I know this seems like an extreme stance, but borrowing money to buy a very expensive thing that plummets in value is an extreme strategy for burning money. So an extreme response is called for!
Ok, but what if you NEED a car and you don’t have any MONEY? What do you do? The average US new car payment is $716/month. Let’s say you’re broke and can only afford half that, or a $350/month payment. Here’s what you do:
• First four months: Don’t have a car. Bus, bike, borrow, barter, and beg your way to where you need to go. I know it sucks. But it’s only four months of your entire life and it means you get to be a millionaire later. Humans were around for 6 million years without cars. You can do four months. Put your $350/month in a savings account.
• Month five: Take the $1,400 you saved and find a deal on a clunker that runs. Boom. You have a car, and zero debt. Keep saving $350/month.
• Year one: Sell your $1,400 clunker for about $1,400. Combine it with the $2,800 now in your savings account and buy a perfectly decent $4,200 car. (I drove a $3,000 car for six years). Keep saving your $350/month.
• Year three: Sell your $4,200 car for $3,000. Take your $11,400 and buy a really darn nice used car. You can get a 3-4 year old car that looks and drives like new. Drive it for five years. Keep saving your $350
• Five years later: Take the $21,000 you have saved, plus the $7K or so from your last car and buy yourself a $28,000 car you want.
When you repeat that last step, you’ll end up with EXTRA money and you’ll be able to invest the rest and become a millionaire. See, now wasn’t riding the bus for four months all those years ago worth it? You can tell your kids about all the character you built and all the nice bus people you met.
As always, reminding you to build wealth by following the two PFC rules: 1.) Live below your means and 2.) Invest early and often.
Jeremy
