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In this episode of The Personal Finance Podcast, Andrew breaks down exactly how to buy a car in 2026 without wrecking your finances, covering why paying cash for a depreciating asset is almost always the smarter wealth move, the 20-4-12-10 rule and why it changes how you think about every car purchase, how to protect yourself from being underwater on a loan, why gap insurance is a band-aid and not a strategy, the difference between thinking like a borrower versus thinking like a wealth builder, why the monthly payment question is the wrong question to ask, how total transportation costs quietly destroy budgets when you ignore insurance, fuel, and maintenance, and why keeping your car for 10 years or longer is one of the most underrated wealth-building moves you can make.
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Transcript:
On this episode of the personal finance podcast How to What's up everybody?
And welcome to the Personal Finance Podcast. I'm your host, Andrew, founder of mastermoney.co. And today on the Personal Finance Podcast, we're going to dive into how to buy a car in 2026. If you guys have any questions, make sure you join the Mastermoney newsletter by going to mastermoney.co/newsletter.
And don't forget to follow us on Apple Podcast, Spotify, YouTube or whatever podcast player you love listening to this podcast on. And if you want to help out the show, consider leaving a five star rating and review on Apple Podcast, Spotify, or your favorite podcast player. Now today we're going to be diving into how to buy a car in 2026.
Now, our goal is we're not going to take you step by step on how to find the best deal at a dealership or how to make sure that you are following the right process when you're ready to buy a car. What we're going to be talking about here is how to make the best financial decision for your situation. We will do another episode in the future on some of the tactics and tips with some car buying experts on how to buy a car and get the best deal when you're looking at a dealership.
Because right now, as you and I both know, cars are at their highest level that they have been in a very long time. And so we need to make sure that we do not make a mistake when we are buying something like a depreciating asset. So if you don't know, cars go down in value over time. And in fact, over the course of the first couple of years, cars can go down 20 to 30% for a brand new car.
And over the course of five years, they'll go down 40% in value, meaning you are losing those dollars every single day. They are liabilities that are not something that you want to over spend on. In fact, you can get yourself in some really bad financial situations if you do this.
Now the perfect way to see if someone is in a middle class trap is if they live in a middle class home and they have two really nice cars sitting in the driveway. Because you know, both of those cars are typically going to have very large payments and they are going to be someone who is most likely broke.
And so I don't want that for anybody listening to this podcast. I don't want that for any wealth builder out there. And instead, what I want you to do is make sure that you are wise when it comes to buying cars and make sure you are doing this in the right way. So we're going to go through today the frameworks and the way to think about buying a car.
How to make sure that you're not spending too much on a car, How to make sure you're not spending too much of your income on a car. How to ensure that you know how long to hold that vehicle, how to make sure you understand how much to allocate towards maintenance and expenses, how much to put down on vehicles and the optimal order that you should consider when you are thinking about buying a car.
And so this is going to be an action-packed episode. I am really excited to dive into this. So we're going to jump to a quick break and then I'm going to get right to it. This is an action-packed episode. So without further ado, let's get into it. All right Now, the first thing I want to talk through is the first way that you should consider buying a car if you want to figure out what the optimal way is, is to consider cash.
Now, there's going to be a lot of people that are going to argue with me and they're going to say, hey, well, what if there's a really low interest rate, then why would I utilize cash? And we'll cover that as I go through this, but cash is by far one of these strongest ways to buy liabilities. The reason for this is because liabilities go down in value over time.
And so when we look at utilizing cash, that means we're not going to over or extend ourselves in a number of different areas. So car loans typically have an interest rate anywhere from 6 to 9%. Right now, a lot of people could be paying a little bit less. If you buy a brand new car and maybe get an intro APR of 0.9% or something else, that could be a situation that makes a ton of sense.
But if you are looking at cars that are anywhere between 6 to 9%, that is a big deal. Let's say, for example, you finance a $30,000 car at 8%. Over the course of five years, you're paying thousands of dollars extra for a depreciation appreciating asset, something that goes down in value over time.
And because cars go down in value over time, we want to reduce the amount that we have to spend on those. Now a bunch of reasons why you want to do this is a 1. You avoid that interest, but two, you eliminate monthly payments. Now this is the biggest reason and one of the biggest areas that can really, really help people.
Let's think about this for a second. If you had no monthly payments on this depreciating asset, that gives you more room and flexibility to do a number of things. One, it gives you more room and flexibility to be able to take those extra dollars and put them towards wealth building activities. If you need to build up your emergency fund, fantastic.
You can start to do that with the extra payments. If you need to make sure that you are maxing out your retirement accounts, you can use this money to do that. Or if you lose your job, you are not a slave to your car payment. Meaning you're not going to have to go out and try to figure out how am I going to make my car note and my mortgage payment or my rent and all of these other bills.
No, it just reduces your overall overhead, which is a really, really powerful thing, especially when you really want to make sure that you are covering these areas. And so this gives you more flexibility and less stress around that area. Next is you force a smarter buying decision because if you are not borrowing money, that means you are most likely buying the vehicle smarter.
Now a lot of people when we talk about buying cash will say how can I come up with that much cash? And this is not for everybody, but this is for the folks who do have extra cash on hand who are considering this because it's going to help you make a smarter buying decision. Instead of going out and buying a luxury vehicle, maybe you go out and buy the Honda.
Or instead of going out and buying the brand new super sized SUV with every single bell and whistle inside, you go out and you buy the Toyota. This is an area where I think a lot of people need to consider buying cash, especially if you were early on in your wealth building journey because nice cars and making sure you can drive things and live like nobody else is earned.
This is an earned thing that you can have over time. And I want that for every single one of you. I want all of you to be driving really nice cars, but at some point in time, we have to make a sacrifice. And so this is something that I think most people out there need to understand. Used is a great option as well.
And for those who are considering used, if you can pay cash, it is a really, really great deal. But also you reduce risks because if you lose your job or if your income drops or if the market has some big issue, you you want optionality and not having a car payment gives you a ton of optionality.
I just love the fact or I love the idea I'm not having a car payment. It is the best thing ever. In fact, I am in the camp that I don't really ever want a car payment ever again. It is one of those things that once you get to a certain point, you're like, I'm just sick and tired of having debt on hand. Now, Andrew, what would you do if someone offered you a car or a vehicle and you could finance that vehicle at 0.9% interest?
Well, for me, I'm going to say this right now. I'm not an idiot. I would absolutely take that. That is something where it is almost free money. And so because of this, I'd rather put my dollars in the market. That is a good argument and it is argument that I agree with. If you get a really low interest rate, then absolutely.
But are you getting that really low interest rate? And typically This is why because you're buying a new vehicle, new vehicle are way more expensive. There's a lot more depreciation hits that you were going to be taking. And that is a big, big deal. And it is really a multi million dollar decision if people continue to buy new vehicles all the time.
And this is a fact. I have never owned a new vehicle in my entire life, ever in my entire life. As someone who has built wealth, as someone who has focused his time and energy on making sure I can live like no one else, I have never bought a new vehicle in my entire life. And there's nothing wrong with buying a new vehicle.
And we're going to talk about the parameters around that and how to think about that. If you are going to finance a new vehicle, for me, there's not a ton of value in it. Instead, I like to look for vehicles that have been a couple years used where they have taken that depreciation hit of 20 to 30% and someone else has paid for that depreciation.
And then I get to acquire the vehicle and not have such a big depreciation hit because most people out there don't know. Depreciation is the number one cost that you are going to incur when you buy a vehicle. And so you want to make sure that you defer that as much as you possibly can. And so when it comes to reducing your risk when you buy a vehicle cash, this means that you're going to be more disciplined in your approach because you only have so much cash on hand and you can't just overextend yourself because of emotions or because you see all the bells and whistles and realize, oh, I want this.
Every single car I'm looking at has all these brand new, new bells and whistles now. It keeps you disciplined and it makes sure that you avoid being up sold. And that's the number 5 is because car dealerships, their job is to upsell you. They will upsell you left and right. If you bring your car to get repaired at the car dealership, they're going to try to upsell you, but also if you go and try to buy a car, they're going to upsell you the entire time.
But if you only have a certain amount of cash on hand, you are good to go. And car dealerships are notorious for giving bad financial advice. They'll tell you to stretch out your payments longer. They'll tell you to get the warranty. They'll tell you to do this and that. And all the different light items that they pursue for you to actually buy into are going to be things that you really don't want to do.
And so you may need to make sure you're educated. You need to make sure you're prepared. I don't want you getting up sold in the financial office. Paying for cash also just gives you Peace of Mind. So if you really, really value that, that is going to help you in that area. But most of us don't have the ability to go out and pay cash. Most of us do not pay cash for a car.
We need to make sure that we understand the rules when we are going to go finance a car and we are going to talk about those rules next. All right, so if you need to finance a car, I'm going to introduce you to our rule called the 2412 ten rule. Now, the 2412 ten rule we have talked about on this podcast before, but we're going to dive deep on it in this episode for 2026 and look deeper into exactly what we need to do.
OK, so let's start with the first number, which is 2020 stands for putting 20% down on your vehicle. And the second you drive your car off the lot, the very second that you leave, your car appreciates immediately anywhere between 15% to 25%.
Now usually domestic vehicles, regular old Toyotas and Hondas and Fords, they're going to depreciate closer to that 15% range. If you drive a luxury vehicle, it is going to fly off the lot at closer to that 25% range in the first year. This means that if you buy a $40,000 car with very little down, you are literally going to owe $38,000.
But your car when you drive it off the lot is going to be worth about 30 to $1000. This is called being underwater. When you drive your car off the lot and you owe more than the car is actually worth, you are now underwater on that vehicle. And this is where a lot of people can get financially stuck because if a problem happens with that vehicle and you are underwater on that car, you have yourself a financial problem.
So let's say for example, I'm going to give you a worst case scenario here on why we tell you to put 20% down because most people scoff at this and they say, no, I'd rather put that money in the market. I'm not putting any cash into a depreciation getting asset, but let me explain why because we have seen this happen with a number of folks. So let's say that you put 5% down on a $40,000 car and then you finance the rest of the vehicle.
OK, six months later, you're driving down the road and you are texting on your cell phone and you run into the back of someone's vehicle who's at a stoplight. You didn't see the stoplight coming. You were trying to text back your spouse and say hey, I'll be home for dinner at X amount of time.
And then all of a sudden, boom, out of nowhere, you run into someone else's vehicle. Everybody's OK. We're going to make this a OK scenario, but your car is completely totaled. Here's the thing you need to know. Insurance is going to pay what the car is worth. They're not going to pay what you owe.
So that means that you were going to be on the hook. So let's say that the car is worth $30,000, but you currently still owe $36,000 in the vehicle. What that means is that you're going to be writing a $6000 check to the finance company to make sure that you can fully pay for that vehicle.
And this is to get out of a situation of a car that you don't even have any more. This has happened time and time again, and that is a really, really bad day to have. So 20% down dramatically reduces this risk. It gives you equity and it gives you cushion. Now, if you're the type of person that doesn't want to put 20% down, but you want to put the money aside in cash into something like a high yield savings account or something like that, then maybe you can make an argument there.
But most people aren't disciplined enough to do that. Most people aren't disciplined enough to carry their own insurance like that. And so if you are not going to put 20% down and you're not willing to put 20% to the side if you don't want to put it down on the vehicle, then there's another option that you have available to you, which is called GAP Insurance.
Now GAP Insurance is an insurance that you can put into place which is called guaranteed asset protection. So it covers the gap between what your car is worth and what you actually owe. Let's use the previous example. So if you owe $36,000 and your car is worth $30,000 and that gap is $6000, they would cover the difference.
But if you buy it at the dealership, it would cost anywhere from 500 to $900 upfront. And most likely it just gets rolled into your loan, which means you are going to be paying even more interest on that. Now some other companies offer it even cheaper. You can find it cheaper in some specific locations, but you got to do your homework if you're going to get GAP Insurance.
And the thing about GAP Insurance is it's not a wealth building activity. This is just a Band-Aid. But it is something that you could put into place where they will cover the difference if you don't have the cash on hand or if you don't have that available. But here's the goal is if you are going to finance, try to at least save up 20%. If you know you're going to get a car in the next couple of years, now is the time to save that.
But second is if you roll over or you have a trade in, a lot of times that can help cover your 20% as well. If you have a trade in that's worth $10,000 and you are buying yourself a $40,000 car where you put 25% down right there, then you should be a OK if that is the case.
And so your trade in 20% down GAP Insurance or cash are going to be some of the big things that you want to think about for this first number, because I don't want anybody underwater and they're having to pay out of pocket for that vehicle. Then it's just never a situation that you want to be in because you are just throwing money out the window. So when you do that, OK, So that is a big, big key overall.
Now, again, if you buy a used vehicle, this is less of a problem because it will depreciate over time, but it's not going to depreciate as fast. So new vehicles will see this depreciation, used vehicles will see less depreciation. So even when I went out and bought my vehicle that I'm driving now, I drive a 2018 Ford truck, OK.
And when I bought this vehicle that I am currently driving, which I'm going to drive into the ground, I'm going to drive it till it dies. My son right now is 7 years old. I think I'm going to try to drive it till he's 16 and he can drive his reverse vehicle. We'll see if I can do it, but we're going to try when that happens or when I bought that vehicle, I bought it used.
So when I bought it, I got it for 30% less than it was actually purchased new with 13,000 miles on it. The depreciation hit was there and somebody else paid that depreciation. And that was a situation where I found this was a really, really good deal. Now, luckily, I bought it in 2019.
It was a year old. It was before COVID and the prices spiked. And so now that's why I'm not shipping out this vehicle at any given time whatsoever. It's fully paid off. Never, ever looking to take it on another car payment. And so that is why I'm in that situation where I'm just going to drive it forever. For used vehicles, you can see how much depreciation hit is there and you don't have to put as much down when you're looking at that.
All right, now let's go to the second number because again, to review, we did 20%. Now we have 412 and 10 left. So let's dive deeper into these numbers. What does the four mean? 4 means that you are going to take a car loan on for four years or less.
A core is an appreciating asset and so if you are stretching out payments longer than they need to be for 5678 years then you are doing something unnecessary. 1 is when you stretch out a loan you're going to be paying more interest. So over that time frame, you could be paying thousands of dollars more in interest depending on how long you stretch a loan out.
For people who are not financially educated, a lot of times they want to stretch out a loan 2 As you stay underwater longer, when you are stretching out payments, meaning that you're not paying off the car fast enough, especially if you don't put that 20% down, you are not paying down the principal fast enough for you to be able to catch up.
So you are underwater on that car for longer periods of time, especially when you are buying a new vehicle. 3 is you trap your cash flow, meaning that when money comes in, you have to drive through traffic to work, go to work, work all day, drive through traffic home, come home to pay somebody else and make sure you can pay your car note.
And so this is a situation where you want to reduce the time between when you start a loan to when that loan finishes. You want to reduce that time as fast as you possibly can. Typically, we want to look at the interest rate too, but typically this is because then you once you pay this off, you can take those extra dollars and put them towards your investments or wealth building activities.
And so having no payments is very, very important. And then #4 is if you do have to end up getting a new car, you increase the odds that you could roll negative equity into the new vehicle by stretching out those payments. That's the last thing you want to do. A lot of people now are rolling negative equity from their vehicles because vehicles are so expensive into the next one.
And that is not something you want to do. Where I talked about if you have a trade in, that's fantastic. You can use that for your 20% down. A lot of people are negative on those and that really doesn't work out for them. And so really, really important that you make sure you don't stretch out that payment. Now the dealership is going to try to get you to stretch out your payment.
In fact, every time I do this, I say I want four years or less on a car loan. And they come back to me and they say, Oh yeah, but what? Why don't you just stretch it out? Your payments are going to be lower and then you can just make those extra payments. They always say this, you can just make those extra payments, but this is something you don't want to do, especially if you know yourself and you know you're not financially disciplined to make those extra payments.
You want to make sure that you just make it four years or less. That is our rule because we don't want you carrying payments forever. We want you to have long periods of time where you do not have a car note. You should not have it. The majority of your life should not be car payments and that's what I want you to know. You should have more of your life without car payments then having car payments.
And that's what I want for each and every one of you is to make sure that you understand that. But I'm going to give you an example because I want to show you this example and this is from Caleb Hammer's podcast called Financial Audit. But I want to show you this example of exactly how people think and how people look at this when they are thinking about how long they should carry a car payment.
Let's look at it here. An 84 month car loan. What? 84 month car loan I. Want to lower payments? You know that's not how it works. You are paying more in interest over time. 2024 Kia Sportage and it is $638.70.
That's an insane car payment for seven years. I feel like 600 is a normal car payment. Oh, I'm going to refinance it when rates go down. OK. If rates go down. When rates go down, they will go down for sure.
What? Yeah, If I can't refinance, then whatever. If I can, awesome. Whatever, I have an 84 month loan, I'm going to be 40 and I finally paid off my car. And. You know 39,000? That's worth 31,000. And this is the sad reality. This is how people think that if you stretch out your car loans, you're going to reduce those monthly payments.
And now I can afford the vehicle. So I want to explain something to you, OK. If you look at the monthly payments to see if you can afford something, if you look at the amount that you were paying every single month to see if you can afford something, you are looking at the wrong numbers. What you need to look at is total cost of ownership.
Total cost of ownership is when you look at that vehicle, can I actually afford this vehicle? And we're going to talk about what that means in a second. And can I also afford all the costs associated with it? But most people think about it this way. They want to stretch out their payments so that they're just paying overtime. And Caleb gives a great example here.
So you're finally going to pay this off 7 years later when you're 40? And she said, yeah, so. My friends, that is a great example of someone who is not financially educated, someone who does not know what they are doing, and so I don't want that for you. So each and every single one of you out there needs to understand total cost of ownership when it comes to a car, and you need to understand how much you need to pay in maintenance and how much of your income should be spent on car payments if you're going to take on a car payment.
We're going to talk about that right after this break. All right, so now we're going to get into the next number, which is 12. We just talked about the number 4, which means you have car payments for four years or less. And if you can't afford the car payments condense down to four years, then you can't afford the car. But now we're going to talk about how much can I afford every single month in order to make sure that I don't overextend myself on car payments.
So the number 12 is going to give us that indication. So the number 12 is actually split up between 2 numbers. It is 7% and 5%. So the 7% represents 7% or less of your income needs to be spent on your car payment. This is going to help you not overextend yourself on a vehicle and this is going to make sure that you are controlling your expenses every single month.
We do not want a big portion of our income every single month going towards our car payment. And so 7% or less is where we want that payment to be. The down payment is going to help with this significantly. If you put that 20% down, it's going to help with this significantly. So you can fit it into that box, but if you cannot fit it into that box, really for the most part, you cannot afford that vehicle.
The second number is going to be 5 percent. 5% or less is going to be overall maintenance costs. This is going to be the maintenance of the vehicle. So first, let's talk about the 7% number. OK, what does this do? Well, first prevents overbuy and it forces discipline.
This means that you don't overextend yourself because overextending yourself could mean adding in the leather seats, it could mean adding in the cooling seats, the heated seats where they will give you upgrades that really are not worth the cost. And so this will help you make sure that you stay in your lane. Or if you have a high income, it shows that you can afford some of those nicer cars, but it also keeps your payments proportional to your income so you don't overextend yourself and it reduces your overall financial stress.
See, people who are financially stressed, a lot of them are overextending themselves on their transportation cost. Cars cost enough as it is to maintain for gas, insurance, everything else. And so this is an area where you got to make sure that you are looking at this. Now, why is focusing on this monthly payment a mistake?
Because a lot of people, instead you need to focus on the percentage of your income and you need to make it four years or less. Why is it a mistake to focus on that monthly payment? 1 is that payment can be easily manipulated. If you extend your loan out over the course of six to eight years, that payment all of a sudden is manipulated and you're paying way more for that vehicle. 2 is it ignores the total cost.
So we have a a total cost of ownership calculator. If you go to mastermoney.co/resources, you can find a total cost of ownership calculator for buying a vehicle. I want you to check that out if you are looking at buying a vehicle because that's going to help you step by step figure out exactly how to do this. Three, is it fuels lifestyle inflation or lifestyle creep?
It is going to be the bane of your existence to stretch out those payments because your lifestyle just going to continue to creep up over and over and over. And what it does is it hides opportunity cost. And so it's one of those things that you want to make sure that you are not looking at this. Instead, you need to ask yourself a couple of questions.
What percentage of my income is this payment? 2, What is the total cost? That is the second question you need to ask yourself. 3 How long am I locking up my cash flow? It needs to be 4 years or less. And four, what am I giving up to own at this car? What is the trade off I am making here to buy this depreciating asset or this vehicle?
Now let's talk about the second part of this equation, which is 5 percent. 5% was put into place because there are certain vehicles out there where the maintenance cost is much, much higher than other vehicles. So luxury vehicles are the biggest culprit for this. And if you own a luxury vehicle or you've ever owned a luxury vehicle, you know the pain of what the maintenance costs are.
I'm talking about Mercedes, BMW, Acura, Lexus, and anything above those tiers. All of these vehicles are going to cost way more. For example, a Mercedes oil change is going to cost you thousands of dollars every single year just for the oil change.
If you need new brakes, forget about it. If you need new tires, forget about it. Everything is more expensive on these vehicles. Sure, they are performance machines, I get it. But at the same time, if you're looking to build wealth, it is really, really hard to justify some of those costs if you're living paycheck to paycheck or not saving for retirement.
So what is the 5% cover? Well, this is going to cover all the extra costs associated with your vehicle insurance, fuel oil changes, tires, brakes, repairs, registration, all the other costs associated with your vehicle. This is going to get you to 12% total between your car payment and all the other costs associated. 12% total of your income is what you want to be spending.
Now you can flex those numbers in any which direction you want, but not going above 12% between those two categories is the big key. This is why we put them together because you can develop a range. Maybe your car payment is 10%, but your maintenance costs are only 2%, or maybe your car payment is 4% because as you bought a used luxury vehicle and so you need the extra cushion for those maintenance costs.
Well, it depends on what you want to do, but that is going to give you the flexibility as you got to stay within that 12% range on transportation costs every single month. You don't want to be spending more than that, and I would like you spending less than that if you can. Cash eliminates a big chunk of these costs and then you just have the maintenance costs, which is why we like that.
But if you are going to finance a car, you want to make sure that you have this range. All right, now let's look at the final number, which is 10. What does 10 mean? Well, 10 is the 10 year rule when you go and buy a car. I truly believe that when you buy a vehicle, you want to look at this vehicle and make sure that you can drive this for a long period of time.
You can see that it becomes harder and harder to overextend yourself as you go through each of these numbers. And my rule is you need to drive the car for 10 years or longer. Why do I want you to drive that car for 10 years or longer? Well, first let's go down the list #1 is you just spent four years making car payments.
So if you drive it for 10 years or longer, that means is you're going to spend more time of your life without car payments. So six years, you will not have any car payments whatsoever. Why is this amazing? Because then you can take those extra dollars and either save for your next car or you can pay cash for it #2 Is you can take those extra dollars and save your down payment #3 Is you can take those extra dollars and put them towards wealth building activities like your retirement accounts and, or putting them towards making sure that you are building up a ton of wealth.
And #4 you can put them towards things that you actually value. Maybe you want to put it towards that, a house down payment, or maybe you want to put it towards vacations or maybe you want to put it towards other things that you love. This reduces your overall liabilities which is going to help you build wealth because debt is the enemy of wealth building.
And if you can eliminate as much debt as you possibly can for a long periods of time or big chunks of time, that is going to help you tremendously when it comes to building wealth. And so we want to have more time periods where we are not making car payments then we do having time periods where we are.
And so six years at a minimum is what you will get if you drive that car for 10 years and you follow all these other rules. A true wealth builder move is to drive cars for long periods of time. See what most people do on average right now. Studies have come out that on average people upgrade their cars every four to five years.
Why? Because A, they get that new car smell. They want the latest tech in a vehicle. And it's very tempting. I get it. It's tempting to want to upgrade your vehicle because there is a bunch of latest tech. Maybe there's self driving mechanics, maybe newer cars. They have amazing cameras all the way around the car, car.
They have so much more that is very, very enticing. And that tech just improves every single year. Maybe it's for a status symbol. You want to impress other people. You want to make sure that people know, hey, I am someone who's doing well. I've got a nicer car and I just keep upgrading my car over and over and over again. Maybe you say to yourself, I deserve it.
This is something I deserve. I've been working really, really hard and so I want to continue to upgrade my car. Or maybe you're just a car person. And if you're a car person and you're allocating your dollars towards those things that you value, I don't really have a problem with that whatsoever. If you are taking a portion of your income, so you got to flex on something else in your life.
If you are overspending and then you also have big, big car payments and you're upgrading your cars all the time, well, that's a different scenario. But if your passion is cars, I get it. That is something where you can spend your dollars on things that you value. And that is going to be something where you're not going to get judgement. For me, I want you to live the life that you want to live.
I want you to live your dream life. I want you to do what you want in this life. That's what money is there for. Money is a tool to get what you want in life. But at the same time, if you are upgrading every four years but also not building wealth, that is going to be a huge problem. But there are other costs that are associated with frequent upgrades.
One is you're going to pay sales tax again. So every single time you upgrade that vehicle, you pay sales tax. You're going to pay title and registration costs again. You enter into a new loan every single time you have to restart that loan. You often get into negative equity every time you do this. And you keep paying higher and higher insurance because every time you buy a new car, well, that car is going to cost more.
Your insurance premiums are going to go up. And so the costs are way greater than just the car loan and the cost of the car. It is everything else associated with this, which is why you must run total cost of ownership every time you buy a car. But keeping cars for 10 years or longer means that one, you eliminate the car payment sooner, meaning you're not going to have car payments forever.
Again, you're going to have those long periods of time where you don't have car payments. Two, you redirect the old car payment into investing. That's the real reason why we want you to do this is because you can take those extra dollars and invest them. And if you're young, making sure you do this is so, so incredibly important. But let's compare two people.
Let's look at this simple math here and what's going to happen. Person A upgrades every five years. They pay $500 per month on a car loan and they refinance every five years and they have never ever had a paid off car. Every five years they restart that payment.
And So what that means is that over the course of ten years they have been paying $500 a month for 120 months or $60,000 / 15 years that's $90,000 and over 20 years that's $120,000 just in payments. And remember, this is before insurance, maintenance, tax, title, all the other costs that are associated with this.
But person B, they keep their car for 10 plus years and so they have the same monthly payment while financing. But after year 4, they're done. So their car's paid off, their payment drops to zero, and those same $500 a month payments now go into investments. Let's assume they have $500 a month and they have a 7% annual rate of return.
Over the course of ten years, that becomes $91,500 in investment growth. After 20 years that's $258,000 just at a 7% rate of return. But we know the S&P 500 over the course of the last 30 years has gotten 10%.
So the opportunity cost here is absolutely massive. This is a six figure decision to buy your vehicle, right? It is a 7 figure decision over the course of your lifetime just to drive your car longer, just to forego 1 upgrade every decade. That is how big of an impact this truly has.
And so you need to make sure that you know, know the opportunity cost or the trade-offs that you have in place when you are thinking about this. I don't want you to be car poor. I don't want you to be the person that has a really nice car in front of the shack because that is exactly what we see a lot of middle class Americans do.
The bigger picture is this upgrading every four to five years keeps you in payments. It locks up your disposable income, your extra dollars that you could be putting towards wealth building. It limits your investing power and it creates lifestyle inflation. Now, keeping a car 10 plus years eliminates payments after for it, frees up your cash flow, it allows you to have flexibility and allows you to do what you want during that time frame where you don't have to work so hard to go pay off that car.
Note the key principle is this. Cars are depreciating assets. So putting less dollars towards those cars is going to be normally what you want to do. Now. I want you to have a safe, reliable vehicle. That's not what we're saying here. We want you to have a safe, reliable vehicle. We want you to get, you know, if you have kids, getting a bigger car I think is a must.
I think it is a must in 2026 when every single car is large. It is safe to get that bigger car and so you need to prioritize safety for you and your family first. But at the same time, making sure you fall into these parameters is very, very important so you do not shoot yourself in the foot financially just for a depreciating asset.
That is the peak key. Overall, people who don't follow parameters like this, they are the ones who live paycheck to paycheck. They are the ones who struggle with their finances. They are the ones who are never going to get ahead financially because they make decisions just like this. But when you are clear on what you want and what you need to do when it comes to your money, that will change everything, which is what wealth builders do and what wealth builders understand.
They know that every single choice that they make has a trade off. It has a multi $1,000,000 trade off in this scenario over the course of their lifetime. And so they know they need to make sure that going forward they are going to buy cars, right? Listen, if you want to learn how to think just like a wealth builder, you want to reduce the stress and anxiety around money.
You want to have a step by step plan in place that is going to help you build wealth for you and your family. So that you can be the first person in your family to actually be wealthy. So that you can be the person in your family that changes your family tree, so that you can be the person that will truthfully change your financial life forever.
Then I would invite you to join Master Money Academy. Because in Master Money Academy, we teach you step by step exactly what to do with your money. And when you get stuck, we have weekly coaching calls every single week with me personally where I answer your questions. Not only that, we have a community of people who are all working towards building wealth.
You can openly talk about money and have money conversations and people are going to help you out. And that is the big key overall is that Master Money Academy is a place for wealth builders. People who are focused on building wealth, who want to become financially free, who want to retire early, who want to become financially independent.
But not only that, they want to get rid of their stress, their anxiety, and actually have hope for once in their life. You can build wealth. You can become a millionaire. I believe in every single one of you. So down below, check out a link for Master Money Academy. We have a special trial offer for those who are podcast listeners because I want you to see behind the curtain.
I want you to see what it's like inside Master Money Academy to be in this community, this community of people who are all looking to help each other out, who are all looking to help each other build wealth. This is the place to be if you're interested in that. So thank you so much for listening to this episode.
I truly appreciate each and every single one of you. Share this with someone who you know needs help when buying a car and I'll see you on the next episode.
