There has been some debate about whether your home is an asset or a liability. I agree with Robert Kiyosaki, who says that your primary residence is a liability.
However, there is no doubt that your car is a massive liability. Yes, it gets you to work, but it drains resources daily.
With the increased gas prices, cars have become even more expensive to operate. To become wealthy, you need to defeat automobile debt. Welcome to the Debt-Free Society series (Defeat Credit Card Debt).
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Cars are a mindset. Growing up, most of us dreamed about fast cars or luxury vehicles. We saw ourselves driving up to a movie premiere and stepping out of an amazing car onto the red carpet.
Once we get our first career jobs, we then go out and buy a nice car. Hopefully, at this point, we realized that cars are expensive and a financial poison pill.
To overcome automobile debt, you have to have one of two mindsets. 1) Drive cheap used cars or 2) Buy a new car and drive it for at least 15 years (more like 20).
Drive cheap used cars. I am a fan of affordable used vehicles. My first car cost $8,500 in the year 2000. After that, all my vehicles cost much less ($2,800 in 2008 and $7,000 in 2017). I don’t worry about what people think of my car.
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If you listen to others, you’ll end up like them. Your friends will continue to suggest that you upgrade your car—to your financial ruin. Driving a car will give you the additional cash flow to save and invest.
Buy a new car. If you love new cars, you will need to drive them until the “wheels fall off.” Suppose you get a five-year loan and keep the car for 15 years, which gives you ten years without a car payment.
Can you drive a car for 15 years? I sure can. My wife and I bought her a $30,000 car in 2013. It is now completely paid off and has low mileage. She happily continues to drive it and keep it in good shape.
By the time we upgrade her car, we will be millionaires. Because we didn’t have a car payment for the last two years, we have accumulated over $200,000 in our dividend account.
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Make a choice. Which of the above categories do you relate to the most? You probably fall in the category of upgrading a car every 3-4 years. You can play that game, but don’t expect to get ahead in life.
When you have a high vehicle churn (turnover) rate, you are paying massive loan fees and other “gotcha” costs. I never got into the idea of my vehicle as an asset to covet.
To me, having a large amount of money at my disposal is the ultimate form of success. If I want to take my wife to sushi, I can pay for the entire dinner with dividends.
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When I started writing books, I told my wife that whatever I made from books, we could use for ourselves—our slush fund. Last month I made over $100 from books and my website. That is money entirely for us to blow.
I finished a book yesterday titled “3 Steps to Effective Time Management.” My main takeaway is that you have to identify your idea of success.
Cars for success. If you deem having a nice car as a form of success, then we can work with that mindset. Ensure you are buying luxury vehicles for yourself and not because of your outward appearance to others.
To buy your luxury car (a liability), you’ll need to find a corresponding asset to pay for it. Robert Kiyosaki talks about this exchange in “Rich Dad’s Guide to Becoming Rich.”
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Let’s use me as an example. I rent rooms in my home for $800 each (a total of $1,600). I can use the cash flow from these assets (rooms) to buy a car for my wife and me.
We choose to invest in more assets (dividends, USDC), but we could easily buy a car with this money. You should not be buying a car with paychecks from your earned income job.
At that point, you are literally working to pay for a liability. You need to accumulate income-producing assets before you buy income-draining liabilities.
Cars as a business. There is another way to drive nice cars. You can start a company that uses a vehicle. You can start a car rental business where the car is the star of the show. This will allow you to drive nice cars when someone isn’t renting them.
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You can also start a business where having a car is vital to the company’s survival. Something like a general contractor using a truck for their business comes to mind.
If you study business tax laws and rules, you can position your car, so the business pays for this expense out of its profits. Again, you’ll need to take the time to read books and consult tax professionals.
Nobody will hand you this information on a silver platter—you’ll need to grind out the knowledge by doing research. When you see your co-workers buying cars directly from their paychecks, you should just shake your head silently.
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Being in the military, everyone knows how much money we make because they publish the military pay chart for the world to see.
Every day I see individuals with super nice cars, and I know how much money they earn. Buying these cars will extend their working years by the amount of time for their loan.
If they take out a five-year loan, they will have to work an additional five years on the back end of their lives—not a fun way to spend their 60s and 70s.
A quick scenario. Let’s do a quick example of owning a car for 15 years. Suppose you pay $600/month for your auto loan for the first five years.
Home Buying for the Average Person
For the remaining ten years, you invest that same $600/month into a closed-end fund that pays 9% in monthly dividends. After those ten years, you would have a monthly income stream of $540/month (without reinvesting dividends).
Therefore, even if you could postpone or pause your love of cars for 10-20 years, you create enough cash flow to afford your dream car for the rest of your life.
Conclusion. Cars are a mindset. If you think the car “makes the man (or woman),” you will have a tough time towards the back half of your life.
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If cars aren’t a big deal for you, stay away from new cars. If you buy one, keep it for a long time and invest your money wisely.
If you must have the latest cars because it is your true passion (or purpose), make them a part of your business. Either find a way to have the cash flow from an asset pay for your car, or have your business purchase your vehicle.
Working for a car is not the way to get ahead. Use your intelligence to purchase your dream car. Remember, your car is a liability unless you can convert it into an asset. Good Luck!
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Disclosure: I am not a financial advisor or money manager, and any knowledge is given as guidance and not direct actionable investment advice. I am an Amazon Affiliate. Please research any investment vehicles that are being considered. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article. All Right Reserved Military Family Investing
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