The “average car payment” has gotten eye-watering lately. $789 per MONTH. The high payments are caused by a combination of increased cost of new cars (up to $39K compared to $25K in 2009) and increased auto loan rates (averaging around 6.4% compared to around 4% just a few years ago).

Higher car prices plus higher cost to borrow money equals OUTRAGEOUSLY high monthly payments to buy a new car.

I borrowed money for a car ONCE back in 2005. I’ll never do it again. I ONLY buy cars in cash, and I suggest you do the same. Borrowing money to buy a car is a quadruple whammy of losing money:

1. Buy something you can’t afford
2. Pay MORE money to borrow the money for that thing
3. The thing you buy PLUMMETS in value
4. Huge opportunity cost of not INVESTING that money

It’s WILD to me that I’m sitting here typing while so many people out there are making $789 car payments (or MORE… remember that’s the AVERAGE) while many of them are not investing. Everyone loves to hate on the “skip your latte” financial advice. Wanna hear a piece of financial advice that will actually make you a millionaire? DON’T BORROW MONEY FOR A NEW CAR. Instead, buy a cheaper used car in cash. Drive it into the ground. It’s not too hard to get an average cost of car ownership around $200. Compare that to $789, and you’ve freed up $589/month. Invest that, and you’re easily a millionaire over the course of your driving years.

But what if you were gonna buy the car ANYWAY, might as well get a loan, right? Nope. I don’t buy it. First, when you’re forced to pay up for the whole car it almost certainly will change your perspective on how much are you should be buying. Monthly payments lull you into think it’s a good decision, when it’s really keeping you broke. Next, it’s not some clever financial move to utilize a loan for a car. Rich people often talk about “leverage” gained from loans. That only works when the thing you buy GOES UP IN VALUE. “Leveraging” a depreciating asset is like borrowing money so you can buy more losing lotto tickets. Don’t do that.

As always, reminding you to build wealth by following the two PFC rules: 1.) Live below your means and 2.) Invest early and often.

-Jeremy