Dave Ramsey might be mad at me & Why car payments are costing you millions of dollars!

October 28, 2015

Recent Ebay Sales and what’s been happening.

October 28, 2015

PART TWO: Why car payments are costing you millions of dollars!

October 28, 2015
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So in the last post (Part I) I shared that we bought a brand new van for $23,000 and why Dave Ramsey might be mad at me (even though the van was a great price as the sticker price on it was almost $28K and the same vans, fully loaded, go for about $40K).

Today I’m going to talk about why car payments are truly costing you millions of dollars!

I was listening to Dave’s podcast a few weeks ago and have basically transcribed (your welcome) his short discussion/feelings on the subject of car payments.  He was talking to a young woman who was very smart with her money and wanted to convince her boyfriend to sell his heavily financed and expensive truck. This was from the 9/28 audio archives, hour 3 about 12 minutes in. It’s an older one, so no longer available.

Dave Ramsey on car payments.

If you say I can afford it and have payments: Means you don’t understand how to build wealth. When rich people say that, they buy it in cash..no payments.

As long as you have payments, you’re giving away your most powerful wealth building tool, which is your income.

Wealthy people don’t have car payments. (He means really wealthy people, not people we think are wealthy and are in debt up to their ears.) It’s not that they got rid of their payments when they got wealthy, it’s that they got wealthy because they got rid of their car payments.

Here’s an example, the average car payment in America today is $480 for 84 month. If you were to invest that amount of money, from age 25-65, instead of keeping a car payment your whole life. Without the philosophy of “I can afford the payments, so I can afford the car.” If you didn’t have a car payment and you paid cash for your cars, and invested that amount of money, you’d have $5.6 million dollars. (Dave is using a 12% return here.)

That’s what car payments cost you. $5.6 million. So if people did one thing only…if they never had any car payments and invested it every month, they would be multi-millionairs. If that was their only financial move, that’s how powerful this is..the idea of not having a car payment. It’s not just a million dollars, it’s millions of dollars.

So that car that you’re driving is a 5 million dollar car if you are at 25 years old. So that car and all future cars that you buy on payments are costing you millions of dollars. So when I saw that, I said “payments aren’t okay anymore.” (That’s powerful.)

Wow…you guys still think car payments are okay?  No way.  We will have our car payment for about 1 year and it will cost me about $715 in interest (gosh, I really hate interest), but haven’t had any in a long time..probably 10 years if not more.

So I wanted to see what the future value of car payments would be if we invested that money instead and bought all our cars in cash.  Dave Ramsey used about 12% return, mine are a little more conservative at 10%.  (For those of you that don’t believe you can get those types of returns from mutual funds, go do your research).  We’ve been investing in mutual funds for our retirement and for our kids and have been getting higher average returns than that over the last 15-20 years).  The funds we invest in have been around since 1941. (I worked in that field for about 6 years after college so I’m pretty familiar with it.)

Here's how much money you would have at 65 if you starting investing a car payment into mutual funds at the age of 25.

Here’s how much money you would have at 65 if you starting investing a car payment into mutual funds at the age of 25.

Can you imagine what an impact you can have on your child’s future if you could educate them on this one topic and stop them from having (normal) car payments for the rest of their lives!!!  

You can play around with other numbers with this calculator here:  Dave Ramsey’s Investing Calculator

Here's how much you'd have if you started investment that car payment at age 30.

Here’s how much you’d have if you started investing that car payment at age 30.

Here's the potential value of your car payments if you started saving them and investment when you are 42.

Here’s the potential value of your car payments if you started saving them and investing when you are 42.

So obviously, the sooner you learn this lesson, the more money you can have later on…but only if you stop those car payments.

Stop making the car companies rich and instead, start paying yourself that money and start making YOU rich!

Hubby and I have made a lot of money mistakes in the past and personal finance has become something that I’m pretty passionate about.  I hope this makes sense for you guys and you take it to heart...it could mean hundreds of thousands of dollars for you in the future, or even millions of dollars.

Thanks for reading and stopping by.  I appreciate it!


    1. You are right Nancy. And when you think about it..a lot of divorces are because of finances too. We are just inundated by messages that it’s okay to have payments…that’s part of life. NOT!!!

  1. I love it! I can’t understand the love with car payments. Our super nice neighbors were telling us that they still have car payments. One is close to being paid off and the other was “purchased” because of a raise that was supposed to go towards a car allowance. He told me it was a company car, turns out that they gave him a raise to cover the cost of a lease and he overbought and is paying more than the raise! He does get gas paid for, but still. I wish I could talk some sense into them.

    PS I hope this doesn’t post twice.

    1. Those forced against their will are of the same opinion still! We as a society just don’t use our noggin anymore…we just do what everyone else tells us to do (peer pressure, marketing, etc.)

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