5 Ways Cars Keep You Poor
For most people, buying a car, whether it’s new or used, will be one of your biggest financial outlays. The thought of driving yourself wherever and whenever is just too much convenience for us to not take advantage of which makes the purchase of a car seem like a wise investment for the average person. But, the reality is that buying a car can come with dire financial repercussions so let’s now go over 5 ways a car makes you poor!
Number 1: Cars Depreciate in Value Drastically
To start us off is the drastic speed at which a car depreciates. Now, let’s face it. Any sane person will make an investment with the sole intention of turning a profit. This is why you’ll find serious investors flooding avenues such as real estate, the stock market, forex, and even potential business investments in order to increase their personal fortunes.
But when it comes to car ownership, you find that the opposite is true. Instead of getting high returns for your initial investment, you’ll unknowingly be throwing away a big chunk of your money the moment your car starts gaining mileage. In fact, the chances of your car appreciating in value are nil and from a business standpoint, this makes car ownership a laughable investment. In fact, from this point forward, we will refer to a car strictly as a liability as it is something that requires constant financial expenditures with the most common ones being gas, insurance and repairs. However, these costs pale in comparison to how much value you lose when you buy a new car. Within the first year alone, a new car’s value depreciates by about 15%-25% depending on the model, which means that in case you decide to sell your newly bought car after one year, you’ll only sell it for 75% of its initial price.
If you add up the amount of money you pay for the car and all the related financial charges such as interest, you’ll find that a 25% depreciation brings down the value of the car by a very significant margin, and if this isn’t making you poorer, then I don’t know what is. Now, I won’t sit here and pretend like owning a car isn’t a major convenience. Being able to go from point A to point B on your own accord is fantastic. Let’s face it, taking the bus just doesn’t stack up against having your own set of wheels and luckily, there are some ways to reduce the financial hit that depreciation can pose.
You can avoid some of this depreciation by buying used. By doing this, you let someone else bear the bigger depreciation burden that a car suffers during its first few years with you taking ownership when a lot of the initial depreciation has been incurred. In fact, studies show that a car will depreciate by 50% in its first three years and only depreciate 25% in the next three years which is when you want to be acquiring the car. And what’s better is that since the car is depreciating slower as it ages, if you decide to sell it you can still recover a good chunk of what you initial spent. Finally, used cars are typically cheaper than brand new ones, meaning that you can still gain that convenience you seek with a much lesser price tag!
Number 2: Buying a Car on Loan Will Put You in Debt
The next reason why cars keep you poor is that they leave a big roadblock on your road to attaining financial freedom, and that roadblock is DEBT. Apart from mortgages and college debts, car loans make up a large percentage of debts in most households, and for anyone who is financially woke, you should know that skyrocketing debt is the biggest indicator of a less than ideal financial life.
So before you make the decision to buy a car, first ask yourself if you can pay cash for it and if your answer to this question is a difficult-to-accept No, then you should sit down and rethink your decision.
Because most car companies will not tell you this, but truth is, auto loans will have you paying way more than a car’s real price. Car loans come with high-end interest rates such that by the time you are done with your monthly installments, your bank account will be starved. If you have to buy a car, it is more advisable to pay for it with cash. And I know this sounds unthinkable for most of us, but if you want to save yourself from paying exorbitant interest rates for a depreciating asset, then this is an option you will want to look into.
Number 3: Costly Car Expenses
How much money do you think goes to your car on a monthly basis? Truth is, car expenses are probably one of the reasons why your finances are at a standstill and if you want to get your dream of achieving financial freedom off the ground, you need to consider more economic options when going from point A to point B. Because regardless of which part of the world you live in, there’s no denying that owning a car is expensive. If you are thinking of purchasing a car, brace yourself for an endless list of car expenses, and I’m here to break It all down for you.
With the rising prices of new cars, even most middle come earners are unable to pay cash when purchasing cars, which makes car loans a more common occurrence.
And this brings us to the first car expense which is financing. Let’s assume you buy a sedan for $26,500, putting down $5,000 and financing the rest. This means that the moment you drive off the lot, your automobile will have you in $21,500 worth of debt and will charge you an interest rate of 7% over the next two years as you have chosen to finance it for 24 months. While 7% interest may not seem like a lot, it amounts to an extra $3,200 in interest fees taking that $26,000 sedan a lot closer to $30,000.
Next comes the insurance premiums. It’s pretty obvious that you can’t drive your car without car insurance and this a constant car expense that you will pay for as long as a car is registered under your name. And if you surf online for some average quotes on insurance covers, you’ll notice that it will cost you an average of $1,200 per year. Moving on, another costly car expense is gas, and since gas is an equivalent of your motor’s oxygen, there’s no way you’ll escape this one. With the average car owner covering about 12,000 miles per year, it will cost an average of $1,440 per year on fuel, and this is based on the estimation that a gallon of gas costs $3.00.
Next, come the maintenance costs. Just like any machinery, a car will break down on multiple occasions, and it’s going to cost money for you to ensure its back on the road again. Whether it’s replacing the brakes, repairing a punctured tire, or even an oil change, you are likely to spend money on at least one miscellaneous car expense every year. Now assuming you have two or more cars in your family, its unthinkable of just how much money you are using to keep your cars on the road. Include the cost of rent, groceries, electricity bills, and credit card debts if any, and you’ll probably be left with no money to save since you’ll be taking care of all these expenses.
Number 4: Cars Overshadow Other Modes Of Transportation
Even though most of us have been brainwashed into believing that buying a car is the only convenient way of moving, this is far from the truth. I’m not discounting the fact that cars buy you convenience and freedom; they do, but at what cost?
Anything that derails your financial journey by cutting down on your savings deserves to be shoved aside, and owning a car is one of those things. As luxurious as they may appear, cars preclude you from exploring cheaper alternatives for traveling, yet we have so many transport alternatives that will save you lots of cash. If you live in a metropolitan city that has a functioning public transit system, for example, this is an option you should explore. Most public transit passes will cost you $100 a month, which is way below the total costs of managing your own car. Alternatively, you can occasionally call up an Uber or Lyft which allows you to use a car only when you need it. If you ask me, this is way better than buying an automobile which you drive to work, park it for a whole eight hours, and drive it back home again.
Public transit may not be the fastest or coziest mode of transport, but if you look at the end results, it’s totally worth it. You’ll get to scrap the costs of fuel, insurance, and car financing, and this will significantly add up to helping you build wealth. Because with zero car expenses and loans to think about, what other excuses will you have for not investing? You can use this saved money to pump up your retirement fund, or you can invest in high-dividend investments such as stocks.
Not to mention, there will be no stress attached to your daily commutes. Instead of getting upset in traffic, you can be enjoying an educational audiobook on the bus. Or, instead of worrying about finding parking downtown, you can call an Uber and erase parking issues from your mind. Cars not only cost you financially, but mentally as well which is a cost I know you can do without!
Number 5: Cars Create a False Illusion of Wealth
If you are toying with the idea of getting yourself that fancy, top-of-the-line sports car, what are your intentions? Do you genuinely need a car out of necessity, or is it about you wanting to look rich? Although most people will rarely admit this, the truth is that a number of car owners purchase their cars as a way of massaging their economic ego or simply keeping up with the Joneses.
Maybe you are the only one without a car in your workplace or your friend Jeff just added a red Mercedes into his car arsenal. Now you suddenly feel the pressure to buy yourself a flashy Mercedes sedan even if it kills you.
See, if you are the kind of person that easily gives in to this kind of societal pressure, then your chances of becoming rich are steadily gravitating to the thinner end of the spectrum. Your fancy car is probably giving you the illusion of a well-off lifestyle when in the real sense, you are shooting yourself in the foot financially. Because unlike other undercover investments that people can’t see, society views cars as a symbol of wealth. This is why you’ll find people preferring to put so much effort into owning an automobile, at the expense of buying proper stocks that appreciate in value.
At this point, it should be clear that cars only steal wealth instead of building it. So in case you haven’t arrived at your desired financial status, it is important that you take a step back with your car ownership and put more focus on the bigger picture. Since you now know some of the ways through which cars keep you poor, you are in a better position to make sound financial decisions in regard to your transport options.
CONTRIBUTED BY Adam Del Duca