Do you remember when you were 15 years old and dreamed of growing up, getting rich and getting a Ferrari or a Lamborghini?
Well, you’re probably 15 years older at the moment and you’ve probably still haven’t managed to make enough money to buy such a supercar.
But that doesn’t mean you can’t afford another pretty expensive car, let’s say a new Mercedes, right?
Hmmm not exactly.
For the modern people and especially for a man, the car is more than just a means of transport to meet his daily needs.
The car is inextricably linked to a person’s status. And this is exactly the trap.
There is something called social conditioning. It is a trap of modern society that covers a fairly large area.
This is why most people, as we will see below, make very poor decisions when it comes to buying a car.
Our social conditioning often leads to the trap of comparing ourselves to people we shouldn’t, such as our friends or neighbors.debt
Let’s look at an example
Today I have a used Toyota worth 5,000€ for example and it is surrounded by 5 other neighbors who also have a similar Toyota of similar worth. So I feel accepted, good with myself and I have nothing to envy from others.
The next day, however, I wake up to go to work and see my own Toyota parked outside and just before I get in my car to go to work, I suddenly see a car I have never seen before.
I take a second to understand what happened and I start counting.
Then counting, I realize that instead of 5 + 1 Toyota parked outside, there are 4 + 1 Toyota and a brand new black Mercedes.
I say ok maybe it’s someone else’s and I’m leaving for work. Nevertheless, because the thought of the new and impressive Mercedes, comes to my mind during the day, I make sure to learn, out of simple curiosity, who is the owner of the brand new Mercedes.
This turns out to be easy as I return home and as I finish parking my car, I get out of the car, and I see one of my neighbors parking and coming out of his new black Mercedes.
So I go to him and when the mystery is over, I congratulate him on his purchase and forget about it.
A week goes by, I wake up again to go to work, I go out with a cup of coffee in my hand and my hair mixed up since I’m late (ah these alarms). I go towards my car, and suddenly i see one new white Mercedes strangely parked behind me.
And as you would have guessed, Toyota’s have now become 3 + 1. Apparently they are starting to lose ground.
The next day I go out to throw my trash. I suddenly see a second neighbor of mine heading for the new white Mercedes.
I stop him for a while, I catch him for a chat, I congratulate him and this time I become a little more indistinguishable and I ask him straight away how much it cost him.
The answer I get leaves me somewhat speechless. He tells me 40,000€.
I think to myself, but how is it possible…
I understand that my first neighbor has a good income, as he works as a doctor in a hospital, and although it is only 2 years since he started, I estimate that it makes sense to be able to maintain such an expensive car.
But my 2nd neighbor who got the same car how does he maintain it as a Bus Driver?
Another week passes and Toyota’s became 2 + 1.
After another quarter, Toyota’s has remained in the unit, that is, only mine.
All my neighbors suddenly, despite the fact that the majority of them are in poor financially condition, have acquired a new Mercedes.
So why did each of them go and buy a new Mercedes from the moment they get a basic salary?
Because within theirselves they cannot accept the lowest position in their circle. They feel inferior and as a result they enter the process of making an emotional and wrong decision just to feel that they are back on the same level as the others.
And the best? They don’t even hang out with each other, a simple hello what’s up, they exchange.
This was an extreme scenario of how human psychology works around these issues. But an important one to remember.
So learn the following…
The largest percentage of people who have expensive cars and generally live an expensive and luxurious life are already or potentially bankrupt.
You may not like what you are reading at the moment but unfortunately it is true.
The car may be a part of your Net Worth, but it’s a piece that loses value every single month and every kilometer you drive it.
It is also a piece that not only loses value but needs extra capital each month to maintain it, whether you move it to do your work or not.
And for this reason you should not fall victim to the statuses of your friends or neighbors and be very careful when choosing to throw your money at something like that.
Because if you make the wrong decision, it is capable of keeping you down and not letting you build an important net worth.
How they manage to have such expensive cars
So here’s another trap. It is a trap of the modern capitalism.
Banks in partnership with the state, businesses and the media have made us believe that we can all have an expensive car, an expensive new iphone, a prada or rolex to even an expensive and big house. What a dream right?
So like a magic Jinn, they are here to make our dreams come true.
And they do it through debt.
There are various forms of debt that we will not discuss now, but it is a the tool that people use, of course, wrongly, condemning themselves all their lives.
So most people borrow to buy cars.
What do the statistics say?
In USA at the moment, the total amount owed by consumers for their car loans is $1.2 trillion, which means an average of $18,500 per lender.
Well read it, trillions. And that counts until the beginning of 2020 and not the last quarter. In other words, we do not yet see the effects of the virus.
As you will see from the blueprint, this number has almost doubled in the last 10 years.
In addition, because the status imposes buying a car, even if you are penniless, the so-called Subprime loans have skyrocketed.
These loans are given by companies to people who do not meet the requirements to get a loan from the banks because they usually have enough loans already or low income.
The bad thing about these loans is that they are given at higher interest rates to the borrowers due to the greater risk of default.
To understand the difference, someone who has a prime car loan in America pays an average interest rate of 4.5% for a new car and 6% for a used one.
But if you can’t get into the Prime category and need to get into Subprime then you pay an average of 12% for a new car and 16% for a used one.
These percentages are so big and tragic that you pay 166% MORE in interest.
Just think for a second that they have the same interest rates as Credit Cards in US, one of the worst ways to borrow ever invented.
Prior to the 2008 crisis in the United States, the average subrime loan was $12,000 with an average duration of 36 months.
Today, the average loan is $25,000 and averages 55 months. This is an increase of 108% in capital and 52% in its repayment period.
And if you think that the percentage of people who can’t get prime loans and are forced to take subprime is small, then you should think again.
Subprime car loans make up 21% of car loans. You don’t say a small percentage, do you?
I wonder how many of the 30,000,000 Americans who have been unemployed in the last month have such loans.
How to buy a car or motorcycle
When you decide to buy a car or a motorcycle, it is a good idea to have some rules in mind to help you make the right decision.
The 20% rule
The cost of purchasing the vehicle you choose should be around 20% of your annual net income. If you are a family then you count 20% of the income of both of you.
For example, if you have 2,000€ a month, that means 24,000€ a year. So the car that you are “allowed” to buy should not cost more than 4,800€.
The 10% rule
Your vehicle should not be worth more than 10% of your entire net worth.
As we said before, cars lose value every month. So believe me, you wouldn’t want to have 20 or 30% of your wealth in something that loses certain value every month. If you want to waste your money this way it is better to go to the casino. You could at least be lucky and win some money back.
Here it takes special attention and it is good to do the best possible research.
A 1,000cc car with a 3,000cc does not consume the same gas.
A Nissan and a Mercedes do not have the same cost of spare parts and maintenance, even if they have the same cc engine or if they have the same acquisition cost.
It would be wise your monthly vehicle expenses not to exceed 10% of your monthly income.
Cash, cash, cash
Don’t be tempted to buy a car on loan. You will end up buying a much more expensive vehicle than you originally planned.
So when the joy and excitement of the first months is gone, you will be left with a loan that you will have to pay for 3 to 7 years to come.
New VS Used
Here I happen to have experience from the both scenarios. I will not analyze the issue in more detail but I will tell you that you are allowed to buy a new vehicle only if you have a mountain of money and you do not care to waste it.
A new vehicle loses 20% of its value by taking the gelatin out of the seats and doing your 1st ride.
If you are afraid of safety reasons to buy a used one, you can choose a 2 or 3 year old vehicle with a few kilometers. You will pay at least 30% less and in many cases up to 50% less.
Also, used cars lose their value more slowly. So you come out twice as “profitable” bying a used one.
And now let’s see what car I have
In October 2018, we finally decided that we needed a car. My wife’s parents had promised her a car few years ago, but even if they weren’t, we would have to get one for our needs.
Our budget was low. We didn’t want to burden her parents but also my wife had not been driving for years and so we wanted something cheap.
So after seeing a few vehicles, we decided to buy a 2004 Nissan Micra with about 135,000 kilometers.
It was for sale for 1,500€ but we eventually bought it for 1,300€.
This vehicle was really our first one.
When I was 20 I made another mistake that I will analyze at some point in a new article, giving 10,000€ to my father to buy a new Volkswagen Golf worth 20,000€
This experience of mine, along with my passion for spending money on things that can get me back money, didn’t let me buy a car until 2018 even though we didn’t pay for it.
And that’s why even though we now have a good income, much better than in 2018, I haven’t bought a second and better car yet.
The monthly budget of the car on average is 180€.
I keep this calculation as an average of the total cost although sometimes it is lower.
For example, in the last 2 months we have been moving very little because of the virus and the price of benzine has also decreased so the total cost is reduced.
Some other cases involve our travels. When we are abroad the cost decreases. And this happens for at least 1 month a year in total.
In detail, the monthly budget is as follows:
30€ maintenance and tax costs
If we calculate that we pay 1 bus ticket less per month which in our city costs 60€ per month, then the real cost of the car does not exceed 120€ per month by no mean.
When you are trying to build your wealth, what you want is to keep your fixed liabilities as low as possible and to spend as little money as possible on items, for as long as possible.
If you follow my advice from above and go against the impulses of social conditioning I am sure you will take an important step towards building your wealth.
That’s it for now. If you find the above article useful, share it with your friends and subscribe to my email list so that you can be informed about other tips in the future.