- The whole car buying rat race is the worst.
It feels like everyone you work with in the process
is against you, from the car dealership
to the finance company to those shady warranty companies.
They're all trying to suck you dry and we can't forget
about how these insane car prices and interest rates
are jacking up everyone's monthly payments.
On top of that, transportation is already
where people spend the second to largest amount of money
after their housing.
It's not like you can just remove yourself
from this rat race either.
Most of us need cars to go about our daily life.
Cue all of the bike riders in the comment section
who want us a scum of the earth,
vehicle drivers to just to notice them.
- [Man With Loud Voice] Notice me.
- [Man With Deep Voice] No!
- Don't worry guys and gals, we see ya and we like ya
but we're not drinking what you're selling.
Riding my bike in five degree weather
to go pick up groceries is never going to be
on my bingo card.
The fastest way for me not to get a second date
with a woman is to roll-up on a bicycle.
(sound of a bicycle) (bird chirping loudly)
- Got room for one more if you still wanna go to Aspen.
- So, how do you shift the power
back in your favor as a consumer?
A good way that I've found is to invest
for your future car purchases.
Instead of sending over a monthly payment
to a financing company that's getting rich off of you.
Why not keep those profits for yourself
and reap all of the rewards?
I'll show you the math behind how to make it work.
Reveal my actual numbers to show you how it has
and hasn't worked out for me so far,
the pros and of course the risks involved.
This whole process is not as cut and dry as you might think
because there are quite a few things that you need
to be aware of so you don't screw something up.
I'll have warnings all throughout this video,
so if you don't watch the whole thing and you try to do it
on your own, then you can't say that I didn't warn you
when it all falls apart.
When you start this whole thing is going to improve
the odds of success, so don't go attempting it
until you feel fully-comfortable.
Let me explain what I mean.
For context, I started working towards this
about 10 years ago and wasn't able to fully implement it
until a little under four years ago.
Once I got the debt paid off on my last car,
I knew that I would need my next car in around three years
so I chose to save up the money to pay cash for that car.
Investing money that I need within three years
was way too risky due to short-term volatility
in the stock market, so that's why I decided
to start investing the money once I bought my current car
in cash.
You know what else is risky though?
Leaving your personal information out there
for scammers to use it against you
and the way that you can protect yourself against this
is by using the sponsor of this video, Aura.
These data brokers sell your information
to robocallers, telemarketers,
and anyone else that wants to learn more about you.
Yes, these data brokers are why you are getting
all of those random spam phone calls every single day.
Aura found that over 30 brokers have my information.
According to consumer reports,
the law requires that most data brokers
and large companies have to delete your personal information
or stop selling it if you tell them to, look,
I've tried to reach out to these data brokers
to get my information removed
and it's the worst experience ever.
I feel like I'm playing both whack-a-mole
and hide and go seek at the same time.
Sure, you get your information removed
from one site and it pops-up on another,
if you can even find them all to begin with,
which feels impossible, Aura will locate
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on your credit score.
I've gotta come clean about the fact that Aura told me
my credit score isn't as good as I thought.
You think that it would be a perfect 850
since I talk about money here on the internet, but it's not.
It's only at an 827.
I'm a failure.
Aura is like the internet bodyguard
you didn't know you needed, so use the QR code on screen.
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Let's take a look at the math behind this whole thing.
Before I walk you through my spreadsheet,
we first need to talk about the inputs.
As with all future planning, I'm making assumptions here.
Sometimes, it'll work out, sometimes, it won't,
and everything can be adjusted as reality plays out.
Like for example, how inflated car prices are right now.
Every month I pretend like I have a $275 payment
but instead of sending it to a bank to pay off a loan,
I send it to my brokerage account.
If I decide in the future that I want a more expensive car
then I'll increase my monthly contribution.
When it comes to stock market returns,
I'm assuming an average of 7% per year.
Yes, I know the market was down around 18% in 2022
but it was also up 28% in 2021, up 18% in 2020,
up 31% in 2019 and down 4% in 2018.
That's how average annual returns work.
Don't worry, we'll talk about the downsides
of this in the risk section of the video.
The current plan is to purchase a car every seven years.
If the car can last longer, then I'm going to do my best
to keep it beyond that amount of time.
According to progressive,
the average car lasts 200,000 miles.
Some people think that this is absolutely impossible
but I have owned multiple cars that have lasted
well over 200,000 miles.
My last car made it 225,000 miles
and I even traded it in for $2,000.
Progressive also says that it's not uncommon
for a car to last up to 300,000 miles
as long as it's maintained properly
and you buy a good quality make and model.
We're talking about vehicles here though
so of course, random things can happen.
That's why it's important to buy based on quality
as opposed to how cool the car looks.
The price of car I wanna buy is a $15,000 type car
every seven years.
If prices eventually start to go down over the long-term,
then this will be adjusted.
Since cars have been under-produced
over the past three years, prices are still inflated.
According to CarDealershipGuy, prices will eventually
go down but we probably won't see pre-2020 prices.
I honestly don't understand how average people
are going to be able to continue buying cars
at these super high prices.
They've already increased the average loan-term
from five to six years.
What are they gonna do next?
Increase it to something like eight years
so consumers can afford those monthly payments.
I don't know what people are going to be more pissed about.
The fact that car prices continue to stay high or the fact
that they might have to drive a car that's eight years old
like some of us have been doing our whole lives.
Oh my gosh, are you sure a car's gonna last that long?
I've always been told that you shouldn't own an old car
because it's always breaking down
and the wheels are falling off.
That's not true, folks.
Since this monthly investment will be put
into a taxable investment account,
I need to assume long-term capital gains tax.
I have it set at 15%
for when I sell off investments to purchase my car.
Before we talk about car inflation,
please help support my dog, Molly, as well as this channel
by hitting that thumbs up button and sharing the video
with someone you think needs to see
and now, we need to talk about the one everyone
is probably thinking about.
Car inflation.
Prepare to be triggered.
I'm assuming a yearly car inflation rate of 3%.
- And it's gone.
- Hold on, don't throw your phone at the wall.
Go ahead and pause the video for a second
if you need to scream at me.
Recency bias can rot your brain if you were not careful
because it tells us to only pay attention
to what happened over the past two years.
Car inflation in 2021 and 2022 were
at five and a half percent and 11%, but this is not normal,
so we shouldn't expect
for it to continue this way in the future.
Could it?
Absolutely, but if it does, then 99% of people in the US
won't be able to afford a car, so this strategy
will be the least of your worries.
I pulled the car inflation data all the way back to 1936.
Since I'll be buying every seven years,
I looked at the seven year rolling car inflation rate.
As of 2023, it's not even at 3% yet.
To even find a time where the seven-year rolling inflation
was at 3%, we would have to go back to 1988.
One could even make the argument
that car prices today are still way underpriced
because inflation for them has been less than 1% or even
in the negative for the past 22, 7-year rolling periods.
Here's the way I look at it.
Since I'm going to be a lifetime car buyer,
I need to account for the average of many years of inflation
as opposed to the two recent years that are inflated.
Yes, there are going to be years when I buy
where inflation is low and yes, there's going to be years
where I buy and inflation is high,
but when I average my lifetime of buying cars,
inflation is probably going to be around where I'm project.
If you don't agree with any of the numbers I just laid out,
then no big deal.
Feel free to change them to whatever you prefer.
Here's the spreadsheet with all of my inputs.
The cells in green are where I can adjust
to the inputs as time goes on and if things change.
At the end of the first seven years,
I expect to have around $27,000 to spend on a car
since I'll only only be spending around $18,000.
That'll leave me with about $9,000 in my brokerage account
for the next car that I buy
and you can see the rest of these numbers.
If this person hypothetically started the process at age 30
through age 86.
You can easily make this spreadsheet
on your own if you want.
Not sure if I'm going to make it available to the public.
If I do, then I'll let my email list know first,
so I'll throw a link in the description to sign up for that.
One thing I wanna call out is the trade-in value.
Right now, I am not planning on being able
to trade my car in for anything,
so if I happen to be able to trade it in for something,
then that will just increase the amount
of my initial investment for the next car that I purchased.
The question you all might be wondering, how well
is this car investing strategy working out for me so far?
Well, yeah, how about that?
I'm all about being open and honest,
so I would say good and bad.
I've been working this plan for a little under seven years.
I currently have a little over $12,000
in my M1 finance car fund account
and $1,581 in another car fund brokerage account.
Since I started this process,
I wasn't expecting car prices to be so darn inflated.
My original plan was to buy a $9,000 type car
every seven years, accounting for 2% inflation.
Based on those numbers at $250 per month,
everything would work out and I'm actually ahead
based on those assumptions.
But since reality has changed, I need to change.
After adjusting for 3% inflation and a $15,000 type car,
which will cost about $18,400 in three years.
I should technically have about $14,600
in the account today and I only have $13,591.
To catch up, I'll need to increase
my monthly contributions to $275 per month
and I have about $1,000 I'm going to invest
into the account within the next couple of weeks.
Some of you might rightfully look at this
and think the whole strategy failed
and that's okay if you wanna look at it like that.
I personally see it as a plan that just needs updated
based on the current market conditions.
This is no different from my retirement investing plan
needing adjusted as I get closer
to withdrawing money for retirement.
To be honest, I expect to have to make multiple adjustments
to this plan over the next 50 plus years.
It would be extremely stupid for me to think
that there won't be any other random unknown events
in the future.
I should also mention that my car investing portfolio
consists of the Vanguard S&P 500 fund.
To be honest, I wish I would've started
with the Vanguard Total Stock Market ETF instead,
so once I have enough money in VOO for my next car,
I will switch everything over to VTI going forward.
If you were curious what my top five ETFs are
then I'll throw a link above my head
and in the description down below to a video I made
on that topic.
If you want access and a bonus to the brokerage
that I used for my car investing strategy,
then I will have a link in the description for you.
Let's talk about about some pros then move on to the risks
of using this investment strategy for future cars.
The first pro is that you are almost forced to find a car
that fits within the plan that you've laid out
within your spreadsheet, which makes it more difficult
to spend more money.
Going over will cause a ripple effect and the future plan
which could cause you to have to set aside more money
to make up for overspending.
You actually feel the consequences of this decision.
Car dealerships always wanna try to upsell us
when we buy vehicles with debt
because it's easier for us to accept.
Adding just 50 or $100 to your monthly payment
feels like such a small amount
but adding that $50 per month to a six-year loan
will increase the amount that you are spending by $3,600.
Another pro is one that's easily overlooked
and that's cheaper insurance.
When you pay cash for a car,
you pay less in insurance since there isn't a loan.
Not many people realize this because most have been
in this cycle of car debt, so all they know
is the insurance rate that they've always been paying.
I've noticed that since paying cash for cars,
I take way better care of them
because it has to last me at least seven years.
This thing needs to be looked at to the best of my ability.
Oil changes happen on time.
The car gets looked at when any maintenance light pops on
and it gets taken in at least once per year
to get a general inspection done.
You also become a more responsible car shopper.
Since this car has to last longer
than most people keep their vehicles,
you have to get it right from the very beginning.
This means doing the proper research upfront
to find those makes and models
that have a long enough track record.
Unfortunately, most American brand cars
are not on that list.
Honda and Toyota are the top dogs, and to be honest,
I am a big fan of Hyundai
because I've had a lot of success with them.
Another pro is that you don't have to spend the amount
that you have planned in your spreadsheet.
I'll have $18,000 to spend on my next car
but if I find a car for less
then that difference is going to grow
since it's staying invested.
You're actually rewarded to look for a quality car
at a good price.
If you continue doing this, then it could get to the point
where you have the opportunity to reduce the amount
that you are investing every month in the future
or you can just start buying cars
that are a little more expensive
than you originally planned.
Now we need to cover the cons.
The risks involved with investing for your future cars.
Some of these are probably obvious
but I wouldn't feel right
if I didn't call out the risks involved with this strategy.
As with everything in life, it's not for everyone.
The biggest con and risk is the fact
that real life doesn't play out like a spreadsheet
and your plan will most likely need to be changed
in the future.
Investment returns could change.
You might have a car die before that seven-year period
or car inflation could continue to stay outta control.
As I showed you earlier,
I had to change my initial assumptions
since car inflation has been extremely high.
Now luckily, I can afford it but the main reason
that I was able to do that is because my finances
were stable enough when I first started and right now.
For all I know, I might be in a worse financial position
in the future and I might have to abandon this strategy
and I'm okay with that.
If you're just barely getting by financially
and can't afford changes like this,
then you are way better off putting your money
in a savings account versus an investment account
until you have everything more under control.
Even if you cannot afford to take on the risk associated
with investing in the money, you should still try to save up
to pay cash for all your future cars.
It's hard to explain how good of a feeling it is
not to owe anyone any money for the car that I drive.
For sure, one of the better financial decisions
that I've made in my life.
When it comes to the stock market return portion
of this whole thing, you need to be careful.
Short-term volatility in the market will eat you alive
if you are not careful.
By short-term, I'm talking anything less than 10 years.
I showed this in my video about the surprising facts
every investor needs to know.
I'll have it linked above my head.
My plan is based on seven years so that right there
is taking on a lot more risk.
I personally wouldn't be doing this strategy if I thought
that I would need to buy a car in under seven years.
Another risk is one that I talked about in that same video
about surprising facts every investor needs to know
and that's timing.
You could be doing everything right
with this investing strategy and could get so unlucky
to the point where when you go to withdraw the money,
the stock market happens to be down 50%
or car inflation happens to skyrocket up to 20%.
Anything is possible in the future.
Even these very rare or black swan type events.
Watch this video on nine surprising facts
every investor needs to know.
Help support my dog, Molly, and this channel
by hitting that thumbs up button
and sharing the video with someone you think it would help.
See in the next one friends.
Done.