The average car payment in America is $493 per month or $5,916 a year. It’s one IRA account ($5,500 maximum in 2017) plus $416 extra towards your debt payment, investment, kids college or vacation.
Today I am going to tell you our car payment story, a story about Russian Family
buying financing a car in the States. Are you ready? Here we go…
In Mother Russia
We are not car people, at least I am not. I don’t care what you drive, how much it cost and what features it has. The most important part for me that it drives and doesn’t brake a lot. That’s all I care about. So far we’ve owned three cars only: two in Russia and one, the car, in the States.
Our first car was 2004 Mitsubishi Lancer. Great car, we called it “Mishka” [‘Mi:shka] (Don’t ask why, Russians are weird). It was my wife’s business car that we got a chance to buy from her employer with a huge discount.
A year prior moving to the States we bought our first brand new car. It was a Russian car, a mix of a military tank and a wagon – NIVA 2131 – great car, every day was an adventure.
The very first week after purchasing this tank it helped with evacuation from a flood.
The next week after the flood, the whole wiring system lit up and I had to wait 2 months until it got fixed. Great car, great experience if you like adventure driving.
Living The Dream
The very first day after we moved to the States we realized we need a car. And we found it, the great looking junk driving car – 1998 Toyota Corolla for $1,500 with almost 150K miles under the wheels. It was really great car: low MPG, cheap insurance, cassette player, shitty exterior and ripped interior. But it was paid off car – it was great.
Six or eight months after we bough this car the shock absorbers were broken, in addition to that the engine had several “minor issues” like cracked gasket, leaking oil and some change. So, we needed another car. At that time we had saved $8,000 and after selling our Toyota for the same $1,500 we could have had $9,500 for purchasing another car for cash. Sounds like a great plan, right?!
In Soviet Russia we make troubles for ourselves and fix them with a great success.
It could’ve been a great plan if we followed it, but we didn’t. We started asking question what our American friends would do, and all people we spoke with told us the same. They told us to buy finance a car. “Just take a car loan, it’s not a big deal. Do you really think people buy all these fancy cars for cash? No, $400-500 per month you can drive this beauty, and 3 years later, you can trade in your car and get a new beauty for the same $400-500. Isn’t it cool?”
And don’t get me wrong, I am not complaining at all, and don’t blame anyone but ourselves.
We decided to take a brake and think again about borrowing for a car, for us it wasn’t an easy decision . First of all, it was a psychological issue; we had never had a car payment before, we even didn’t feel comfortable using Credit Cards prior to that. We actually never used them. But every day driving our old car, every small bump or a hole on the roads convinced us to take a leap into car payments. We were looking for excuses to finance a car and we found them.
“We can take this car payment and drive this car for 10 years instead of 3 years and that’s fine” or like this “It’s only 3% interest comparing to 15% that we would’ve paid in Russia” And we did it.
I remember that day, we went to a local dealership “just to take a look”, just to check the options. And three hours later we were driving home our brand new 2014 Dodge Journey SXT worth $39,4000 just for $524,84 per month. And hey, we even didn’t have car payment for the first two months. How cool is that, driving a brand new car without even paying for it!
The next day was a financial hangover. In addition to car payment our car insurance increased form $250 to $750 for six months. Plus MPG rate wasn’t that great, but YAY we have a car with 3 seating rows that we could use if somebody decided to visit and stayed with us. Do you wanna guess how many times we’ve used the 3rd row?*
Every month we had to send $524,84 to Ally Auto Loan and set aside another $125 for car insurance. It is $649,84 per month just for driving a brand new car. SIX HUNDRED AND FIFTY DOLLARS. If we were investing just this money for 30 years we would have had $1,000,000
I HATE CAR PAYMENTS
Wake Up Call
It was a usual day, my wife and I went to work and a couple of hours later my wife called me and told that she was fired (I wish she was FIREd instead). Living in SFBA, CA is kind of tough, living in the Bay Area with two kids is tough, and living in the area with two kids and an average income is extremely tough. Finally, we got the whole picture about what it looks like to be a normal American family.
A Russian proverb says “There would no be happiness but a misfortune helped”. This misfortune of being laid off helped us to realize that we can’t live with car payments, we can’t live being in debt and living from one paycheck to another. It helped us to realize that if we want to win, if we want to live real American Dream we have to stop doing what regular, normal people do and start doing what weird, successful people do.
Since than we have learned a lot, we learned about budget, investment and frugality. We’ve met a lot likeminded people, and I hope we shall meet more.
And if you’re reading this post and wandering about financing a car, don’t do it. Learn from our mistake, that what smart people do.
Our car value is $13,000. We’ve lost more than $30,000 just in 3 years. So far it’s been our worst financial decision, I hope it will be the last one.
Are we going to drive this car until the wheels hit the dirt? You bet!
* So far we have used the 3rd row two times only