Build Wealth Faster (3 reasons to avoid car payments)

^{Read time - 3 minutes / Disclaimer}

Today let's review 3 reasons to avoid car payments.

The usual perks of no car payment include:

• Lower expenses.

• Not paying interest.

• Less money anxiety.

Unfortunately, upgrading a car regularly is the norm.

Cars Are A Status Symbol

Many people use cars to:

• Delight dates.

• Impress relatives.

• Demonstrate success.

Yet, there's many good reasons to keep a paid off car.

Keeping a car long term can help you build wealth faster.

Here's three reasons why:

1. Insurance is Cheaper

Owning a car with a loan or lease means more insurance.

This also means more money out of pocket.

Why?

Because the finance company wants to be protected.

So, they require you to buy extra insurance.

It's called "full coverage".

Full coverage insurance is often double the price compared to insurance on a car with no monthly payment.

2. Buying a Home is Easier

A $700 car payment can make buying a home more difficult.

I did loans at a bank for years.

A common reason people can't buy the home they want is due to their car payment.

Example:

Michael and Emily want to buy their first home.

They both have good jobs.

And they've saved up a down payment.

They meet with a loan officer to get a loan pre-approval.

After meeting, they're disappointed to learn they don't qualify for the home they want.

The loan officer explains—

Emily's $580 lease payment and Michael's $780 loan payment on their cars affect their approval.

Buying a home without a car payment is easier.

3. Investing More is Possible

Putting less money towards a car means—

Building investments faster.

Example:

If Mike had a car payment of $550 that ended this month.

And he put the $550 saved each month into an S&P500 index fund (stock market).

And he did it for 10 years (hey...he needs another car eventually).

This is how it might look:

$110,216 after 10 years.

If he then stopped.

Got another car.

And forgot about the money.

This is how it might look:

$283,284 after 20 years.

$728,112 after 30 years.

This assumes his investment goes up 9.90% per year.

The S&P500 has done that the past 30 years on average.

No car payment can mean building wealth faster.

Conclusion

There's no guarantees in life.

Guarantees like:

A paid off car lasts 10 years.

Or investments go up 9.90% every year.

But cheaper insurance, buying a home more easily, and investing are good reasons to keep your ride a bit longer.

🚗

That's all for today.

See you next week.