Guest Post: You Won't Believe How Many People Have $1,000 Car Payments
Not simple. Hardly straightforward.
Paid subscribers - listen to the audio version of this article - narrated by me - here
I’ve got a treat for you lovely paid subscribers today. My friend
recently wrote a story that BLEW UP over on Medium, and we want to share it with you here today. Rocco also has an excellent Substack called Never Retire - you can check it out here:I’m not surprised this story went viral, it’s a subject that is both universal and often controversial on both sides of the argument - car payments. Specifically, how we have normalized huge payments as “what you do.”
I hope you enjoy Rocco’s story and that it resonates with you. ⬇️
I hesitate to say this for fear of stereotyping Los Angeles.
Because, contrary to popular belief, this is not the norm in LA. It’s just prevalent enough to notice on a daily basis.
In your social circles and on the streets here you’ll frequently run into:
The $50,000-a-year millionaire who drives a fancy car, has a killer apartment (or even owns a home), but barely makes ends meet most months. They’re in debt up to their eyeballs.
The well-to-do households who, even if you didn’t ask, call themselves minimalists. Minimalists who drive Landrovers, Teslas or both and pay more for housing than some of us spend—on everything—in 2, 3, 4, 5, even 6 months.
And, oh, a third one that’s especially infuriating:
The people who judge dates on the basis of how big their apartment is or what kind of car they drive.
To be clear, nine out of ten people you run into in this city are pretty much down to Earth. And, because it’s never wise to generalize, you can certainly mislabel people into one of these three categories when they’re anything but.
It’s just that you talk to and hear about enough people who say such astonishing things about and do such seemingly crazy things with money as it informs and impacts their views on status, life and living to know it’s absolutely a thing.
However, if the response to a recent viral article I wrote on Medium is any indication, it’s absolutely a thing beyond Southern California.
I write a newsletter on Substack called Never Retire. You can check it out here and subscribe to it here. On the surface, Never Retire sounds negative. The newsletter focuses on why it’s not only positive, but a potentially more desirable alternative to traditional retirement.
Of course, Charlie writes about all things Simple and Straightforward here on Substack and at Medium. Quite frequently—like several times a week—our ideas and ideals merge.
Today, we share some of this common ground with you.
The following article—A Pathetic Example Of Living Beyond Your Means That We Have Normalized—originally appeared on Medium.
It answers the question in the title of this guest post.
You really won’t believe how many people took on a $1,000-plus car payment late last year.
It also shows—based on the readership and insightful, personal comments in response—that the subject resonates with those of us who choose to reject spending crazy amounts of money on housing and transportation in favor of saving that cash to spend on things and experiences that actually matter and enhance our quality of life.
So here it is—
More than anything, two things about money piss me off. Like not walk around angry pissed off, but it sucks that my favorite sports team lost pissed off.
Not I hate this or that in the vitriolic or personal sense. But I hate something in a colloquial way of speaking.
Unrealistic, somewhat self-entitled expectations about what we should be able to afford because our parents could and now, suddenly, life isn’t fair.
Criticism of small, but not necessarily cheap expenses and calling this criticism frugality.
In this article, we focus on the latter. I covered the former in-depth here.
Both of these things must change — our expectations and views on spending — if we’re to do better with money now and for the duration. As with most of my articles, this applies to those of us of modest means, who make decent or better money. Not the poor or relatively wealthy among us.
Compare the recent cost of a few things.
First, new and used cars.
Summarizing and expanding on that data —
15.7% of new car buyers in Q4/2022 committed to a monthly payment of $1,000 or more.
That’s up from 10.5% a year ago and 6.7% two years ago.
The average new car payment in Q4: $717 a month.
The average used car payment in Q4: $563 a month.
People are making down payments of somewhere between $3,921 and $6,780 ahead of these average monthly payments.
You can blame interest rates and the increased cost of vehicles for this all you want. These two factors certainly play a role. However, the Edmunds data also shows people are opting for expensive cars, such as SUVs, with pricey options.
More than enough people are willing to part with thousands of dollars upfront and well north of $500 a month — every month — for an average of 70 or so straight months. This puts you in the personal financial hole, especially if you’re of modest means, before the month even hits its stride. Add in an outsized housing payment and there’s a good chance you’re riding on the personal financial hamster wheel.
Yet, we’re willing — sometimes more than willing — to take on these expenses because it’s just what we do. It’s important to a lot of people to have the house and the car. They think it matters in relation to their position in life, personally and professionally.
To attract a mate.
To throw off the right vibe in the workplace.
No shit. This is how a large swath of the population thinks.
I know and know of people who literally won’t date somebody who lives in a small apartment or doesn’t drive a “nice” car.
Now for even more flabbergast.
Consider some common small expenses. The ones people often express the most shock and awe over. The ones the pretentiously “frugal” deride.
Using Los Angeles as a sample, but representative of most of the country, particularly in populated settings —
$5 for a cappuccino.
$30 for two breakfast burritos with bacon (at the great CoFax Coffee on Fairfax in LA — that’s a free plug!).
$36 (before tip) for a large cheese pie and two bottles of beer at a local pizza joint here in Central LA.
In some corners, you’ll take shit for making these purchases.
You don’t need these things. You’re throwing money away. Invest that cash you’re wasting here and you’ll be a millionaire in 30 years.
Sounds nice. Actually, upon even a surface scratch analysis, it doesn’t sound so nice. The math (and reality) just doesn’t add up.
It’s all about priorities.
Prioritizing your spending. And prioritizing your outrage over your own and other people’s spending.
My priority — distinguishing between sane splurging and living beyond your means:
Splurge: A deal comes along for a $350 plane ticket to Rome. You jump on that shit.
Living beyond your means: You rent an apartment for $1,342 a month. They’re building brand new apartments across the street that’ll go for closer to $2,500. You can’t resist. You give your 30-day notice and take on the more expensive rent.
More distinction — it comes down to how you define living beyond your means.
Technically, it means spending more than you make.
However, a more operational and financially sound definition might be spending to the point where you don’t have a meaningful cash surplus at the end of most months.
If you’re not rich or poor, chances are the best formula you’ll find to achieve that meaningful cash surplus at the end of most months is focusing on keeping your biggest expenses low.
Housing and transportation.
On the latter, don’t be one of these people who takes on the average payment for a new or used car. Definitely don’t be one of the 15.7% who agreed to pay more than $1,000 a month in Q4. Not to mention the thousands they had to part with as a down payment for the right to throw their budgets completely out of whack.
I could do the pizza and beer twice a week (I don’t) and the breakfast burritos once a week (I don’t) and still fall comfortably shy of the $563 average payment on a used vehicle, way below the $717 average on a new vehicle and at least 60% under the pathetic example of what causes so many people to live beyond their means — a $1,000-plus monthly car payment.
And, yes, it’s pathetic. Pathetic that so many people — regardless of how much money they make — are willing to pay that much money for a car. We absolutely have normalized this. And we’re worse off for it, financially and as a society/culture.
Assuming again you make decent or better money, those small expenses on discretionary spending — the things you kinda, sorta need to do to have a life — will have somewhere from zero to very little impact on your monthly budget. However, the big expenses can render you to living paycheck to paycheck, like 63% of Americans as of November, and 47% who make six figures.
The goal — to position yourself so the small expenses amount to a rounding error. They come from what pretty much amounts to your checking account cash cushion. The amount of money collecting dust in your checking account after you’ve paid your bills and saved a little (or a lot).
The fewer bills you have to pay and the lower the number on your biggest expenses, the more likely you are to be able fund ample and completely sane, logical, and healthy discretionary spending — even on coffee, pizza, burritos, and beer — with your checking account cash cushion.
Sure, it’s a fucking ripoff at the end of the day.
That’s one reason why I’m eventually moving to Spain and can’t wait to spend February there (and in Italy).
But I’m not there right now. And I don’t live there yet.
I live in the United States.
And while a lot of stuff sucks about this place I call home, I’m not about to shit on it because food and drink costs more here than it does in Southern Europe. That’s an asshole move. And it ignores the complex realities that account for price differences between cities, countries, and continents.
At the same time, my partner and I will eventually make the move not because we’re rich. But because we’re not rich (not even close!) and would like to do less work while still maintaining a cash surplus that can take us even further amid a better quality of life.
I’m staring at a sub-$400 a month transportation expense (payment, insurance, gas, maintenance). It — and any other debt — makes me sick.
The more of this you shed, the better off you are. Plain and simple.
Also plain and simple —
Debt or no debt. Car payment or no car payment.
Don’t fall for the personal financial platitudes — straight up hyperbole in some instances — that you need to mind your small spending.
You don’t.
As long as you —
Manage to make decent or better money
Set your biggest expenses to their lowest point possible (and, when possible, aim to bring them even lower to non-existent)
Keep modest expectations on the big budget killers
Aim for finding the right balance between work, money, lifestyle, and quality of life
This article originally appeared on Medium. At this link, you can read the excellent responses to the article.
How to live the semi-retired life now with money ideas that provide alternatives to the increasingly elusive goal of traditional retirement.
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