don't you just do it my way? All right. How many times have you seen someone sink a bunch of money into some cool luxury car? Bunch of unnecessary things that they don't need. Oh, I need this massage on the back of my chair. It's so cool. It's so necessary for my lumbar only to realize nine months later, they can't actually afford the monthly payments. And suddenly they're like, oh, what am I supposed to do? I think I need to sell it, but I can't sell it because I'm underwater, so what am I supposed to do? That's a bad situation to be in. First of all, I know because I speak to many people on the podcast about that. But also, we fail to take into consideration time. More specifically, how long do you plan to keep the car before you get another one? This is really important. This is totally neglected when people make decisions about their big purchases. Yes, getting a good deal is great, but if you sell that car after just a few years of owning it, you will have lost a lot of money. Car depreciation, or a vehicle's drop in value over time, changes by make, model, upkeep, and all kinds of other factors. But new car depreciation can generally be as much as 20, 30, even 40% after a few years. Now, there are a lot of tips people have to save money when buying a car, but there's a very simple thing you can do that almost nobody thinks about. Keep your car as long as possible. That is because your savings really happen once your car payments stop. Just take a look at how much you'd be saving if you held onto your car for two years, three years, even five years. For example, the average cost of a new car in 2024 is just over $47,000. If you bought that new car today, then you decided you wanted a different car next year. You paid $47,244 to use that car for a year. But if you waited an extra year, the car's cost per year decreases to $23,622 per year. Three years, $15,000 a year. Five years, only $9,000 a year. Now, I'm simplifying. There are a few other factors that front load expenses, but the key is, the longer you wait to upgrade your car, the less per year it costs you to use. And the real twist is that once you pay your car off and you wait even a year or two before getting a new car, you can save thousands of dollars. No more monthly car payment with interest. To summarize, one of the most important things you can do when buying a car is to plan to keep it for a long time. Not one year, not five years, as long as possible, because that is where you lock in your savings. All right, before we get to part three, I noticed only 45% of you watching these videos are subscribed. And if you're not, do me a favor. Hit that subscribe button right now. Turn on notifications so I can keep sending you new videos on money and money psychology. I appreciate it. Now that you understand how to calculate what you can afford, that brings me to part three. Pick the right car. I recently saw one of the highest car payments I've ever seen while talking to a couple on this podcast. They spend $2,495 every month on their luxury cars. This couple is drowning in debt and the cost of their cars. A BMW and Mercedes are definitely contributing to that mess. But they chose these cars because, according to them, it always had luxury cars. Again, the key thing when buying a car is you have to start by choosing one that you can afford, not the car you think you should have. Most people do not do that. Read my lips. Most people do not do this. They literally go and buy the car that looks shiny. Don't do this. You're gonna cause yourself a huge amount of trouble, and then you're gonna go, why? Why doesn't somebody save me inflation. It's not inflation. It's you went and bought a car without running one single analysis, and now you're underwater and you have no idea what to do. And the answer is, you can't. This too depressing. Just don't do that, okay? Just watch this video and then follow what I'm saying. Factor in tco Total cost of ownership. That's what you should fall asleep to every night. Let's talk about tco, you freaks. Total cost of ownership means you factor every expense in there. That's gas, maintenance, registration, insurance, parking tickets, parking garage, everything. Now, according to aaa, the average cost of owning and operating a new vehicle in 2023 increased significantly with an annual expense of $12,182 or a monthly cost of $1,015. That's a big increase, up from $894. Did you hear that word, average? That is the average tco, or total cost of ownership. You can see that it's a lot higher than just a car payment. And I know this because my car payment used to be $350 a month. But when I factored in all costs gas, parking, insurance, all of it, it cost me over $1,000 per month. $350 a month payment total cost over $1,000 a month. And that was a Honda Accord. So it's important you understand what that new car is going to cost you before it's too late. And actually, AAA has a really handy calculator that estimates your tco. It factors in where you live, how you drive, make, model, year of your car. I'll make sure to link this below as well. Other things to consider when choosing the right car Reliability When I bought a new car, above all, I just wanted one that wouldn't break down. I have enough stuff going on in my life, like reading some of the truly deranged comments that many of you leave on my videos. Fine, leave whatever you want. Just make sure you click, follow and subscribe. I wanted to avoid repair issues that cost time and money and model year of your car. I'll make sure to link this below as well. Other things to consider when choosing the right car Reliability When I bought a new car, above all, I just wanted one that wouldn't break down. I have enough stuff going on in my life, like reading some of the truly deranged comments that many of you leave on my videos. Fine, leave whatever you want. Just make sure you click, follow and subscribe. I wanted to avoid repair issues that cost time and money. And because this was a priority, I was willing to pay for it. I wanted a car I loved for me. I knew I'd be driving that car for a long time, so I wanted to pick one I enjoyed driving. Make sure you do the same Resale value. One of my friends bought a $20,000 car drove it for about seven years and then sold it for 50% of the price. That's actually a pretty good deal. You can look up resale values before you buy your car and get a sense of how much you might be able to get once you decide to sell it. Insurance. Insurance rates can be different depending on the make and model. Keep that in mind. Fuel efficiency or if you're going electric. Something to consider, especially if you drive a lot of down payment. This is crucial. If you don't have much money for a down payment, you might want to look at getting a used card. If you put down zero, your payment might be higher. Lots of things to factor in. Again, this is a big purchase. Take it seriously. All right, now that you're ready to buy, let's discuss one last thing. Part four. Always negotiate. Let me make something crystal clear. You should negotiate mercilessly. So many of you feel bad. Oh, my gosh. Chet is so nice. Look at that picture of his daughter and the trophy. That's so cute. Chet doesn't have a daughter. Okay? That's a stock photo he got from iStockphoto.com. that trophy is fake. He bought it at Walmart. He has no kids. You know what? He has? A nice boat paid for by the finance charges on your stupid car. I have never seen as many people making bad purchasing decisions as when they walk into a car dealer's office. It's literally like, hey, I'm a human being who consumes carbon and oxygen. Go ahead and take every last bit of money off of my body. Take it. Just freaking take it from me. If you don't know how to negotiate, which is 99.99% of you, unless you're Indian, take someone with you who knows. And here's an insider tip. If possible, think about the timing for when you purchase your car. There are ideal times to buy cars, for example, at the end of the year when dealers are salivating to beat their quotas and they are far more willing to negotiate. I actually use a service called Fighting Chance. I have no affiliation. It just was awesome. I paid for it myself. It's a service that car buyers use to get a customized report of the exact car you're looking for. In that report, you find out exactly how much car dealers are paying. You get intricate details like dealer withholding. The service also provides you specific tips for how to negotiate from your house. You don't even have to go in the dealership until the very end. I think I paid something like 60 bucks. It was awesome. Totally worth it. I'm not sponsored by them. I. I just think their service is great. I'll link it in the description below. This is how I did it by the way. This is like 19 years ago because I keep cars for a long time. When I decided to buy at the end of December, when salespeople are desperate and their desperation is my salvation, I reached out to a bunch of dealers. How many? Five? 10? 15, something like that. I told them exactly what car I wanted. Four door Honda Accord, very sensible. V LX, V6. I love it. I said I was prepared to buy within the next two weeks and I knew exactly how much profit they would make thanks to that service that I bought. And I would go with the lowest price offered to me. I remember it vividly. I sat back with a cup of tea, three tacos with habanero salsa and I let these desperate dealers fight over me. I got one offer, then another offer. Then I pitted them against each other. I told them the last one. I gave them one chance to beat it. This resulted in one of my favorite things in life. A bidding war. A bidding war among multiple dealers. In the end I chose a dealer in Palo Alto who sold me the car for 2,000 under invoice, which was fantastic. I didn't have to waste my time going to multiple dealerships. I didn't have to bother with a bunch of car salespeople. I went into one dealer's office and one dealer's office. Only the winning one. And that is why you always negotiate. I hope this video saves you a bunch of money when buying your new car. Let me know in the comments. One thing that you learned, one thing that surprised you from from this video. Now check out this new video to watch more.