“BuT It’S JuSt $500/MoNtH FoR My CaR”

I’m going to do a deep breakdown of the true cost of a car payment vs investing that moneyhttps://abs.twimg.com/emoji/v2/... draggable="false" alt="👀" title="Augen" aria-label="Emoji: Augen">

Sit back, and check this outhttps://abs.twimg.com/emoji/v2/... draggable="false" alt="🤯" title="Explodierender Kopf" aria-label="Emoji: Explodierender Kopf">

(thread)

Here is the backdrop of the thread:

https://abs.twimg.com/emoji/v2/... draggable="false" alt="👱‍♂️" title="Man, blond haired" aria-label="Emoji: Man, blond haired">and https://abs.twimg.com/emoji/v2/... draggable="false" alt="👩‍🦱" title="Woman, curly haired" aria-label="Emoji: Woman, curly haired"> just graduated college and have their first jobs

Both of them have a car...

BUT

https://abs.twimg.com/emoji/v2/... draggable="false" alt="👱‍♂️" title="Man, blond haired" aria-label="Emoji: Man, blond haired"> wants a new one to look “cool”

https://abs.twimg.com/emoji/v2/... draggable="false" alt="👩‍🦱" title="Woman, curly haired" aria-label="Emoji: Woman, curly haired"> loves what she drives

Okay, ACTION https://abs.twimg.com/emoji/v2/... draggable="false" alt="🎥" title="Filmkamera" aria-label="Emoji: Filmkamera">

So let’s start with a car loan

https://abs.twimg.com/emoji/v2/... draggable="false" alt="👱‍♂️" title="Man, blond haired" aria-label="Emoji: Man, blond haired"> takes out a $27,000 note with 4.25% interest rate would be a $500/month payment over 5 yearshttps://abs.twimg.com/emoji/v2/... draggable="false" alt="🤦🏼‍♂️" title="Mann schlägt sich die Hand vors Gesicht (mittelheller Hautton)" aria-label="Emoji: Mann schlägt sich die Hand vors Gesicht (mittelheller Hautton)"> for a https://abs.twimg.com/emoji/v2/... draggable="false" alt="🚘" title="Entgegenkommendes Auto" aria-label="Emoji: Entgegenkommendes Auto">

I want to make this clear... that’s $500 EVERY MONTH for 5 yearshttps://abs.twimg.com/emoji/v2/... draggable="false" alt="😅" title="Lächelndes Gesicht mit offenem Mund und Angstschweiß" aria-label="Emoji: Lächelndes Gesicht mit offenem Mund und Angstschweiß">

So after 60 months, the total that https://abs.twimg.com/emoji/v2/... draggable="false" alt="👱‍♂️" title="Man, blond haired" aria-label="Emoji: Man, blond haired"> paid would be $30,018...

You may be wondering, “But DI, the loan was only for $27,000... why is the total paid $30,018”

This is where interest comes into playhttps://abs.twimg.com/emoji/v2/... draggable="false" alt="😔" title="Nachdenkliches Gesicht" aria-label="Emoji: Nachdenkliches Gesicht">

The bank isn’t going to loan https://abs.twimg.com/emoji/v2/... draggable="false" alt="👱‍♂️" title="Man, blond haired" aria-label="Emoji: Man, blond haired"> money for free... so, they charge him a 4.25% rate (depends on credit/other factors) to borrow their money

So after 5 years, for $30,018, all https://abs.twimg.com/emoji/v2/... draggable="false" alt="👱‍♂️" title="Man, blond haired" aria-label="Emoji: Man, blond haired"> has left to show for it is his https://abs.twimg.com/emoji/v2/... draggable="false" alt="🚘" title="Entgegenkommendes Auto" aria-label="Emoji: Entgegenkommendes Auto">

BUT

Remember, cars are depreciating asset... and after 5 years, cars can lose up to 60% of their initial value (nerdwallet)

So that $27,000 https://abs.twimg.com/emoji/v2/... draggable="false" alt="🚘" title="Entgegenkommendes Auto" aria-label="Emoji: Entgegenkommendes Auto"> is now only worth $10,800 after 5 yearshttps://abs.twimg.com/emoji/v2/... draggable="false" alt="🤦🏼‍♂️" title="Mann schlägt sich die Hand vors Gesicht (mittelheller Hautton)" aria-label="Emoji: Mann schlägt sich die Hand vors Gesicht (mittelheller Hautton)">

So not only did https://abs.twimg.com/emoji/v2/... draggable="false" alt="👱‍♂️" title="Man, blond haired" aria-label="Emoji: Man, blond haired"> purchase a $27,000 car, spend $500/month for 5 years, but now his https://abs.twimg.com/emoji/v2/... draggable="false" alt="🚘" title="Entgegenkommendes Auto" aria-label="Emoji: Entgegenkommendes Auto"> is only worth $10,800https://abs.twimg.com/emoji/v2/... draggable="false" alt="😅" title="Lächelndes Gesicht mit offenem Mund und Angstschweiß" aria-label="Emoji: Lächelndes Gesicht mit offenem Mund und Angstschweiß">

Now let me introduce https://abs.twimg.com/emoji/v2/... draggable="false" alt="👩‍🦱" title="Woman, curly haired" aria-label="Emoji: Woman, curly haired">

https://abs.twimg.com/emoji/v2/... draggable="false" alt="👩‍🦱" title="Woman, curly haired" aria-label="Emoji: Woman, curly haired"> decides to stick with her current ride

And decides to invest that $500/month she saves in car paymentshttps://abs.twimg.com/emoji/v2/... draggable="false" alt="🔥" title="Feuer" aria-label="Emoji: Feuer">

https://abs.twimg.com/emoji/v2/... draggable="false" alt="👩‍🦱" title="Woman, curly haired" aria-label="Emoji: Woman, curly haired"> is new to investing, so she puts her money into $SPY

Historically, $SPY has returned 14.33% in the last 5 years

But to play it safe https://abs.twimg.com/emoji/v2/... draggable="false" alt="👩‍🦱" title="Woman, curly haired" aria-label="Emoji: Woman, curly haired"> decides to calculate on a 8% return

Let’s see what she will have after the same 5 years that https://abs.twimg.com/emoji/v2/... draggable="false" alt="👱‍♂️" title="Man, blond haired" aria-label="Emoji: Man, blond haired"> was paying off his car

In 5 years, https://abs.twimg.com/emoji/v2/... draggable="false" alt="👩‍🦱" title="Woman, curly haired" aria-label="Emoji: Woman, curly haired"> could have a portfolio value of $36,738https://abs.twimg.com/emoji/v2/... draggable="false" alt="💰" title="Geldsack" aria-label="Emoji: Geldsack">

While https://abs.twimg.com/emoji/v2/... draggable="false" alt="👱‍♂️" title="Man, blond haired" aria-label="Emoji: Man, blond haired"> has a https://abs.twimg.com/emoji/v2/... draggable="false" alt="🚘" title="Entgegenkommendes Auto" aria-label="Emoji: Entgegenkommendes Auto"> worth $10,800 + $0 in investments

Here is a quick lesson:

Many people will think https://abs.twimg.com/emoji/v2/... draggable="false" alt="👱‍♂️" title="Man, blond haired" aria-label="Emoji: Man, blond haired"> is wealthier than https://abs.twimg.com/emoji/v2/... draggable="false" alt="👩‍🦱" title="Woman, curly haired" aria-label="Emoji: Woman, curly haired"> because of his car, but little do they know, https://abs.twimg.com/emoji/v2/... draggable="false" alt="👩‍🦱" title="Woman, curly haired" aria-label="Emoji: Woman, curly haired"> has over $25,000 morehttps://abs.twimg.com/emoji/v2/... draggable="false" alt="🔥" title="Feuer" aria-label="Emoji: Feuer">

I just wanted to share an example why those $500/month in car payments really eat away at your chance to build wealthhttps://abs.twimg.com/emoji/v2/... draggable="false" alt="🤦🏼‍♂️" title="Mann schlägt sich die Hand vors Gesicht (mittelheller Hautton)" aria-label="Emoji: Mann schlägt sich die Hand vors Gesicht (mittelheller Hautton)">

I’m not saying you can’t have a nice car, but let’s have your dividends pay for ithttps://abs.twimg.com/emoji/v2/... draggable="false" alt="🤝" title="Handschlag" aria-label="Emoji: Handschlag">

I hope you enjoyed this thread!

Thanks for reading https://abs.twimg.com/emoji/v2/... draggable="false" alt="🙏" title="Folded hands" aria-label="Emoji: Folded hands">

@DecadeInvestor