"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!