The 5 Wealth Killers No One Talks About - Part 2: The Illusion of Freedom

 In this episode of Your Retirement Guide, Certified Financial Planner™ George Jameson, founder of Capital Wealth Group in Columbia, SC, dives into Part 2 of The 5 Wealth Killers No One Talks About. This one might be sitting in your driveway—tune in to find out! 

 Welcome to "The Retirement Guide" Podcast! I'm your host George Jameson, owner of Capital Wealth Group, a Fee Only Advisory firm. Whether you’re nearing retirement or already retired, Join me each week as we explore the world of retirement planning and equip you with the knowledge and tools you need for a successful retirement.

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This is for education only.It is not tax, legal, or investment advice. Before  acting on any information consult your tax, legal, or investment advisor.

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Transcript

George Jameson: 0:18

Welcome back to another episode of Your Retirement Guide. I'm George Jameson, certified financial planner and founder of Capital Wealth Group. Last week we talked about the number one killer of wealth buying too big or expensive of a house and what to do instead. I. Today we're on to part two of the Five Wealth Killers no one talks about. Drum roll please. Expensive luxury cars, SUVs and trucks, the price of driving a status symbol. A lot of drivers today are rolling around in 70 to$100,000 cars. Even though the average selling price of a new car is just under$50,000, which seems crazy. And then most married couples own two vehicles, which can mean a hundred thousand to$200,000 in depreciating assets sitting in your driveway, unless you're earning well into the upper six figure range combined, that extra cost comes at a huge opportunity cost. And I'm not here to shame anyone. I enjoy my car or my truck as much as anyone else. But if you are loading up on payments and not building savings, the compounding effects will quietly erode your wealth. So let's dive in. New vehicles lose value faster than almost any other purchase. On average, new cars shed about 20% of their value in the first year, and a staggering 60% over five years. So a$70,000 new SUV becomes worth roughly$56,000 in 12 months, and closer to 28 to 30,000. Over five years. First, let's look at the total cost of ownership. Owning a new mid-size SUV now costs roughly$13,200 per year. That's$1,100 per month according to AAA's 2024. Your driving cost, study, depreciation and finance charges are the two biggest line items, but fuel, insurance, maintenance, registration, and repairs all add up quickly. Now, if you buy a brand new full size SUV or a luxury car or a full-size pickup, they cost even more easily between 1500 and 1800 per month once you factor in higher fuel insurance and repairs. Now let's look at the smart way to buy a car. At least for most of us. buying used and the three to five year sweet spot. Because of steep early depreciation, the best value is often a three to 5-year-old vehicle. Depreciation slows to roughly 10 to 15% per year, while reliability remains pretty high, especially for models like Toyotas and Hondas, which often retain over 60% of their value after five years. Now let's look at other ways to save when owning vehicles. DIY maintenance and DIY oil changes. Routine maintenance adds up fast, and oil changes are really easy to do so if you have the time, you may want to consider doing your own oil changes. You can buy conventional oil plus a filter for about$30 if you wanna use synthetic you'll pay a little more, but you don't have to do the oil changes as often. Another way to save is when your check engine light comes on or if there's anything that you see that's wrong with your car and you want to save money, skip the dealership. Pretty much any of the auto parts stores offer free vehicle diagnostics. You can scan your codes in two minutes and get a printed report at no cost. That way, you know, if it's just a loose gas cap, bad bulbs, or something more serious before paying hundreds of dollars to a dealer for a diagnostic fee, so here's a quick story. Last year, both of my high beam headlights went out at the same time. Normally, if just one had failed, I would've bought a replacement bulb and replaced it myself, instead, I made an appointment with the dealership. They charged me$150 diagnostic fee. It took forever, but they finally told me I simply needed two new bulbs. The dealer's repair quote was over$2,000. I said, thanks, but no thanks. I, then grab two bulbs for$35 each at AutoZone, you can buy LEDs for a little more, watched a 10 minute video on YouTube and installed them myself in about 10 minutes. So I basically saved$2,000 by replacing the bulbs myself and I'm not super handy. This is a prime example of why if anything goes wrong or you see anything wrong with your car, go get a free diagnostic at an auto part shop first and avoid the dealership for repairs at all costs, unless of course it's under warranty. And now here's a quick tip about auto insurance that very few people know about. insurance claim pitfalls and roadside assistance. On your auto insurance, you had the option to do roadside assistance. You get a flat tire, you need a battery jump, you lock your keys in your car and so on. You think it's just a service that the insurance offers, but it can actually increase your premiums, over time. And even disqualify you from some insurance carriers, depending how many services you've used. Insurance companies record these services as actual claims. Of course, locking your keys in your car is not as bad as getting in an auto accident and filing a claim, but these can add up and can dramatically increase your insurance premium. So instead of using your auto insurance roadside assistance option, cancel it and get AAA membership. AAA service calls don't leave an insurance claims footprint. So your record stays clean and your rates will stay low. Now let's discuss my personal financing rules or recommendations that I give to my clients. So it's called the 20, 3 and eight rule. I'll explain in a second. First, I recommend paying cash for a car since they are depreciating assets. However, I realize that can be unrealistic for many people. And here's the framework. 20 stands for 20% down payment to immediately reduce your financial balance and then the three stands for three years or 36 month term. so then you'll own the vehicle outright more quickly. And then the eight stands for 8% of gross income, which is the max on total transportation costs such as loans, insurance, fuel, and maintenance. Please keep in mind this is just a framework however, buying a new car when the average is almost$50,000, that is really tough for the average family to do. And then you have to include today's average new car rate of 6.35% APR. Let's say you decide to finance a$70,000 new vehicle over 36 months. You follow the rule and you put 20% down, which is around 14,000, that yields you a paymnet of roughly$2,200 per month. That's more than double my first mortgage. Now, if you decided to go out 60 months, it would be about$1,350 per month. But if you can afford it, you'll pay off the vehicle two full years earlier. Save thousands in total interest. And free up your cash flow much sooner for savings, investments and other expenses. And the math works the same whether we're talking about a$40,000 car,$50,000 car, and so on. Now let's look at the opportunity cost of buying new versus used. let's compare two scenarios for someone who can actually afford the$2,200 per month loan payment on the$70,000 car. So the new$70,000 vehicle over a 36 month payoff is 2200 per month. Like I said, but instead you bought a three to 5-year-old vehicle at half the price, which is 35,000. Same vehicle just used, and you have a 36 month payoff. So here you would put 20% down on the used vehicle, which is 7,000. Then you would finance 28,000 at 6.35%, which is roughly 860 per month. So your monthly savings is roughly 1300 per month, which is 16,000 per year. So this is financing a$70,000 car versus a$35,000 used same model car. Now keep in mind the 70 versus 35 may not be exact, but you get the picture. Now let's say you invest just 75% of that$16,000 you saved. Which is roughly 12,000 annually at a 7% average return over 30 years, you would have roughly$1.13 million in investments. All from choosing a lower price vehicle or slightly used vehicle and paying it off in three years. Let's say we just decided to save 50% into savings and spent the rest, you'd still end up with about$750,000. I know this doesn't pertain to everyone, but even if we changed these figures and went from a$40,000 new car to a 20 or 25,000, three to 5-year-old car, the same math works, maybe it's not a million dollars you saved maybe is half a million dollars. That's still a lot of money. Smart spending, especially on depreciating assets, is how you can hold on to more of your hard-earned dollars. Now for your key takeaways and action steps. So number one. Buy a used three to 5-year-old car. Of course, it's important to research the model, reliability, the maintenance cost, and so on of the car or cars you're looking at to purchase. In general, brands like Toyota and Honda often top the list when it comes to reliability and low maintenance costs, but most well maintained vehicles can last a decade or longer. And then number two, pay cash for the car if you can afford it. Or finance it short term, which is three years at the lowest possible rate of course, I would recommend shopping credit unions and comparing those to the dealer rates. And then number three, DIY, basics, if you have the time, learn to change your oil and filters. And I highly recommend using the free OBD two scans at auto part stores before paying for diagnostics and repairs at dealerships or other repair shops. And then number four. Review insurance and roadside assistance. Remove roadside assistance from your auto policy and instead buy AAA membership. And then shop carriers every one to two years. And then number five, invest the difference. Even saving and investing 75% of the monthly difference By buying a used vehicle, it can turn into life changing sums of money over the long term. Now, next week, we'll dive into part three of the Five Wealth Killers No One Talks About. So stay tuned to find out. Be sure to share this episode with a friend or family member. Write a review. Schedule a free consultation through my website@www.capital wealth plan.com. You can also go to ww.capital wealth group sc.com. Thanks for listening and have a great day.