Your car payment is keeping you poor

“Do you wanna be a cop? Or do you wanna appear to be a cop?”

Martin Sheen as Captain Queenan The Departed

In the movie the departed there is a scene where Martin Sheen’s character Police Captain Queenan along side Mark Walhlberg’s Sergeant Dignam are trying to convince Leo DiCaprio’s character to join their undercover unit. In the scene there is a line from Martin Sheen where he asks Leo DiCaprio’s character “Do you wanna be a cop or do you wanna appear to be a cop?”

This relates perfectly to you and your journey towards financial independence. If you are here now, the answer should be pretty obvious but it isn’t always. people often say things but then behave completely different.

So I ask you now, much as Martin Sheen did to Leo Dicaprio in the departed…

Do you want to be rich? Or do you want to appear to be rich?

The Rich live within their means

The rich are rich because they live within their means. They do not buy stuff they can not afford and they do not spend money they don’t have.

Those who want to appear to be rich spend money they don’t have on stuff they don’t need. Cheif among them, their car..

Businessinsider.com has an article up comparing the spending habits of high income vs low income families. You can check out the article here. In the article they compare how much high income vs low income families spend in each category… housing, car, food, etc. They do this as a percentage of income, not a dollar amount. They found that rich and poor people spend about the same percentage of their income on a car.

The one thing they forgot, in my opinion, is to research how they became high income and what they did to become rich in the first place. You don’t become rich by spending 15% of your income on a car.

What kind of cars do the rich drive?

For the last 7 years I have driven my paid off Subaru Legacy. It currently has 165,000 miles and 2 missing hubcaps. The cost per month for the car is currently zero AND I save on insurance because I have no lender requiring me to carry full coverage.

I am an extreme case because I simply don’t care what I drive as long as it is reliable. So what do the rich drive? I checked with a CBSnews.com article titled the 10 most popular vehichles in America’s richest neighborhoods. Here are some of the key findings according to the study which was provided by truecar.com

• The Toyota Prius was the most popular vehicle in Ross and Century City, Calif.
• Of the top five vehicles purchased in Downtown Chicago, none were from luxury brands
• The Mercedes-Benz S-Class was the most expensive model purchased in top ten wealthiest Zip codes
• Manhattan represents the city with the wealthiest zip code and the most popular vehicle purchased was the Mercedes-Benz E-Class while the Honda CR-V rounds out the top five
• SUV’s are popular in Greenwich, Conn. with four out of the top five
• The Toyota Sienna and Honda Odyssey are the only two minivans to make the top five purchased by residents in Medina, Wash.

As you can see, the wealthy are not typically driving cars as a status symbol. They are not driving Lamborghinis or Bentleys, they drive resonably priced cars they can easily afford.

Those who want to appear to be rich buy cars they think make them look rich even though they can’t afford them.

The table below represents the Most Popular Cars Sold in America’s Wealthiest Zip Codes

Wealthiest Zips data based on IRS Tax table, filtered for zip codes with a thousand returns or more. If the particular zip code didn’t have a large enough sample size, it was expanded to include surrounding zip codes. Zip codes are in the file that are associated to the location. *MSRP is based on the most popular trim. **Market Average is estimated based on the national average of recent vehicle transactions, including destination and delivery charges after incentives that are subject to change, but does not include tax, title, licensing, documentation or processing fees, other state and governmental charges and/or fees, or any other charges or fees allowed by law. ***Percent Discount is rounded to the nearest tenth. credit for charted info and research goes to PR Newswire

Average car cost rich vs poor

The average cost for the 10 cars the rich buy is an extremely reasonable $37,775. If you put down 20% and take a loan for the rest at 5% interest over 5 years, the monthly payment on this amount would be about $550.

I tried to find a list of cars middle class drivers buy but the best I could come up with was a list by Autobytel of 10 cars the middle class will love.

The first car on the list, the BMW 3 series at over $32,000. And that is a 2015 price as the article is several years old. The average price of the 10 cars listed in this article at todays prices would be about $32,000. Just $5000 less than the cars the rich drive. The cost per month using the same interest and down payment as the cars for the rich, $483 per month. Just $70 a month less than what the rich are driving.

Not to offend anyone who is middle class and driving one of these cars costing them $500 a month but you have to be freaking stupid to be spending that kind of money on a car.

How much your car is really costing you

To drive my point home I would like to do one more math calculation.

If you are one of the many middle class who are driving more car then you can afford, you need to know exactly what it is costing you.

If you start driving at 17 years old and take $480 a month loan for the next 38 years until you are 55 you will spend $218,000. If you instead invest it into a simple s&p index fund which grows 7% over 38 years, you would have a million dollars by the time you turn 55.

Again I ask, do you want to be rich? Or do you want to appear to be rich? In my opinion, the decision is an easy one.

Earl