The Biggest Financial Mistake to Avoid

I’ve done plenty of stupid things with money. We’ve all made a financial mistake that made us question our reasoning for taking that path. But I’ve noticed one common money mistake among most people suffering financially.

We should agree that debt is bad, but a particular form of financing is the difference between living paycheck to paycheck and having several hundred dollars at the end of the month.

What’s One of the Biggest Financial Mistakes?

Taking out vehicle finance is one of the most common financial mistakes preventing you from saving money. I would say that owning a car is one of the financial pitfalls to avoid, even if purchased with cash. The average American pays $700 in monthly car payments for a new car and $500 for a used one.

Keep in mind those figures exclude gas, insurance, repairs and tire replacements. With those expenses factored in, the average American is spending around $1,000 on their car monthly.

Think about how good it will feel to have an extra $1,000 at the end of the month after paying all your living expenses. In a year, that’s $12,000, which is more than what a lot of people have in savings.

I used to be a financial moron who valued cars more than savings. My monthly car expense was more than my rent. Talk about stupid. My first purchase was a sports BMW followed by a luxury BMW.

My car was one of the reasons I ended up homeless.

Yes, I really did live on the street. I was completely broke, so I parked my BMW on the side of the road and lived in it after being evicted from my apartment. If that wasn’t bad enough, I had defaulted on three months of payments, and the bank repossessed the car.

Your car payments are digging you into a financial rut. Stop sinking deeper and start making your way out.

The Reason You Made One of the Worst Money Mistakes

You just had to buy that cool daily driver to get around, didn’t you? Actually, you didn’t. You did it because the car gave you status and comfort. How could you possibly use public transport, walk or carpool?

I mean, those transportation means are below you. You’re just so cool in your car, aren’t you? Not really. It’s draining you financially, and nobody thinks that broke people are cool.

Six years have passed since my car was repossessed, and I haven’t owned another one. I’ve got cash to buy a nice car, but I’m not a financial moron anymore. I’ve saved several hundred dollars every month for the last six years by not owning one.

I use public transport and taxis when the former isn’t available. Sure, buses can suck sometimes because of loud people and overloading. But it saves me a lot of money, so I’m prepared to sacrifice the comfort a car provides.

You enjoy getting in your car outside your home and arriving exactly at your destination. I have to walk to the bus stop and after the bus drops me off. The opposite sex might check you out in your fancy car while I get no attention from women while walking.

But I save money because I don’t have a car while you own a liability that costs you monthly. Just think about it: not only is your car losing value, but you’re funding every ride.

Owning a car is definitely one of the money mistakes to avoid. But if you’ve already made that mistake, you can correct it by not caring about your status and becoming less comfortable.

How to Fix the Financial Mistake Known as Your Car?

If you work remotely, there’s no reason for you to own a car. The only time you should own a car is if you use it to generate an income such as deliveries and taxi rides. Otherwise, sell it. At the very least, downgrade to a more affordable car if it’s crucial for you to own one.

Selling a car you own is easier than the one you financed. How do you get rid of it if the vehicle finance is higher than the car is worth and you have no savings?

That’s the first issue, but you then still have to buy another car since you insist. I would rather you didn’t buy another one, but if you must, it’s going to be with cash.

Although I recommend paying off the lowest debt first to build momentum, I suggest tackling vehicle finance first because it’s a huge expense holding you back financially that can be corrected fairly quickly. There are other debts you also need to trim, but your car is killing you.

I really believe that your financial progress is dependent on settling the vehicle loan.

The sooner you settle the vehicle finance, the more money you’ll have to dedicate to other debts.

Getting Rid of Vehicle Finance

Find out the exact balance on your car loan and the value of your car. Speak to dealers and also place an ad to gauge how much the market is prepared to pay for your vehicle.

If the car’s value is lower than the vehicle finance balance, you have to decrease other expenses and dedicate the savings to a fund that will pay off the car debt and buy another affordable car. That sounds overwhelming, but it becomes easier when you take it one step at a time.

The affordable car should be only a few thousand dollars. I know that means it’s not going to be what you want or are used to. Forget about status and comfort. You worried about those two factors for far too long, and they are the reason for your financial hardship.

Let’s assume that your car’s value is $10,000 lower than the outstanding vehicle finance, and the other car you will buy is $3,000. Yes, you can get decent cars for $3,000. They will be old, but a Toyota or a Honda is available in that price range. That means you need to save $13,000 to settle the vehicle finance and buy another car.

Saving that amount should not take longer than a year. If you live from paycheck to paycheck, you’re wondering how you can ever save that amount.

Two ways:

Reduce all your other expenses and sell stuff. You have to live on a minimalist budget. That means you cannot eat out, buy clothes, have subscriptions or spend money on entertainment.

You’re in survival mode, and that means spending money only on expenses necessary for survival and debts to avoid blacklistings and lawsuits.

There’s no doubt in my mind that you will save several hundred dollars monthly by excluding non-essentials from your budget.

You also have to sell stuff from your home. You need cash, not stuff. The stuff took cash away from you. So now it’s time to get the cash back from the stupid stuff you bought.

Grab a pen and paper. Check every item in your house and list the ones that you don’t need—it should be most of them. You can even sell clothing but definitely golf clubs, extra TVs and stuff you don’t use often.

Host a garage sale and list the items online. You need to sell that stuff ASAP and add the money to the car fund.

After reducing your expenses for several months and selling your stuff, you should have enough to settle the vehicle finance and buy a $3,000 car.

I realise that your car’s value depreciated during the time you saved for the car fund, and you probably won’t get the same amount for it as when you initially enquired. But remember that you have also been paying it off during that period. So the payments should offset the difference in the car’s value.

Pay the amount that will lower your vehicle finance balance to your car’s value. Enough money should remain in the car fund for an affordable car.

Final Thoughts on The Biggest Financial Mistake to Avoid

Saving up enough money to pay off the vehicle finance and having cash for an affordable car will require you to adopt a minimalist lifestyle. Check out my post How to Stop Living Paycheck to Paycheck and Save a Lot of Money for a detailed guide to fast-track your savings.

Not having monthly car payments, coupled with all the car expenses will free up hundreds of dollars for you to dedicate to consumer debt. Your car’s expenses are preventing you from having savings, making you vulnerable to huge financial setbacks.

Those headaches are not worth the status and comfort your car provides, so you need to settle your vehicle finance immediately. Making this financial decision will make you feel empowered and put you on the path to financial freedom.

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