It’s out there, lurking in mailboxes across the nation. The white envelope makes is appear to be harmless, just like any other piece of mail. But it is anything but harmless. In fact, it is often devastating, ruining a person’s chance at obtaining financial health and generous living.
What payment is crushing your finances?
It’s your car payment.
In America, we love our cars. But the relationship is anything but reciprocal. We hand over our money for them. And, in turn, they destroy our financial health.
The average monthly payment for a new car just hit a record high ($515). Not to be outdone, the average payment for a used car also hit a record high ($371). Why is this a problem. Here are a few reasons:
- Car are depreciating assets. This means that they lose value over time. “Over time” may be generous. A new car will lose about 10% of its value as soon as you drive off the lot. So if you purchases a car for $35,000, $3,500 of its value disappears before you can get home. And after five year, the car will lose around 60% of its value. Yikes.=
- You often get upside down on the loan. This means that you owe more than you own. Which is unfortunately easy because of a car’s depreciation. Why is it bad to be upside down on a car loan? Sometimes, you can’t get rid of the car if you want to or need to. If you are upside down on the car, getting rid of the car either means paying additional cash or taking out a loan to make up the difference.
- You never get ahead.For some, life without a car payment seems like fantasy. Even if they eventually pay off the car loan, there is so little value left in the car that another loan is required for their next car. It is a vicious cycle. Money that needs to go toward appreciating (going up in value) assets is continuously lost to a depreciating asset.=
How do you avoid this financial health-crushing payment? Save up, and pay cash. For some, this may mean driving a car that doesn’t impress your neighbors for a while. And that’s okay. It is these types of decisions that will better your financial health and generosity.