"What If I Don't Have $20,000?"

A few days ago, I wrote about a concept I call the “pile of cash test.” In it, I explained how a client of mine used this test to alter their decision from buying a $35,000 car with debt to buying a $20,000 car with cash. I received a lot of feedback from that piece, but a handful of people were quick to ask the question, “what if I don’t have $20,000?” One person was sincere in their question, but several were insinuating it is a dumb idea because debt is the only realistic way to buy a vehicle.

I thought it would be worthwhile to answer the question. If you don’t have $20,000, yes, I’m suggesting you don’t buy a $20,000 car. The point isn’t to figure out the best way to buy a $x vehicle, but rather to figure out what vehicle we can buy with $x of available cash. This idea brings a lot of criticism, I know.

First, I’m not suggesting we buy a pile of junk. Many people do that, to their demise. I’m an advocate for buying a reliable car that will require as little ongoing maintenance work as possible. Yes, a car is going to have issues and require maintenance. But it’s amazing how many people will make $800 monthly payments for 7 years just to avoid the occasional $1,000 repair bill. This is a very common justification for expensive, debt-fueled purchase decisions.

Data shows the average household in America spends $400 per month on vehicle loan payments. But there’s a catch! That’s the average per household…..including all the households with no car payments. I decided to do a little data digging of my own. Of the last 75 families I’ve met with, at the beginning of our coaching relationship they had an average monthly car payment of $320/month. So it was a bit lower than the national average. This is where it gets interesting. 51% of these families had ZERO car debt. Zilch! Wait, it is possible to go without car debt!?!? If you take those families out of the equation, that means the average household monthly car payment for those who had car debt was $650/month! Yikes!

This immediately brings two interesting points to the surface:

1) Many people do choose to live without car debt. Doing so, which often requires sacrifice and humility, opens up so many doors with that excess cash. More than half of the people I meet with have made this possible…..even before starting their coaching relationship with me. I can testify how much freedom and momentum these families have as a result of these decisions.

2) For the people who choose to live with car debt, it’s crushing them! I regularly see $1,000+ payments for single vehicles and households with $1,500+ of combined car payments. This puts a stranglehold on their excess income and prevents them from doing things that truly matter to them.

I think you deserve better than to use your precious resources to constantly fund a car payment. For some of you, true freedom may lie just on the other side of a few sacrificial decisions. I promise you it’s worth it!

Pile of Cash Test

Several years ago, I was meeting with a coaching client who wanted to buy a new vehicle. When the conversation heated up, it quickly went in the direction of buying a very nice, very new, $35,000 vehicle (this was back when $35,000 was a lot for a new vehicle). They were dead-set on using a car loan to make this happen. When I attempted to convince them to make a cheaper choice and pay with cash instead of locking themselves into another sequence of expense payments, I made the argument that using debt is altering their decision-making process. In short, they wouldn’t be buying this much of a vehicle if they weren’t using debt. They aggressively disagreed with my thesis. In their opinion, they were simply using debt as a tool to make the best mathematical decision. According to them, they would make the exact same decision with cash, but they are outsmarting the system by doing it this way.

This is the moment I issued my always-favorite “pile of cash” test. I challenged them to go to the bank, withdraw the money, and set it on their table. If they could look at all this money and honestly tell themselves they would exchange it for this vehicle if the “smarter” option of financing it wasn’t on the table, then go ahead and use debt for the purchase. So they did! They went into their bank, awkwardly asked for $35,000+ in cash, and walked out several pounds heavier (looking like a suspicious drug deal was about to go down).

What happened next, you ask? When they looked at the cash and thought about it, they realized there was no way they could justify using this much money to buy the vehicle. The entire idea of debt was psychologically impairing their judgment. A few days later, they purchased a used $20,000 vehicle with cash, put $15,000 back in the bank, and felt at peace with their decision. I hear them tell this story often….it was a big turning point in their story.

It’s funny how we play little psychological tricks on ourselves when it comes to money. Many of them are small and silly, but sometimes, like this couple, they can profoundly impact us on our journey.

What Do You Collect?

We, humans, love to collect. According to psychologists, people collect for different reasons. Some collect out of a sense of nostalgia. Others collect as a way to shape or reflect their identity. Some people are allured to the hunt. Others find value in things that will remain even after they pass away. Another fun theory is that collecting is “a way for a man to attract potential mates by signaling his ability to accumulate resources.” Ah, to think all those baseball cards I accumulated when I was 8 years old would later land me a wife……thanks, Ryne Sandberg rookie cards!!!

I love asking people about their collecting habits. They are as unique as fingerprints. Everyone seems to have their own thing, for their own reasons. My friend Gary collects license plates from all the countries he travels to. They are a reminder of the memories made and relationships created. A few of my friends collect vintage video games, which remind them of their childhood wonderment when they were first introduced to 8-bit gaming. A few of my friends collect Star Wars memorabilia because, well, they just really love Star Wars. Some of my friends collect guns and/or cars, partly because they enjoy using them and partly because they are fascinated by the engineering.

When I was younger, I collected sports cards, Michael Jordan memorabilia, and CDs. Over time, my collecting habits died out. When I ask myself why they died, I think part of it was because I became busy with other things, combined with the fact my life became more transient by moving all over the place. It’s hard to collect when you don’t take the time and don’t have a place to store things. I did dabble in watches, and I do buy a fair number of books, but there’s nothing in my life that I would call “my thing.”

I think I need something….but don’t know what. Please help me brainstorm. What do you collect? Why do you collect it? How has it added value to your life? I want to hear from you. Please drop a note in the comments below!

The Problem With More

We have a “more” problem in our culture. In nearly every facet of our lives, it becomes about having, getting, making, and doing more, more, and more. The problem with more is that every time we get more, more is still, well, more.

Once we set ourselves down the path to more, there’s no natural endpoint. It’s an infinite game with no real winners. No matter the job we possess, there’s always one that pays more. No matter the phone we buy, there’s always a shinier, faster one coming out next week. No matter the restaurant we go to, there’s always something trendier. No matter the vacation we take, there’s always something more exotic.

Then, there are cars and houses. People can’t get enough when it comes to their vehicles. Newer, bigger, sleeker vehicles with enough high-tech features to launch a man to the moon. Then, the mother of all more, our houses. When people are looking to buy a house, one popular phrase they throw into the mix is “our forever home.” Every time this is proclaimed, I’m quick to say, “no, it’s not.” Why? Because more is always more. Inevitably, in most cases, these “forever homes” become former homes in just a handful of years, as the goal post of what satisfies shifted upwards mere months after moving into the so-called “forever home.”

This is the problem with more. There’s no way to psychologically combat this very human quirk. However, we do have a choice on the table: step out of the madness and choose not to participate in the pursuit of more. It’s a simple, yet profound idea that can fundamentally transform people’s lives. It changed mine, it’s changed countless families I work with, and it can change yours.

It's the Same 10 Miles Either Way

I was recently meeting with a client who drives a very average car. Seven years old, 120,000 miles, nothing fancy. When I asked him why he hadn’t made the choice to buy something nicer (because that’s what most people naturally do), he responded, “it’s the same 10 miles either way. Driving this car lets me do all the other things I want to do when I’m not driving those 10 miles.”

There’s so much truth in his dry but poignant response. Regardless of what vehicle he drives, he still has the same commute, on the same roads, over the same period of time, each and every day. Now it’s true people won’t admire his vehicle and give him a virtual pat on the back for being “successful”, but he gains something so much more powerful.

His singular decision to drive with humility has unlocked so many opportunities for him. There are only two ways to drive a newer, fancier vehicle: 1) large monthly payments over the course of several years, or 2) a large chunk of up-front cash. Both have consequences….inescapable consequences.

For this particular family, their choice has resulted in better family vacations, contributions to their children’s college fund, the wife staying at home with the kids (one of her aspirations), an appropriately funded retirement, and limited financial stress/tension.

Sure it’s the same 10 miles each day, but to this family, their counter-cultural decision changes everything!