Why Smart People Buy Cars They Can’t Afford

There's a specific type of person I see all the time. They're pretty smart with their money, yet they drive a car they can barely afford. And it's not just that they are reckless, it's that they convince themselves it made sense. Today, I'm reacting to real people who bought too much car and they are now dealing with the consequences. Some of these are genuinely tough situations, and I'm going to try to pinpoint where it all went wrong. By the end of this video, I will show you the invisible math behind car purchases that almost nobody runs, which is why so many people start feeling stuck with their car payments. All right, let's get into it. Why did you buy this little zippy car?

This dynamo sales manager would come over and go, I need you to sign this paperwork. And I was like, yeah, yeah, I'll sign the paperwork. And then he would walk away and I'd go, I'm not buying that car. Here he comes back, he's like, So I signed paperwork for a solid hour and I bought this car.

What the fuck is wrong with Americans? You all love to sign things that you don't want. How many people have I had on my podcast that go, we walked into the timeshare presentation and we were laughing.

Hahaha.

We're not going to buy a timeshare. We walked out. We bought the timeshare. I go, why on earth would you buy a timeshare which you can't even afford? You're in debt. And they go, He was just so nice. Now, I don't know if it's just me and I have a mean face. We already know that's true. But how the fuck are you not able to say no to people saying, sign this? I think a lot of you have never said no in your life. You never said no to your kids. You never said no to your partner. You never said no to a freaking timeshare salesman in Cabo. I'm getting so mad thinking of someone walking into a car dealership listening to fucking Chet come down. You really need to sign this. It's going to make my day. You know, times are really tough, but for you, ma'am, I have a real special deal. I'm gonna— friends and family only. I'm gonna do something real special for you. Are you down for that? And then this lady— what is she, in a Miata or something? Signs this.

I can't get out of this car looking sexy. Getting out of the car like this. I was driving this car yesterday. This big old truck is behind me. I'm like, oh my God, what's going on?

Why is she curled up like a clown in a car? Can you get this? Hello everybody, I need to push the brake. Uh, just a second, I need to move my leg. What's wrong with you? Who would buy this car?

Grandma's going 50 in her Fiat Spider. Why did I do this? I'm gonna list it on Facebook Marketplace and do my best to sell it. Will you find somebody to buy this car from me?

You know, this is a great accent. First of all, I wish I had this accent, but I'm not misled by this friendly-sounding accent. This was a horrible purchase. Like, look at this. It's literally a joke. She could barely fit inside it and she bought it and now she's gonna list it on Facebook Marketplace. Please learn how to say no. I cannot tell you how much I have learned about the psychology of people unable to say no. For example, 100% of the people I speak to who are in credit card debt cannot say no to their children. Think about that. Isn't that profound? Isn't that sad? If you have an inability to say no with money, you almost certainly have an inability to say no in other parts of life. And I mean, this is a funny video. She looks like she's having a good time. I think it's, you know, You know, we're all having good fun, but this is a lot of money. This is probably tens of thousands of dollars that's going to be lost in a matter of weeks. While I'm all down for jokes, I take this stuff really seriously, and I want you to as well, because this is money you worked hard for. How long would it take you to save up $12,000? How many hours at work? A lot of us simply don't respect money. When I go to make a purchase, most of the time I'm not looking at the price because I've already planned for that months or years ago. When I make a big purchase like a car, housing purchase, vacation, I am very careful and respectful of running that analysis. That is what I want for you as well.

You don't think someone you know might want it?

No, no one I know wants this car. Everyone I know is practical and has a good head on their shoulders. I'm a victim of good-looking men. I'm a victim.

I mean, it's funny, but it's not that funny to me.

I don't know.

I just kind of take it a lot more seriously than that. If you want expert guidance and personalized help with your finances, I'm going to encourage you to find a financial planner who charges a flat fee, not a percentage of your portfolio, like our partners at Facet. Facet offers dynamic financial planning that evolves with you, including monthly check-ins to keep you accountable so you can stay on track with your financial and retirement goals. All Facet planners are CFP professionals and fiduciaries supported by a team of specialists. And the best part is that unlike traditional advisors who charge a percentage of your assets, can cost you hundreds of thousands of dollars over your lifetime, Facet charges an affordable flat membership fee for financial planning. I've worked with them to help many couples on my podcast understand specific scenarios, like if they can retire early, pay for their kids' college or be more generous or even just take cooler vacations every year. If you've ever wished you had a smart team to help guide you through the biggest financial decisions you're planning to make, including retirement, check them out to see if financial planning is a fit for you. Head to facet.com/ramit or click the link in the description below to learn more. That's facet.com/ramit. What's been your worst purchase in recent history?

It's my Tesla. Let me show you.

Ta-da-da-da!

I've been driving it for 2 years. Lost $61,000 in 2 years.

Again, I guess everyone has a good sense of humor when they're talking about their car purchases. It's kind of like, eh, it's America. We all fuck up when it comes to our cars. Just think about this. If she lost $61,000 in 2 years, just think about this for a second. That means—

hold on.

Think about this. It means that if she lost about $60,000 in 2 years, she was losing about $2,500 a month, or she was basically pulling out $80 or so a day and lighting it on fire. Now, depreciation, maybe not identical to lighting something on fire, but it is quite striking that almost none of you would be happy spending $2,500 and writing a check or charging it on your credit card every single month. You wouldn't, right?

No.

And yet you are so comfortable letting that happen when it happens through a car, when it happens through a financial advisor, when they charge 1% AUM, or when it happens through a house through invisible phantom costs, including interest. So many of you are comfortable as long as you don't have to personally swipe your credit card. You're like, ah, whatever. And that is not how living a rich life works. You You actually need to be conscious of these phantom costs. Let's keep going. So you bought it new, and how much did it cost when it was new?

I think it was like $108,000.

And now it's worth $40,000 or something like that?

Yeah, it lost like half of its value. You have a $100K vehicle right in front of you. This is its wheel.

Yep.

And they know it's a problem, but they can't fix it yet because they don't have any new wheels.

Oh my God.

Wow. Luxury. Let me check this out.

You know, wow, so this is just— she has duct tape on her $108,000 car. How did my $25,000 Honda look better than this car? What the fuck? This is just being taped together right there?

Yeah, because it keeps falling off and I see it in all of the Teslas. Never buy a new car, especially if it's a new Tesla that they're just testing out, because this was one of the first cars on the market. I'd rather wait for like a couple years than buying this one.

You know, it's really interesting that A lot of people go through this process. They buy a car that's quite expensive for being young, and then they go, hey everybody, learn from my mistake. Don't buy a new car. The hilarious thing is these videos have been getting made for like 50 years, right? There are so many people who buy a used car, don't pay for the depreciation. But it's like amazing that young people have to go and make their own mistakes because they do not want to learn from the wisdom of older I just want to point out, if you buy a $108,000 car, you need to be making a lot of money. A lot. It would be inconceivable to me in my 20s to buy a $108,000 car. And I was making, what, $120,000, $150,000, even more than that in my 20s, later 20s. I don't know. Some of these numbers that people are throwing around for their first car kind of blows my mind. I find that people who have started on their personal finance journey sometimes do not know when they have done enough. Like, they'll constantly ask, what did I miss? I need to read 10 more subreddits. What about this one obscure thing that might happen? And it doesn't feel good to constantly worry that you got something wrong. That is exactly why we created Road to $100K. For most people, reaching your first $100,000 invested is a massive financial milestone. It's often the point where you stop feeling like you are guessing because you can finally see that the decisions you've made are really starting to add up. Inside Road to $100K, you will get a personalized path based on your actual numbers, not generic advice. You'll see exactly where you stand today, what's holding you back, and what to focus on next. You will also get access to live coaching and a community of people Working towards the same goal. If you are ready to start making real progress towards $100,000 invested, scan the QR code on screen or click the link below to learn about Road to 100K. All right, I want to see what's next.

Okay, so let me put y'all on real quick. So back during the pandemic, bandemic, whatever you want to call it, I bought not only one but two high-end luxury cars. I got a BMW and a Range Rover.

What the?

Who buys a BMW and a Range Rover at the same time? What world are we living in?

And looking back, I could really slap the shit out of myself if I'm just being honest. Not because I couldn't afford it then or now, but because I'm no longer trying to keep up with chasing the look. You feel me? I really wasn't thinking long-term when I bought these dumb investments. I'mma just be honest with you.

I feel you. And also, these cars are not investments. Y'all need to stop talking about the word investments For everything that is not an investment. Listen up, get in tight on me because a lot of you are delusional. Because an investment has to be narrowly defined, and I define it as something that has the possibility of generating a financial return. Now, if you go, well, Ramit, what about my health? Then if that's the argument, the sparkling water that I buy is an investment because it brings me joy, and those endorphins actually help me be more productive, and that's how I make money in my business. It's fucking delusional. Why don't you simply just say, I like the luxury of a new car. I like the luxury of spending $1,000 a night at a hotel. I'll tell you why. Because in America, we like to wrap ourselves in the shroud of an investment. We actually hate admitting, I like luxuries. But guys, it's okay To buy luxuries. As long as you can afford it and you love it, it's totally fine.

It's really nothing cute about being stuck with 2 high-end-ass car notes. I promise you that. Especially when it's a depreciating asset. But forget the situation. Here's the lesson. If you're going to get a higher-end car, lease it. Do not finance it for 6 to 7 years just to be stuck in a car note that you no longer really want. Then you can't sell it without taking a hit. Because this is the thing, when I bought my cars, y'all know everything was overpriced during my pandemic. So not only am I in a hole with 2 vehicles, you get what I'm saying? It's just like they're not even worth it for what I'm paying on them. They really don't hold their value. Like, they lost their value so quick, it's crazy. I mean, unless you got money and you just like it, you don't care, and you just wanna, you know what I'm saying, blow your money on a vehicle, do you by any means. But for me, I feel like if I would have leased my cars, leasing would have gave me a way better out. You get what I'm saying? Because I would still be whatever I want to be in, and it would be brand new.

What? I don't agree with the takeaways from this video. She goes, I bought 2 premium luxury cars at the same time, but the takeaway is I should have leased them. I don't think so. I think for me, the takeaway is Buying 2 major expenses at once is probably going to hit you hard and you don't even realize it. This is like people who have a kid, then they buy a car and they move into a new house all in the same year. It is financially devastating. They were not prepared to do those things all at once. Second of all, a lease doesn't necessarily save you money. What it simply means is you are going to pay for that depreciation in the first 18 months, 2 years, 3 years, etc. So a better suggestion might be, hey, first of all, if you're going to buy a car, regardless of whether it's an entry-level luxury car, run the numbers carefully because you got to know if you can afford it today and 5 years from now. And second of all, don't be in a rush to buy everything at once. The buy versus lease, in my opinion, is not the takeaway that I would extract from this video.

I'm 30 now, so clearly my goals just look different for myself. If I'm just being honest with you all, I don't really care about people seeing me look wealthy. I want to be wealthy. Real assets, real money in the bank, real investments, all that good, good shit. If you're watching this and you're thinking about getting a luxury car, just pause for a moment. I'm not here to kind of like push you away from what you want to do. I'm here to just simply give you a better understanding of where you should put your money or how to utilize your money when purchasing a brand new high-end luxury car so you don't feel like how I feel.

You know, I had a 4-door Honda Accord That I drove for 19 years. I love that car. It was meticulously maintained. It looked brand new. After 19 years, we decided, you know what, our theme of the year is beauty, and we're going to surround ourselves with beauty. And my wife pointed out, that car is 19 years old. Maybe it's time to turn the page. We found somebody to give the car to, and I was really gratified when I gave it to them because They needed the car, they couldn't afford one, and I knew that that car had served its purpose. So we went to get a brand new car. We did lease it. It was an electric vehicle, and we ran the numbers carefully. And I want to share 2 things with you. First of all, even though I carefully ran the numbers on the car, it was even more expensive than I had projected. And I always build in a nice little buffer. The second thing is after about 3 months of driving this car, We looked over at each other and we go, what do you think about this car? Now, just to put things in perspective, this was a luxury car. For us, having Bluetooth was a freaking luxury. We didn't have Bluetooth in the last car. So I was like, we're living in the future. But it had multiple massages on the chairs in the back, all kinds of cameras. And we looked at each other, we're just like, it's just a car. And we realized we don't care about this. And so after 18 months, we returned the car. Went car-free. Today, to get here, I sat in the back of a car. I didn't need my own. And I share this example because had I bought an expensive car in my 20s, that would have permanently locked me in to thousands and thousands of dollars, tens of thousands of dollars for this car. I am so glad that I bought a modest car that I could easily afford, and then I drove it for years and I was like, do I care about cars or not? And when I decided to try something nicer, I was careful. I was experimental. If I were to do it again, I'd probably go rent a car from Turo, drive it for a couple of days and see, do I love this thing? But this is how we get trapped. We try to jump ahead too quickly without asking ourselves, do we actually love it or not? If you want to stop making expensive money mistakes like this and you want to understand where your money should be going, Hit subscribe. You know, people love to argue about cars. Is it better to buy or is it better to lease? When should I buy new versus used? There's one test that I care about even more. Does this car make my life better or more stressful? And let me show you what I mean. A good car purchase, in my opinion, fits comfortably in my income. It doesn't require me to think about it every single month. It supports my lifestyle. And when you get this purchase right, your car just works. You're not sitting there thinking about the payment every month. Oh, oh, it's the 30th of the month. Where am I going to get the money from? Let's take a look at a bad car purchase. It forces you to worry about money. It forces you to make trade-offs that you didn't plan for, and it locks you into years of payments which you might not even be sure where you're going to get the money for. If your car makes you hesitate to go out to dinner, that vehicle is shaping your life in ways you did not intend it to do. So get this decision right or spend years of stress and regret. If you want to know how to make the right decisions with your money by default, watch this video next. I'll show you exactly how to set your money up so you never feel trapped by a purchase again.