The 80/20 Car Buying Rule

When it comes to buying your next new or used vehicle, you are in one of two groups.  Odds are you are in the 80% group who finance their ride.  This is costly.  Those in the 20% category who pay cash are on their way to financial security.  If you are in the 20% category, pat yourself on the back.  If not, let's look at a couple of points that may help you change your ways and help you sleep better at night.

Who is it that you want to take care of in your retirement years?  Keep in mind that giving interest to the banks takes away from money that could be funding your retirement.  Car payments help your banker enjoy better vacations and a happy retirement.  Why not use that car payment to increase your contributions to your 401k?

I know people who tell me car payments are part of life.  It doesn't have to be this way.  20% of the population figured out how to live without car payments.  Sure, some don't even bother to own a vehicle.  They take the bus or ride share.  Others, like me, go for the older vehicles and pay cash.  The truth about cars is they depreciate the moment you drive them off the lot.  The average car payment is $576 per month.  Most loans last for 70 months.  That makes the true cost of your vehicle a whopping $40,320.  If the average life expectancy in the US is approximately 70 years and you finance your first ride at 18 and then keep your car payments every time you buy a new vehicle, that means you gave up $359,424 of money that could have gone to your retirement.  Add the stress of carrying all that debt and you are probably headed to an early grave.  No bueno.

What would happen if you instead paid cash for your vehicle like the 20% of the population that wants to be debt free and invested that money for your retirement?  Using the rule of 72 (72 divided by interest rate = time to double your money) you can determine how quick you can double your money.  Anyone can easily become a millionaire in their lifetime when they pay themselves every month rather than the banks.

Decide today that you want to join the 20% of the population that lives without car payments.  Have a great day.