Case Study – Part 3: Couple Earning $45k Each a Year – Episode 169

This transcript was auto-generated and may contain errors.

[00:01] Welcome to the Prosperity Podcast, fresh alternative personal finance talk for independent thinkers who prosper outside of Wall Street. Here’s your host, bestselling author, Kim D.H. Butler and No BS Money Guy, Todd Strobel. Hey everybody, welcome back to the Prosperity Podcast. This is No BS Money Guy, Todd Strobel. Once again, we have the president and founder of Partners for Prosperity, Kim Butler with us today. Welcome, Kim. Hello, Todd. Happy to be here. And today we’re going to be talking about a case study that Todd Langford, not Todd Strobel, but Todd Langford and Kim Butler used at an event that they’ve done recently. And we’ve called it John and Jane and we’ve done 1.0 and we’ve done 1.5.

[00:51] And today we’re going to start at 2.0, which in our world would signify the second meeting with the client, which it’s not a rigid thing that we have to have the exact number of meetings, but that’s generally how it works, correct, Kim? Yeah, absolutely. And this couple was coming in with a specific question that a lot of people have. And as you rightly said, it really doesn’t matter what number the meeting is, we’re just trying to help you keep on track. But they wanted to buy a car, something that all Americans do many, many times in their life. Todd, why don’t you lay out the fact pattern for us? Super. They’re facing, I guess, the same question again, I’m not going to go through a whole lot of the previous things, I invite all the listeners to go back and listen to

[01:40] the previous podcast. But they’re looking to buy a car that has a $35,000 purchase price, and they’re wondering whether they should use the zero percent financing offered. I mean, this is probably a new car offered through the manufacturer of the dealer as an incentive to get you to purchase. I mean, that zero percent is so attractive. You just have to think there couldn’t be anything better, right? Absolutely. And this is one of the biggest areas of financial myths and wrong information that we know of. Of course, the furniture industry has the same type of thing where they talk about zero percent financing. And I’m not saying that there aren’t occasions where you can truly find it. For example, in 2008, you could truly get zero percent financing on a car.

[02:38] But in most cases, what happens is the car gets manufactured for a certain price. So it may be, in this example, say $31,000. And what happens is the car finance department then adds a $4,000 interest cost to the $31,000 car and then advertises that car as $35,000 with zero percent. And the reason that it’s difficult for the lay person to get a handle on this kind of information is that they don’t walk around with financial calculators in their back pocket. Now, thankfully, today, because of smartphones, every single person can have a financial calculator in their back pocket. You can go to your app store and get a financial calculator. As a matter of fact, Truth Concepts has for Android and will be coming out soon

[03:41] for Apple, an actual financial calculator app as well. And the reason that you need one of these is that you cannot calculate interest costs and interest payments without a financial calculator. A regular calculator will not calculate them. And that’s why a lot of Americans run around with complete misunderstanding of their car financing costs. So again, the advertised zero percent is because the car financing company added up the interest and offered that, in this example, $4,000 to be added to the car. They don’t tell you this. And they’re now selling a $35,000 car instead of a $31,000 car. Interestingly enough, if you ask for a rebate and understand that sometimes rebates are published, like they’re public, like they advertise them,

[04:39] you know about them. Sometimes they’re not though. So if you see a car and it’s advertised as $35,000 and zero percent financing or a $4,000 rebate, then you know what’s going on. If it is not advertised, you might ask. Because in this example, if you took the rebate and were able to then go get other financing, like at your credit union or at a bank or what have you, you would probably pay around two or three percent in today’s world, this is 2017, for a car loan. I’m kind of guessing on that. Todd, do you happen to know what car loan rates are these days? You know, I’m not sure, but I think you might be a little low on those. I mean, I know the mortgage rates are currently at about 3.8, but I’m thinking car loans are probably five, six, seven.

[05:31] Very possible. So the way to get the whole truth in this arena, and this is what we recommended that these clients do, is to go and ask at your credit union or your small local bank for a regular car loan and whatever interest rate they charge at that point, three, four, five, whatever the interest rate is, and it could vary based on your credit score as well. That is the actual cost in terms of interest that car loans are going for. And the zero percent in most cases is not accurate. Just like if you look at a furniture loan and they say, oh, this couch is $7,000 or whatever, it’s probably a $6,000 couch with $1,000 of interest added on. And so the question that you need to ask, either the furniture store

[06:25] or the car dealership, is what is the price if I pay all cash? Is if I literally bring in cash or I bring in a cashier’s check, what is the price? And then you can get at the truth of the matter as it relates to the buying of the car. And again, our purpose in this is, I guess, not to recommend credit unions over car manufacturers or anything else. It’s the fact that you want to show up at the car lot with that pre-approved car loan so that you have all the power in your pocket and you can calculate. I mean, even if it’s nothing more than taking the monthly payment times the number of months compared to the zero percent interest, I guess that would be a non-financial calculator way to do it.

[07:19] The only thing that we want to make sure is that, you know, there’s always a reason that somebody’s offering zero percent interest. We don’t want the companies that we do business with to not make a profit. Otherwise, that company’s not going to be in business to service the product that we buy. We just want to know what that profit is and make sure that it’s reasonable for us, correct? Absolutely. Very well said. The other thing that we had fun sharing with John and Jane is the unbelievable amount of money that a family will spend on cars over time. And that is something that people can do something about. You don’t have a whole lot of control over the interest rate on car loans. They are set by the market and they are what they are.

[08:09] But you as a family do have control over your car financing costs over your lifetime. Now, I like nice cars as much as other people do. In fact, I got a treat and got to ride into Tesla recently with an opportunity out in Peter Diamandis’ group in California. And it was a super, super high-end one that was a ton of fun to ride in. And thankfully, my husband and I live too far out in the country to be able to make a Tesla work because we need more than a couple hundred miles to get to the airport. But I would happily purchase said Tesla for all of the things that it can do. And that isn’t really the point. The point is that families need to look at their car costs over their lifetime and understand that it’s a huge amount of money.

[09:02] And so anything that you can do like buying a used Tesla or a used whatever it is that you want to buy, if you can get a one or two-year-old vehicle, it takes a ridiculous amount of money off the block in terms of your family’s car costs. And then as we have spoken about before, driving that car a little bit longer. You know, it’s nice to have a new car. I get that. But if you just can add one or two or three years to your car driving, then you can really make a big difference in the amount of money that you spend on cars over your lifetime. Now, I mentioned Peter Diamandis. I want to tell our listeners that we had the second in command of Uber at the event, Jeff Holden. And he believes that in the inner cities,

[09:54] car ownership will be completely changed by the year 2025. That’s just not that far down the road. And so we may in our lifetime see a complete shift in the unbelievable amount of money that people spend on vehicles in their lifetime. And that may reduce drastically again, especially in the inner cities where Uber and of course, self-driving cars become the norm. And Uber is looking at the self-driving environment. And of course, there are some cities that are already experimenting with. And they’re actually looking at what they should do with their drivers. Like what other service could they come up with that their drivers could do because the driverless cars will probably take over the job of moving vehicles from time to time.

[10:43] They said only 96%. I should say this the other way around. They said only 4% of the time our vehicle is in use. Now I’m sure there’s some exceptions with say LA where you’re spending two and three hours in your car but the average is that only 4% of your vehicle’s time is used in a 24 hour period. So that means 96% of the time it’s available to do other jobs. And Uber and all of the self-driving people are really looking at this and trying to figure out how they can make use of that other 96%. So our advice to families today is to still buy a one or two year old car no matter whether you wanna spend 35,000 or 135,000. Try to get a year or two old, try to drive it a little bit longer than necessary

[11:37] or then not the necessary, sorry. Try to drive it a little bit longer than you were planning on it. And also then to make sure that you understand the whole truth about the financing area. And like you said, Todd, either add up the payments so that you know what you’re dealing with in terms of the actual price of the car or just ask them point blank what’s the cash price and then negotiate financing. Second, that can be helpful to you or just go to your credit union or bank and ask what a car interest loan rate is and then you know and then you can work backwards to help get the whole truth about the matter when you head to your actual car dealer. Super. Well, I have a question from one of our listeners

[12:24] that I think should be added in here that I think is appropriate is what do you think of the idea of using home equity or like a home equity line of credit for the purchase of the car? That is a great question. I’m so glad that came in. So my thought is yes, absolutely you can do it to get that cash price. But then you wanna make sure to get that quote car loan that’s now on your home equity line of credit paid off in about five to seven years. You do not wanna amortize a car loan over 15 years which is a more common home equity line amortization. Of course, if you have a home equity line of credit, there’s really no amortization at all. You do not wanna stretch your car payments out that long.

[13:12] So just grab us if you need the help or go on the web and get an amortization calculator, put in your, let’s say it’s a $60,000 car, put it over say six years, seven years max. And you wanna make sure that you make those payments to that home equity line of credit the bulk of the time during that driving life of that car so that you get the car paid off at about the same time the life of the car is run out. Awesome and Kim, we’ve talked a whole lot about interest rates and I think you even have a book on that subject, don’t you? I do, I’m glad you brought that up. In fact, the book has some specific car buying guidance in it as well. It’s called Busting the Interest Rate Lies and it’s fun because it takes a high schooler

[14:03] through an entire lifetime of interest rates and all of the things that he’ll be dealing with as it relates to interest rates, one of them being car buying and of course one of them being home buying as well. So Busting the Interest Rate Lies available on Amazon, there’s a physical book, a Kindle book, an audio book and I would encourage you to grab it. If you are an audio book fan, just be aware that there are quite a few calculators in the book, pictures of calculators. And so you might wanna grab the physical copy as well just so that you can refer to those. And I would actually offer to our podcast listeners if somebody’s already bought the audio and they’re frustrated because they can’t see the calculators,

[14:43] I bet if you emailed and asked nicely, we’d send you the PDF of the book, how’s that for a deal? Awesome, and what email address would they use for that? Hello at partners, number four, prosperity.com, our special email address for podcast listeners. Hello at partners, number four, prosperity.com. And again, that’s for people who have bought the audio edition, which I often do and I do in some of books, it is frustrating to hear a reference to something you can’t see. And this is a very visual thing. So in this particular book, we do recommend that you get both. And again, Kim has so graciously agreed to provide that to anybody who wants to email in. So again, this was John and Jane 2.0. There are a 1.0 and a 1.5 podcasts on file.

[15:36] If you want to start at the beginning or go back for more reference. And again, thanks so much to Kim Butler and to all of our listeners. This is No BS, funny guy, Todd Strobel and we’ll see you all again real soon. Thank you for listening to the Prosperity Podcast. To take control of your money and have it work for you, visit us at partnersforprosperity.com. If you liked this episode, make sure you subscribe and leave a review.