Every day when I drive around I see nice, new, expensive cars ($50,000 +) driving around. Cars like new Mustangs, Mercedes Benz’s, BMW’s, Audis, Range Rovers etc.
Often I look into the cars and the drivers are in their late 20s, 30s and 40s.
And I think to myself, “they must be doing well” “they must be rich” “they could be a drug dealer” “they must come from a rich family” “how can they afford that”
Then I remember when I use to work in a bank that MOST people don’t own their cars. MOST people either have a personal loan/car loan on that car or they purchased it within their mortgage.
Even if they withdrew cash out of the mortgage that they paid extra down on to purchase the car as a “cash purchase” it’s still essentially using the mortgage to purchase your car and you will be paying your mortgage interest rate because all they did was withdraw the surplus out.
If not the above examples they lease the car.
Very few people, especially younger people. Own their home out right, have no debts then purchased their car cash.
Or they might be renting and payed for the car cash but unless they build up a massive investment amount to cover their rent payments they will rent forever.
So basically most people don’t own those nice cars, most aren’t rich, most don’t have a lot of equity.
Yes, that guy you saw in his early 30s driving a Mercedes Benz C63 AMG that people think is a drug dealer probably just took a loan out to buy that car and lives in a small average home in an average neighbourhood and can barely afford the servicing cost of the car.
Any car dealer will be very happy to make it happen and give you finance for that car.
I’m not trying to shit on everyone who borrows money and purchases nice cars. Each to their own as long as they are happy.
The reason I wrote this article is because I don’t want others to see these younger people driving these nice cars and feel envious, belittled, insignificant, jealous, unsuccessful etc.
A lot of people don’t understand that most of these cars are financed. They don’t understand the maths of money and the probability of accumulating a significant net worth at a young age.
Ok yes there are some rich younger people or people who had the car bought for them but MOST of the time it’s financed.
So if you’re one of those people who ever felt like that when you saw a nice car you shouldn’t! Because you’re doing fine! In fact, you are probably richer in terms of equity!
Like is said before, each to their own, if you want to borrow 50, 60, 70 or 100 grand plus because you want that brand new car now because it will make you truly happy then go for it.
But personally in my 20s and 30s I wouldn’t pay more than 20 grand for a car, My current car cost me 15 grand, and I was going to go less than that. You can purchase a safe, reliable car for a lot less.
This way I can use the money to pay off a house and have no debts. If I was renting I would still accumulate about the same amount of equity in an investment so that it covers my rent.
This way I would live debt/accommodation payment free. Then after that I could save 50 grand or more and spend it on a new car if I wanted to.
If you did it this way and pay in real cash, not mortgage surplus. You pay less for the car.
If you finance it you pay more for the car.
That’s it guys. I just wanted to explain that. Also check out the video below where Aaron Clarey explains the same thing.