Would you believe it if I told you that your car's costing you R8,6m? It might even be costing you MORE than that!

We have so many false beliefs about cars, and today we're going to bust those myths and show you a way that you can be financially free.

Show notes:

• [02.56] Compound interest and what you can do right now

• [04.54] The reasons your car is costing you R8,6m

• [07.48] How long a car should last

• [10.07] The type of cars that you buy

• [12.28] Being clear about what's worth it.

• {14.12] The rules

Quotes

"We can't seem to make the connection of that compound curve to the reality of our daily life." - Lisa Linfield

"Even if you have 20 years to live, or 10, the power of compounding on very tiny numbers is huge." - Lisa Linfield

"The function of a car is to get you where you need to go, safely and as efficiently and as not expensively as possible." - Lisa Linfield

"The bigger and more expensive a car is, the more it costs to keep it running." - Lisa Linfield

"If you can't afford to own and maintain a car outright without balloon payments, you actually can't afford the car and you should be driving something smaller." - Lisa Linfield

"Every single decision of ours has always been compared to what is worth it for us." - Lisa Linfield

How much is your car costing you, REALLY?

Unlock my FREE How Much is your Car Costing you? worksheet that can help you work out not only how much interest you're paying over the life of the car, but also show you exactly how much you'll have if you just saved first and invested that interest.

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• The decision tree you need to choose your investment

• Understanding the different types of investments or assets

• How much is Enough to Stop Work?

• Choosing financial freedom

• Here’s how to set yourself up for financial success – The Five P’s

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TRANSCRIPT

I'm telling you right now, your car's costing you A MINIMUM of R8.6m ($860k)- but I'd hesitate a guess it's way more than that… and I'll prove it to you!

There are SO MANY false beliefs we hold about cars that compound that R8.6m and in fact, make it more… so today we're going to bust those myths… so you too can have R8.6m

LET'S TALK ABOUT CARS!!!!

The Calculation

OK, so I know you're dying for me to tell you how your car is costing you a minimum of R8.6m… and I can here you objecting with every fiber in your body as your brain resists a number so big.

So let's say you buy your first car at 23 years old. You started saving for it when you were 12, got enough money to put down a little deposit, and borrowed the rest.

Every 5 years, as your salary increased and the last loan was paid off, you got another car and another car - each time upsizing it a little in terms of quality or features, or age etc.... doing this until your last car you bought at 68.

Now let's say you were able to just take a slightly, weeny lower car or save for a slightly weeny bit more deposit - and were able to save just R300 per month ($30) off your payment

Over the course of the 50 years, saving just R300 per month, invested in a high growth fund (not even pure shares), you would have R8.6m ($860k)

You see we all struggle to see how a number as small as R300 could grow to as big as R8.6m… our brains are TRULY unable to grasp the magnitude of compound interest.

The big factor here is CONSISTENCY OVER TIME… it's that time factor that's the biggie.

So when I go and speak to teenagers at school, I always laugh at their Blasé-ness when it comes to the compound interest curve... they know the theory because they learn it at school... but somehow, like all of us, they can't make the connection.

So I start by asking them if R200 is a lot of money. Most of them say 'NO' - because they're anchoring their thoughts on wealth and believing you need to save millions to be wealthy. When I show them how that grows over time, they are blown away. Then, when I show them how R300 becomes R8.6m... you can see it start to sink in...

Now you may not have 50 years left to live, but even if you have 20 years to live or 10, the power of compounding on very tiny numbers is huge. Could you save R300 ($30) a month from now on?

Right now, think of 1 place you could, and then commit to saving that money by either starting a new investment debit order for R300 or increasing your current debit order by R300 - and if that's a stretch, start by increasing it by R100

Why where are where we are

OK, so now your brain can breathe and understand how I get to that big number… let's wind back and go through why I believe YOUR car is costing you a MINIMUM of an extra R300 per month… if not more. And there are XX reasons

1. The belief that's crept into our society that we buy now and pay later.

As I mentioned in my book, Deep Grooves, there are always 2 reasons in life… The Good Reason, and the Real Reason.

The real reason I believe is our shift to instant gratification - we want the car, and we want it now. We don't want to wait and save for it. So we get a car loan and buy it.

The good reason I'm given often is that interest rates are at historic lows, so it doesn’t cost that much to borrow - when compared to the highs of 20 years ago - or the highs that are about to come as central banks around the world start hiking interest rates.

So let's think a little around interest rates...

Let's say you're able to get a car loan for Prime rate… And you decide to buy a R400,000 car ($25k) - not a big one by any stretch of the imagination

I worked out that over the 5 years it takes you to pay off that car, you would have paid R90k in interest. Obviously you pay more at the beginning of the 5 years and less at the end, but if you average that over the 5 years, R1500 per month is going to interest

I then worked out that if you just saved for that car, bought it cash, and invested that R1,500 per month in interest - at the end of the 5 year term, you'd have R110k, and if it stayed invested (just that one medium sized car's interest) for 20 years, you'd have nearly R1m... for 30 years, R2.7m and for 40 years - from 30 to 70 - you'd have R7.8m

So, to get back to my original statement - that you just need to save only R300 ($30) per month to get to R8.6m or $860k… can you see how you could easily have saved R300 per month just on interest if you pre-saved a tiny amount for a deposit and invested that tiny fraction of interest to make that R300?

I have made a quick, easy to fill out sheet that needs you to plug in a few numbers - such as how much you'd borrow for a car over the number of years… so you can play around and see not only how much you spend on interest for your car, but also how much, if you just had a deposit or saved for it, that interest alone, if invested, could grow over time.

Just head to lisalinfield.com/cars

The second thing that causes us to stay in lifelong car debt is this misconception about...

2. How long a car should last...

... that we keep it only as long as the motor plan or warranty lasts.

A few years ago I was chatting to a friend of mine who had just bought a new car. When I asked her why, she said that the old one was out of warranty, the motor plan had expired, and they had needed to pay R10,000 for a service… and they just couldn't afford that.

I paused for a while, thinking about that, and then asked her how much the new car costed per month...

Oh she said, R7,500 per month.

So, you can't pay R10,000 a year for a service, but you can pay R90k for a new car?

You could hear the penny crash through her brain...

I absolutely do not support this notion that you can only keep a car for a short period of time because then it breaks down and costs you money.

We have had John's car for 14 years. It gets serviced every year, and yes, it is quite expensive - but WAY cheaper than what a new one costs us. Because we keep it serviced, are proactive about it, and bought a trustworthy Toyota without gazillion bells and whistles, it still keeps going.

Cars are an expense, not an asset, so the aim is to keep that expense as low as possible.

I advise my clients to work on replacing their car every 10 years.

So here's my question to you… what are your assumptions about how long it is you're keeping your car for?

So I want you to begin reframing that. And commit to never again borrowing to buy a car.

How?

Well, once you've paid off your current car, keep paying that exact same amount into an investment account for the next 5 years, and you'll have enough to buy your next car cash - and, because it's invested and you're not paying interest, you'll have enough to buy it AND keep the rest invested for your future and any future services the car needs.

3. The Type of Car we buy

The function of a car is to get you where you need to be as SAFELY and efficiently as possible.

Here's the challenge - we all tend to fall into two traps

1. We buy a much bigger car than we need

2. We buy new and not second hand.

Here's the problem with cars - the bigger and more expensive the car is, the more it costs to keep it running…

• higher petrol / gas costs

• more high tech parts to go wrong

• more expensive it costs to service

More than 10 years ago I remember John coming home one day absolutely horrified.

His boss had one of those Mercedes SLKs and had just received the shocking news that something had gone wrong with her Turbo… and it was going to cost R50,000 to replace and fit it.

For context, our car at the time was worth R75k - and it didn't have a turbo... so we didn't need to replace it.

Here's the thing, so often we choose the car we will buy thinking we'll trade it by the time it starts costing us or before the balloon payment expires - but that leaves you in a perpetual cycle of debt - using loans that pay interest to bankers to sit on the beach.

If you can't afford to own and maintain it, and buy it without a balloon payment, you can't afford it and should be driving something smaller.

The question we need to ask ourselves is what story are we telling ourselves to convince ourselves it's OK to spend so much money, so regularly on a car?

It is an expense, not an asset, the bigger it is, the more it costs each year to maintain, and it loses value the minute we drive out the door. If we could just save R300 per month on our car, just think about how much more you'll have to enjoy!

It all comes down to you being VERY CLEAR on what's WORTH IT.

As I teach in my course "Stress-Free Money", you can have ANYTHING you want in life, you just can't have EVERYTHING.

For most of us, car payments and interest rob us of our chance to go on holidays with our family… and they rob us of the chance to invest money for our future... our freedom, our stress-free living.

So is it worth it? Does that car bring you the joy of a holiday with the people you love, or bring you the peace of mind that you know your future is secure?

As you all know, for the last 16 years I've driven little cars - a Volkswagen polo, and when that was stolen, my Honda Jazz.

I'll be honest, It wasn't easy sometimes.

When I drove on the highway and it sometimes felt like the engine would explode…. Or when I arrived at school or friend's parties in this tiny car... I'd wish I had a different car.

But my financial freedom was always WORTH IT far more.

And now that we retired to the farmlands, I have a bigger car - because the gravel roads destroyed my poor Jazz... but I'm financially free and could afford to buy my Toyota Fortuner cash.

Every single decision is compared to what's worth it for us.

So here are the rules

1. Never again buy a car on lending finance. Commit to own the car you have until you've saved for the next one. The only car you can ever use finance for is your first one. Thereafter you save first, buy later.

2. Use the free calculator on lisalinfield.com/cars to work out how much you could save by not paying interest, and commit to invest that amount. You'll end up with the same car AND money to your future.

3. Reframe maintenance. A car should easily last 10 years. Each year after the warranty expired you will pay for services - but it's a LOT cheaper than the interest on a new car.

So know exactly how much your car is costing you in terms of holidays and financial freedom, and commit to changing your life.

Head to lisalinfield.com/cars and work out the impact you could make if you just saved first and bought later