It’s a Trap! How car payments prevent wealth building
I still remember the day when I purchased my shiny slightly used 2008 Cadillac CTS. After taking a short test drive and contracting “NewCaritis” I was sold! It wasn’t the reliability, value, or price that sold me…. It was a status purchase. I don’t let prior mistakes shape my life, so CarMax won that battle and I am happy for the 30k lesson. Without experiences, we cannot grow. So here is my attempt to help you grow. Don’t finance a car, it’s a trap!
Why is a trap you ask? Because your brain is great at rationalizing poor decisions, and your wants often get placed in the”needs” box. Most people who purchase cars, finance them and accept the $300 to $500 car payment because it is the norm. They would be correct in labelling it normal to have a car payment. I don’t want to be normal and because of your reading this you don’t either. Normal people are drowning in debt, have awful credit, no savings, and living paycheck to paycheck. Stop emulating broke people and you won’t end up broke!
I usually ask those who I aid in restoring good financial practices what is the total balance left on their car and it is usually somewhere around 15k with 3 years left of payments. The new car smell has worn off, coffee stains are on floor mats, and food from your daughter’s car seat is sprinkled all over your back seat. This isn’t the gem you remembered, it no longer seems like a good idea to fork over $500 for the next 3 years on a purchase from 2014. It is a trap!
The major reasons car payments are a trap are listed below:
- It destroys your ability to generate cash flow “how does a $500 monthly pay cut for 6 years sound?” That is exactly the commitment you are making.
- You aren’t buying the car for you; you are buying a badge of status. Look at me in my shiny BMW when I make $40k per year, that’s a recipe for “Broke Stew”. The problem is that you are attempting to look rich by driving the opposite car choices of the rich. Thomas Stanley’s research has proven that 86% of luxury car purchases are by non-millionaires.
- The key to building wealth is to save 10% of what you earn, earn interest on investments, and be frugal. Car financing eliminates cash flow causing an inability to save. To make matters worse, you pay interest rather than making it! No one can claim to be frugal while paying car payments, frugal people would not borrow to buy something. Borrowing is admitting you cannot afford something.
- Car payments create a long-term contract that locks you into a multiyear obligation that leaves you broke and underwater.
- Check out this video and let me know if this changes your mind on why a car payment makes no sense! Free Cars For Life!
If you are looking to finance a car take some advice from someone who has walked both paths. I haven’t had a car payment in many years and it was the largest raise I have ever given myself. Don’t finance a car, it’s a trap!
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