Should I Pay Cash for a Car? – Cash or Finance Car – Financial Tips When Buying a New or Used Car

Should I Pay Cash for a Car? – Cash or Finance Car – Financial Tips When Buying a New or Used Car

well hi everyone welcome to another wealthy and wise Wednesday glad you could join me today hope your week's going great in today's episode and video what I thought I would do is talk about the best way to buy cars and I'm gonna be jumping on to my screen and showing you my screen here as we go along because I've got this neat little calculator that I think will give us a lot better feel for how all this works so what basically the premise is I'm going to talk about how paying cash for cars can be an extremely expensive opportunity cost long term so you're probably been told ever since you were a kid you know never finance always pay cash if you listen to the the Guru's so to speak on the radio they're always going to tell you to pay cash as if cash has no value and what I want to point out is cash has a tremendous value and capital cash we like to call it capital because that's what really gives you opportunities in life is if you have capital if you have cash you've heard the term cash is king well when is cash king well cash is king when everybody else is fleeing and running from a market where you can jump in and take advantage but there's a real interesting you know dilemma here when it comes to paying for cars now let's just put a couple things out there first off I can't really you know address this in detail what I'm going to do is go into this in much more detail in my course that's coming out here in the next couple weeks but that's gonna we're gonna we're gonna really dissect this and and you understand even more in detail but whole premise is this a car is a depreciating asset right I mean I always used the analogy that if I add this great investment for you that it's gonna cost you $100 today I guarantee you in five years it's going to be worth fifty dollars you know how much do you want to invest right that's what a car is it's an automatic asset that's going to be depreciated over the next several years but we're always told to pay cash so we save save save pay cash save save save pay cash how many times we do this in our lifetime and that's what I kind of want to show you on this calculator is what that's really costing you in terms of future value or future wealth because it's very expensive when we pay cash so the other concept that we've talked about before is we finance everything we buy even when we pay cash we're either paying somebody interest for the use of their money or we're giving up interest when we pay cash and use our money so what the obviously the the banking system that we teach kind of is the best of both worlds we finance it ourselves so that when we're paying interest we're ultimately getting that back into our pockets and and so we're using our money and just like the bank would in lending and and paying back so let's jump onto this calculator here real quick and let's see if I can show you a couple things as to what the real cost of paying cash for cars is all right so we're on the calculator and this calculator is kind of neat we we've developed quite a few calculators over the years and this one is the cost of paying cash and again these calculators are going to be part of the course and you'll be able to get on them use them anytime you want but let's just go through a quick little scenario here let's say we've got somebody who's been a good saver and they've they've saved seventy five thousand they also in addition to that save $10,000 a year and because they're very wise savers when they get increases in their salaries at work or when they get bonuses or as they if they own their own businesses as their businesses grow they tend to put in more of that money that that's increased rather than spend it in their lifestyle so we're just going to say we increase our savings by 3% each year we're going to give a whopping rate of return here something that's probably not attainable consistently over time but let's just say you get an 8% rate of return on that money we're gonna go out for 30 years and what we're gonna do is purchase some cars we're first gonna save because we that's what we've got to do so we've got a safe safe safe safe save then we've got cash to pay for the car so we're gonna save for the next five years so we're gonna say in five years we're gonna buy our first car then from that point on what we're gonna do is we're gonna buy a car every let's just say every five years okay now what's really interesting is when we buy cars we're thinking of it in terms of one car but how many families have two or three cars right which means they're probably replacing a car maybe every two or three years we're just going to use one car in this example and a new one being bought every year I'm going to use 30,000 as the has the price of the car we're gonna assume we buy something new but if you've looked around lately $30,000 is not buying a you know the best most luxurious car out there there it's almost an entry-level value anymore well I will just call it a moderate level value so we're gonna pay $30,000 a car and then every five years those cars increase in price so we're just gonna say they increase at three percent just to make it easy and I don't know if you're in a sales tax State or not there's only a few states in the country that aren't so let's just put in 5% for sales tax that might be a little low like in states of like California and then of course for Washington and let's see is it Washington and I can't remember what other states don't have a sales tax oh it's Oregon sorry no Washington does Oregon doesn't and let's just say cost you $1500 a year for this insurance to insure the car and every time you buy a new car that insurance has also gone up by 3% okay so what does this look like what's this telling us over here are our we are our results that's a little hard to say see that three times fast so the future value of your money if you didn't buy any cars would be 2.4 million dollars so that's taking $75,000 that you have today adding ten thousand a year plus and then each year increasing that ten thousand by three percent and then getting an eight percent rate of return again we know those are probably some some out there numbers as far as rate of return but nevertheless you'll get the picture here so you could have 2.4 million dollars had you bought no cars now again we kind of live in a society where you're gonna need a car here and there but let's see what this does to our wealth so the cumulative cost of those cars is three hundred forty three thousand dollars those words this is just a pure cost of the cars but the actual account value has dropped from 2.4 million down to 1.4 million okay so basically those cars ended up costing us nine hundred and forty four thousand dollars now the reason why that is is because every time we take cash out of our account to go pay for a car what's happening is we're losing the opportunity for that money to earn in this case eight percent for us forever so if I take thirty thousand dollars go put it in a vehicle that thirty thousand dollars can never make money for me again and what that totals up to is a nine hundred forty-four thousand dollar true cost of these cars now let's go look at it in detail so we can see exactly how this flows so we're saving saving saving saving our our original seventy five thousand by year five is a hundred and seventy seven thousand we take out thirty thousand dollars for the car and you can see that our lost future value is thirty three thousand nine hundred just in that year and as we go along so our year-end cash value or e or our year-end value after the car purchases is 143 then it grows again to 246 then we take out thirty-four thousand for the next car and now we're down to two forty one and you can see how that goes so again without touching this account we'd have over 2.4 million dollars because of the cost of the cars were down to one point four nine or one point four five nine million those true cost of cars cost us nine hundred and forty four thousand dollars so you can see that cash does have a value paying cash for a car may not make the most sense when we start thinking about the opportunity that that money's going to cost us long term and each car each car paid for thirty thousand dollars let's say I know in five or six years it's probably going to be worth fifteen and so ultimately every time I buy a car I just get further and further behind the wealth that I could have had so again there's ways to combat that and one of the ways to combat that is to create your own banking system to where you're financing the cars you're reaping the wards and you're you're containing that wealth that normally would be lost and bringing it back into your into your control so there you have a quick little calculator on the cost of paying cash for cars so next time somebody says to save and pay cash you're gonna know better you're gonna know you better figure out a better way or this is gonna really make a ding in your wealth long term again we're gonna go into this in more detail we're gonna have several different other examples we're gonna show what would happen if you you made 6% 12% we're gonna show you what happens to how you pay yourself back and if you can even build your wealth further as we go through the course but I kind of wanted to give you a little taste of this calculator and that these calculators are going to be available for those who who have our course well that's it for this video this podcast this episode I hope you enjoyed it hope it was worthwhile hope it really opened up your eyes as always if you have any questions or thoughts comments snide remarks whatever send them to questions at wise money tools calm happy to answer them just as quick as I can and until next week you have a great great week be productive be helpful serve somebody do some good stuff out there in the world and we'll talk to you later take care

20 thoughts on “Should I Pay Cash for a Car? – Cash or Finance Car – Financial Tips When Buying a New or Used Car

  1. Thanks for the video. I’m actually saving for a similarly priced car now and your video has me rethinking paying cash. If I do go with financing, how much would you suggest I put down? Zero? Just curious. Thanks.

  2. I truly learned something from this video, of course my numbers are no way near the numbers in this video, but I've learned, something. I just inherited some money and was going straight to buy a car cash, but now I'm rethinking. still more research to do but, what ever I decide to do will be a more educated decision.

  3. No! Dealers will not make as much profit on a cash sale! No financing, no disability insurance, no gap insurance, etc…

  4. where the hell are you getting an 8% return on cash? And if you need a new car every 5 years you might as well lease. and who is this guy talking to anyway. Someone who saved $75K, has the income to put 10K in the bank and is looking for a $30,000 car doesn;t need this info.

  5. May I ask where you're investing right now that gives 3%? The bank I asked only give me 1.5% for 10000.

  6. This guy wants to earn some interest $$ so he dont want you to buy car on cash. If u planning to keep car for long term buy it cash…..

  7. well $30,000 in the bank is not going to make you money anyways, saving account .1 percent interest or a CD 2 to 3 percent interest. if you get it financed you end up paying interest and the money has to come from some where, which leaves you with not much to save with other finances you end up being a slave to the lender then you have to turn around and refinance for another car and you wont get much for your trade in, but with cash and good maintenance on your cash car you come out ahead because you are not paying interest and the average Joe is not always going to get a good interest rate so you end up paying more for the car than it is worth when you finance the car because you are in debt…

  8. Saying spending $30,000 will only get you an entry level car is ignorant, give me that money and I'll get the car I've been dreaming of for years with an extra 10 grand to put into it, people please think for yourself and don't listen to every youtube video you see.

  9. Interesting, however please show me where I can get 3% let alone 8% on my cash deposits. Also if you look at the added value of a newer reliable car, which is always in warranty and service plan. so no maintenance costs. Clearly changing car often will cost you, but this calculator is more than optimistic and fails to take a number of factors into account. There is no better way to purchase a new car other than 0% financing.

  10. who on earth (who cares about their money) would ever spend $30k every 5 years on a car? Also, in most parts of the US cars are essential, so its more of a need than a want. I would be curious how this would look if you actually took into account realistic numbers. I want to see these calculator with 15-20k on a car every 10 years, because you then can assume even though the cars costs go up over time, you may have some trade in on your already paid off car. Also, what is the alternative you are suggesting? Financing? That will cost you more monthly than having a separate car fund that you know you wont be making money on because, you wont be paying interest which will cost a small fortune on 30k cars every 5 years.

  11. You didn't take trade in value into account, which would be a major factor when you replace a car every 5 years. Net worth would be significantly higher after 30 years with this taken into account.

  12. LOL! Using the static analysis investment return postulation scenario (used by investment/budget gurus) to dispel paying for cars with cash. Using their own tools against them.

  13. This man is completely wrong. I buy my car cash. no car payment. life of no student loan, no credit cards. Live below your means. you job is not promise tommorrow. CASH IS KING. You take out a car loan you lose both ways. You Pay bank fees. what happen if you lose your job. the repo man will be waiting for you.

  14. Awesome video. I try to teach this same thing to anyone I can. Btw is your course out yet? I am currently building an ebay resell curse!

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