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February 7, 2023: True Cost of Car Payments, Little Moments of Joy

Choose FI has partnered with CardRatings for our coverage of credit card products. Choose FI and CardRatings may receive a commission from card issuers. Opinions, reviews, analyses & recommendations are the author’s alone, and have not been reviewed, endorsed or approved by any of these entities. American Express is a ChooseFI advertiser. Disclosures.

True Cost of Car Payments

I saw a recent stat that the average car payment hit $777 per month, and I was absolutely shocked that people would willingly take on that large of a required monthly payment for something that sits idle 98% of the time!

I wanted to look at the financial ramifications of that decision from the FI perspective in two ways:

For people who constantly ‘manage the payments’ on their cars and intend to just keep rolling into new cars every few years, then this $777 (or more!) will always be there.

First and most simply, let’s remember that for every $100 in monthly expenses you add to your life, you need $30,000 more in your net worth to reach Financial Independence.

That person then needs about $233,000 more in investable assets to reach FI thanks to that $777 per month expense as compared with someone who drives a paid off car.

But let’s dive a little deeper on the true cost of that $777 per month ‘managed’ car payment vs. someone with the FI mindset and how they would come out nearly $2 million ahead (!) of the less optimized continual car payment person:

As I described in depth on Twitter, I revisited our calculation from Episode 22 where we looked at two people side-by-side over a 45-year period.

In that old example, the first person paid $300 per month for 45 years to consistently have newer cars.

The FI-minded person looked at the 45 years as three 15-year cycles where they’d have car payments for five years and then hold that car for another 10 years (so that car was held for 15 years).  During the 10 years with no payments, they’d invest that $300 in low-cost index funds.

When 15 years was up, they’d get a new car with $300/month payments and not add to the invested money, but their existing savings would continue to compound.

At the end of 45 years, they’d be sitting with a net worth, just from these car payment savings, of nearly $750,000 while the first person had $0 to show for it.

Since I read the new average $777/month, I wanted to update the analysis to keep the same scenario, but now the car payment changed to $777 (and thus the savings per month is $777 for the FI-person).

Our FI driver’s net worth was now over $1,900,000 higher!  From one decision to drive the exact same cars as the less optimized version, but to just drive each of them for 15 years instead of 5.

One decision, nearly $2 million in higher net worth.

Finding Little Moments of Joy (Revisited)

I included a section in this newsletter over two years ago that I titled “Finding Little Moments of Joy.”

Here’s what I wrote then, which is every bit as relevant today:

“I’ve been thinking about searching out moments of joy more frequently in daily life — even if only in bite-sized chunks.

Last night I watched a viral video of two twin brothers listening to Phil Collins’ “In the Air Tonight” for the first time. The pure joy and surprise on their faces when the famous drum solo hit was incredible to watch.  It got me thinking about the enjoyment I get from listening to music and how infrequently I go back and listen to my favorites.

Then I remembered two of my favorite YouTube videos and how they never fail to bring a smile to my face and watched them both:

Please hit reply and pass along any suggestions you have for finding small moments of joy in your own life!”

I genuinely would love your suggestions, so keep them coming!  And in the meantime, I have two more to add:

  • I recently came across my entire collection of Calvin and Hobbes books that feature every C&H comic strip ever produced. It is such a wonderful blast from the past to re-read these comics and not only do they hold up 25+ years later, but reading them from my now parent-perspective is fascinating.
  • I spent over an hour recently with my daughters watching Taylor Swift YouTube videos, just singing at the top of our lungs and loving every minute of it.

ChooseFI Community Taking Action This Week

  • Sonja said, “My 1% better this week was getting in touch with my cousin again after no communication in over a decade (for no good reason) because we were unknowingly both in the ChooseFI Facebook group and ‘liked the same post”. I couldn’t believe my eyes! On top of being in the FI community & mindset, we also discovered our mutual love for travel and podcasts. Thanks for bringing us together. I love this community!”

  • Javier said, “My 1%+ better this week was using my travel rewards to book a week vacation next month in San Juan, PR with my girlfriend. The cost that flights and hotel would have been in cash was $4,623. But by using a combination of points, I kid you not it only cost me $82! (Only had to pay for checked bags and ticket fee) This is the skill of spending in action!”

  • Kim said, “My 1% better is that I took the time to really look at what my work sponsored retirement accounts were costing me in fees. I moved some things around with confidence knowing that fees are one of the few things I can control. My next goal is to transfer the high fees in my Merrill Lynch IRA into a low cost index fund. The money manager I meet with twice yearly isn’t worth the cost of the mutual funds. Thanks to this show, I’m not afraid to manage my own money.”

  • Cheryl said, “I’ve been hoarding my 1%’s! I love reading these and decided to hit reply. Since Nov of last year, we: 1) fired our “account manager” that charged 1% fees. 2) opened a cash back card and put everything on auto-pay. 3) upped our Vanguard Roth contribution to max it out, and cleaned up the clutter investments to VTSAX and BND only. 4) have taken Mrs. Frugalwoods Uber Frugal Month Challenge, (love her!! -I’m in VT too!), 5) and last on my list so far, is we’re messing around with our 403b investments, exchanging the high expense ratios for Vanguards low ones.”

  • Rick said, “My 1% this week was emptying two rental storage units saving me $450 per month (of after-tax money).”

  • Spencer said, “Here’s my 1% better: I had fallen into the habit of having 1-2 drinks each night. I started experiencing insomnia and after doing research I discovered that alcohol can impact your sleep. I haven’t had a drink since Christmas Day and do not plan to restart anytime soon. 5 weeks of sobriety has been fantastic for me. My mood is elevated, I don’t get frustrated or stressed out quite as easily, and most importantly I’m sleeping great. Saving money and calories is a nice added bonus.”

  • Brian said, “My 1% better was to sit on the phone with my youngest for 2 hours and discuss her benefits package with her new employer. When we got to the 45-page 401k document, on pages 14-16 there was a list of 68 funds and options. She said which do I choose? Somewhere in the middle of the large-cap funds, I found VTSAX. I said to put 100% and forget it. I also taught her the expression “VTSAX and relax’. BTW she is 30, is getting her first real job, is a high-income earner, and will start maxing it out from the beginning.”

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Choose FI has partnered with CardRatings for our coverage of credit card products. Choose FI and CardRatings may receive a commission from card issuers. Opinions, reviews, analyses & recommendations are the author’s alone, and have not been reviewed, endorsed or approved by any of these entities. American Express is a ChooseFI advertiser. Disclosures.
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