Articles, Blog

What is Your Car Payment REALLY Costing You?

What is Your Car Payment REALLY Costing You?


America is the richest country that the world
has ever known and yet nearly half of its citizens are living paycheck to paycheck and
according to recent studies 61% of Americans don’t have enough savings to last 6 months
without a paycheck. Why is that the case? It’s been almost a decade since the Great
Recession and yet almost half of Americans are still living paycheck to paycheck. And I think a large part of it is because
of our money habits. Financial education in this country is lacking
to say the least. It’s not something that’s taught in schools,
and unfortunately for most of us it’s not something that we can learn at home either. Because what are our parents going to teach
us? If half of them are living paycheck to paycheck
and 61% don’t have enough money to last 6 months without a job, are the lessons that
they’re teaching us actually going to benefit us? And the unfortunate answer in most cases is
no. We’re going to learn the same lessons that
are parents learned about money. The same lessons that most of society has
learned about money. And those lessons are backward. Things such as you’re always going to have
a car payment is something that’s just accepted in society today as fact. And I’m here to tell you today that it’s not,
and I can say that from personal experience I do not come from wealth, my parents never
had a lot of money when I was growing up. In fact a trip once a year was considered
a treat. However I was lucky enough to have a father
that studied Finance religiously, and while he did pass away before he was able to put
his ideas into practice long enough to gain wealth he did have enough time to pass those
lessons on to me. As a result I’ve never had a car payment. I don’t have student loans. I’ve never owned a credit card. In fact I do not owe a single penny to anybody. And that’s one of the greatest feelings in
the world. You don’t know how much stress your debt is
putting on your shoulders until it’s gone. And I’ve been able to experience it because
my dad made me realize just how impactful those payments are in the long run. And today I want to pass that knowledge on
to you, so that you too can experience the relief of being debt-free. Hey guys Daniel here from Next Level life
and today we’re going to be talking about debt. More specifically we’re going to be talking
about just how much that car payment is really costing you. Let’s get started. According to a study done experian the average
car payment today in America is about $500, $503 to be exact and what’s worse is the car
loan on average lasts about 68 months or a little over five and a half years. And what’s more according to AutoTrader the
average person only keeps a new car for 71 months, or just a shade under 6 years. Which basically means that as soon as we’re
getting ready to make that last payment on a car loan we’re also almost simultaneously
getting ready to sign a new one. And again this is normal in America. So that answer the title question of the video,
how much is this really costing you? I think the best way to illustrate this is
with an example. Let’s say that John financed his first car
at 18, he had a car loan that cost $500 a month. He like most Americans will have a car loan
for the rest of his life. But how much is this going to cost them in
the long run? Well according to what we found out in my
how to become a millionaire video, on average at least over the last 40 years the market
has returned about 8.6% per year. $500 at 8.6 percent per year for 40 years
is $1,906,776.89. Now that’s what the typical Financial Guru
will tell you and it’s great because that kind of money is a very effective tool into
getting you to rethink the value of a car loan. However it is a little bit too simplistic
for me, so let’s see the other side of the coin. Let’s assume that in the previous example
even after paying his car loan john still had $500 a month to invest meaning after 40
years he would have a nest egg of about 1.9 million-dollars. On the other side we have Jane who buys her
first car with cash and does the same for every new car that she gets. In other words she will never have a car payment. Now she’s also getting her first car at 18
it’s probably not a brand new one, we’ll assume that she saved her money from her part-time
job after school and bought a used car for say $5,000. Once she has a full-time job i’m going to
assume that every new car she gets will be a $20,000 purchase. Assuming she makes the same amount of money
as John, will Jane end up with more money in her nest egg by buying her $20,000 cars
with cash every 7 years but then investing the extra money she has in her pocket by not
having a car payment over the course of 40 years? The answer is as it turns out absolutely yes. She will have way more than John, in fact
her ending net worth after 40 years will be $3,229,066.54! That’s almost 70% more than John. And even if you were to say that in the years
that Jane bought the car she didn’t invest anything because she used all her spare cash
to pay for the new car, she would still and with a 40-year net worth of $2,835,972.02! Still nearly a million dollars higher than
John. Even if you were to say that she bought more
expensive cars, say instead of a $20,000 car every 7 years she bought a $40,000 car every
7 years. She would still end up with a net worth of
$2,232,696.20! Still over $300,000 more than John. And that my friends is the power of being
debt-free. But that’ll about do it for me I hope you
enjoyed the video and if you did or if you learned something be sure to like And subscribe
I’ve got a lot more of these Finance coming out in the near future as well as some more
book summaries and other fun stuff. But with that being said, thanks for watching
and have a great day.

Tagged , , , , , , , , , , , , , , , , , , , , ,

66 thoughts on “What is Your Car Payment REALLY Costing You?

  1. I love how your dad taught you well and you've never had a car payment! I'm doing the same for my kids since I effed up my Financials since my early 20s, I'm cleaning up my mess now and should be debt free in 2 years!

  2. I really enjoy your videos, but could you be a little more specific with what numbers you're using for the totals. I use the excel spreadsheet with the FV (future value) function. When I mention being more specific.. an example is.. if the girl saved 7 years for a $40,000 vehicle she would need to save $476.19 per month which would only leave her with $523.81 (1000 – 476.19) to invest which is only slightly better than the male in your example. And only yields a 99k difference not 300k (at least by using excel).. Is she investing her money to allow it to grow at 8.6% while she's saving for her car.? Or is her money in a bank drawing 1.5% interest? These are the specifics that I would love to know in your videos. I've subscribed and look forward to them each week… it's just while I watch them I want to be able to simulate your results… that way I can play around with the numbers and see what I get. Your overall premise is correct and I appreciate you bringing these financial results to the public's attention. Keep up the good work.👍

  3. Thanks for making this content, but you should show the [sum] adjusted for inflation. I know it does has some complexity, but it's actually very important to help people understand that $500 might not be enough… depending on their individual needs. Keep up the great content, hope to see these videos with a couple 100k views in a month 🙂

  4. I am rocking a 2004 Camry since 2007. Drove it for 250,000 miles. I will drive that bad boy until either I am dead or our oil reserves run dry.

  5. Good visual examples to show the big picture. I've been using to help illustrate concepts to teenagers. I would love to see a video on cellphone payments as well. I realize concept and even math is pretty much the same as the example as the car, however teenagers tend to benefit from visual examples themselves. Some adults do as well. Perhaps they would rethink that brand new phone if they saw a concrete illustration.

  6. Well you started the video wrong. The us cannot possibly be the wealthiest if we have $20 trillion and counting in debt.

  7. False fallacy. You assume that just because someone gets a car loan, they will be paying an auto loan for the rest of their lives.

  8. Daniel love your videos and advices. Keep doing them and I will keep on following your videos. Thank you for sharing your ideas. 👍🏼

  9. Now let’s break this video down : she will be living a minimal , paycheck to paycheck life to be able to invest that money for the next 30 years , now what will she do with 3 million dollar at the age of 65? Not much because she already missed out on her prime years & kids will inherit it all

  10. Very good video but explain one thing to me how did you establish credit without a credit card you didn't mention that because I know how I establish my credit and have a very good credit score but how do you live without credit because it's kind of a catch-22 you need a credit card to establish credit. does anybody else have a better way on how to establish credit without a credit card

  11. Want to support this channel? You can and expand your financial knowledge at the same time! Get FREE Audiobooks and 2 Audible Originals (and support this channel!) with a 30-day Free Trial of Audible: https://amzn.to/2zEFqhT

  12. Clearly don’t know that much about finance otherwise you would know credit cards are good thing! And car payments allow you to put your money into an investment instead of wasting it all on your car

  13. I drive my dad’s old truck for the last 10 years. Greatest decision I ever made, no truck payment really helped with the way my life went after the divorce.

  14. I feel like financing is either looking short term or like covered by tax money. Buying is long-term (if taken care of)..

  15. Credit cards are ok if paid in full. Just remember that you are paying the equivalent cash purchase out of your next paycheck, instead of drawing it from the balance of your previous paycheck

  16. A car depreciates as soon as you sign the paperwork….wooosh….there goes at least 10% of your hard earned money. With a house it in most cases it will appreciate and can be a real investment. One thing I know for sure no matter were you live all new cars lose value very fast. I would take a chance on a house because most of us need a place to live and prefer to own our own house.

  17. You are aware that credit cards are very beneficial if used correctly right? You don't expose your bank account to everyone you swipe your debit card at, you get cash back/points, and most cards have additional purchase protection.

  18. 1. noone could be diligent enough to save 500/mo for 40 years, lets get real 🙂
    2 what to do if I'm not 18 yo and have 0 on my bank acc and live from paycheck to paycheck paying my car loan for another 3 years from today?
    the answer is clear – nothing 🙂 just relax and carry on 🙂

  19. I don’t really need a credit card as I never buy anything that I don’t currently have the money for, I really only use it to build a good credit score. My parents bought my first car for $2000 which helps a lot and I live with them while I am going to college. Scholarships and financial aid help with paying for college so it’s basically free other than just paying for supplies and whatever books I need to get. So by the time I graduate college I’ll still have 0 debt. Plus I plan on living with my parents for an extra year so I can save money up for a house or car.

  20. This is about the furthest thing I've ever seen from apples to apples math I have ever seen in my life.

    We have no idea how much the car was worth in the payment example, what financing he has, and you didn't take into account he can leverage the money he isn't putting into the car upfront to invest in diversified stocks at a likely higher return rate than the interest on the car, which would be a net gain. You also completely forgot about the fact that his car retains equity and after say 7 years may still be worth somewhere around 1/2 of the original sale price and that would go to a down payment for the new car and reduce his subsequent payments as a result.

    You also completely omit the fact that a $5,000 car is going to need a lot more maintenance and repairs than a new car, I know of people that tried that and had a pile of scrap metal in a year or two after thousands spent trying to keep it on the road. Sometimes you get lucky and get a car that just won't quit, but most people ditch their car when the reliability starts to plummet, so you're going to be buying someone else's problems. Also factor in the extra cost of renting a car while your cheap car is in the shop and they take a month to figure out what's wrong with it.

    The most important thing to do with a car to save money is to buy something sensible with good MPG from a known reliable brand that is also known to retain value. Either buy new if you can get a good deal or lightly used (1-2 years) if you can trust it was properly maintained and hopefully still has a warranty left. Drive either car about 8-10 years or until it starts to give you reliability issues. Making payments or cash upfront all comes down to the sales price and financing you can get with either option, it will need a case-by-case analysis each time for the best overall option to be decided. There's also the fact that making payments means more liquidity if you have other life emergencies as dumping all of your cash on a car means you have nothing left to pay a sudden medical bill, home repair, insurance deductible if you get into an accident, etc.

    The people that always lose with cars are the people that buy overpriced luxury cars with the depreciation and maintenance that comes with them, if you buy something like a Corolla you will almost always come out ahead compared to luxury cars over the term of your ownership. When all is said and done and ALL costs are accounted for, used vs. new and payment vs. cash usually don't come out that different, the main thing is buying a quality, reliable car that is inexpensive to maintain and know what a good deal is and isn't.

  21. Your father literally spent his entire life studying this while never getting to manifest his knowledge, it's passed onto you and carried on the tools, now thousands are watching it.
    He's in a place where nothing physical matters anymore, including wealth. But I bet you he is by far one of the "richest" beings wherever he is right now. You're father is among the legends.

  22. Somebody recently told me that you can’t live without a credit card I didn’t really know what to say and that I said well I’m not dead yet and if somethings going to kill me I’m pretty sure it’s not gonna be that.

  23. Don’t forget that when you have a car alone you’re required to have collision insurance when your car gets older it’s not worth having collision insurance on there anymore so therefore I took it off my car is only worth about $6000 so you’re going to save money on insurance I wouldn’t advise removing the collision insurance if you go buy a brand new car but after a while it’s just not worth it you should never buy a brand new car anyway as soon as you drive off the lot it loses value immediately

  24. I used to have a car payment 2 years ago. had a 2016 honda civic. the car was nice but I couldnt afford the car payment anymore. I sold the car for 18k and bought a 2007 honda civic for $6k straight up with cash.. no car payments at all anymore. best decision ever!!!

  25. I’ll only ever buy a used car $10,000 or lower. Pay off more than half.
    With 100,000 miles or less. Hasn’t been in a crash and looks good.

  26. This comparison doesn’t make much sense. There is a big difference in the quality of car that John buys and Jane buys. John is spending on average 42,000 per vehicle interest included. If he only buys a 20,000 vehicle and finances it over 7 years with a down payment of 5,000, he only has a $200 payment each month. Freeing up $300 per month to invest. Jane still has to save $230 per month to be able to buy the next 20,000 car for cash in 7 years. If John’s interest rate is close to 4% or below, he should finance the vehicle and invest the lump sum of cash he has sitting on the sideline. Also, if they’re earning the same amount, how is Jane investing more when she has to save up cash for her next car purchase? All John has to do is scrape together a down payment and he is free to invest all his excess cash while Jane has to save 4-8 times more than John does while earning low interest in a bank account. Of course if John’s interest rate is more than 5% or so, the better option is to get the loan and do early payoff.

  27. If I had 20k in cash i‘d still rather pay the 500 a month and invest my 20k than putting down 20k and having nothing left to invest. Doesn’t make sense to me, correct me if I’m wrong.

  28. Your lessons are fun to watch. Can you make videos for young kids as well? Those are hard to find in YouTube and your methods of cartoons and drawing would be very attractive to kids.

  29. This is misleading!

    I have computed the numbers. About $1,600,000 million difference comes from the $15,000 saving she made when she bought the first car!

    So the difference is minuscule if the price of their first car was 20K.

  30. “America is the richest nation the world has ever seen”. – hahahhahahahhahahahahhahhhhagagaggagagaggagaggafhahahahhahahahahahhahahahhahahahahhahshha

  31. the stock market does not necessarily return 8.6%, it could also return zero or negative even over very long periods of time (for instance 1966-1982)… so if your luck is lousy the guy who bought the car would be better off than you who invested in the stock market. Not advocating shying away from investing but putting all perspectives out there.

  32. I would love to see a video on the topic of pay for a car in full, or investing the same amount and marking payments. I have an investment firm telling me that is would be beneficial to invest my $25000 and make payments on the car.

  33. I agree so much with everything, except the credit card. Credit cards are still an incredible way to build up credit and also to churn and gain the benefits. Many banks give you free money for simply using a credit card and spending a certain amount, which you might already be spending regardless of whether it's with a credit card or not. You also get a certain percent back, and in terms of paying off debt, these days you can schedule automatic payment, so you won't have to worry about paying off debt or extra interest, the fact you get cash back, means in a lot of ways you're basically paying slightly cheaper than what you pay when you buy the item, like a coupon that can be used for everything to purchase.

  34. Financing a car usually means you have to pay for full coverage with it, when with a paid off car, you can just get liability if you want which is much cheaper.

  35. I dont think you considering opportunity cost. It takes 40 months to save up for a $20000 car at $500 month. you can argue against that too. You missing some other key factors such as opportunity cost etc

  36. How many 20 yr olds can afford $500 car payments, purchase a home, have a family (god forbid student loans) and keep that up for 40 yrs? I’ll wait….

Leave a Reply

Your email address will not be published. Required fields are marked *