Proprietary Data Insights
Top Specialty Retail Stock Searches This Month
Delinquency by Debt Type
Source: The Financial Brand
We’ll talk more about the rest of the above chart later in the month, but today The Juice focuses on the auto loan line. Because it nicely illustrates today’s forthcoming discussion of the worst money decisions people make.
Expect serious delinquencies to rise even more, most likely across the board, but almost definitely among auto loans.
Because, as we told you last week, 15.7% of new-vehicle buyers committed to a monthly payment of $1,000 or more in Q4 2022.
The averages don’t look much better, including a new-vehicle average of $717 a month for 70 months, or just shy of six years:
And to make matters worse, as of Q3 2022, 19% of new-vehicle loans came with a term of 84 months, or seven years. For used vehicles, 11% of loans were that long.
People are stretching themselves to their financial limits. They’ll fall behind on these unsightly auto loans. Mark our words.
You Don’t Need to Skip Your Daily Latte
Since we’re talking cars, the investing equivalent of the bad personal-finance decisions we’re about to illustrate would be getting too greedy if you rode last week’s Carvana (CVNA) meme pump or giving into FOMO and buying at the top.
Here’s the stock’s five-day chart at the end of last week:
Source: Google Finance
And here’s its one-day performance from Friday:
Source: Google Finance
No matter what Carvana did from there (and, for the record, it’s up roughly 4.4% so far this week), here’s a general rule: It’s not a good idea to tie up your money in a speculative hope and dream when it could be somewhere working toward your long-term financial well-being. Think the solid, dividend-paying, big-name retirement stocks, such as Apple (AAPL), we’ll discuss in tomorrow’s Juice.
Unless you’re super wealthy (and, really, even if you are), most of your investing capital should be in something other than dying companies such as Carvana. Tempting as they may be, outside of a quick trade (and even that’s too risky for some investors), you’re better off thinking long-term when you decide where to keep your cash.
The Personal-Finance Equivalent
You often see money gurus throw shade on those of us who spend $5 a day on a latte. The latte effect says if you invest that $5 a day, you’ll have a nest egg into the six figures within 30 years.
But here’s the reality: The small expenses don’t always add up like that. Especially if you’re making good money and want to have a life.
Wanna know what does add up?
That $1,000 car payment. Or any car payment that stays with you for seven freaking years. Or even the average on a new car: $717 a month for just under six years.
Tying up too much money in a meme stock that could and probably will crash again any second or devoting too much money to a car payment month after month after month after month after month adds up.
Do the math on opting for, say, a $350 car payment on an economy car rather than the $717 average. The $367 you’ll save really adds up over time. It makes the $150 a month you’d save by skipping your daily latte look like child’s play.
Let’s compare the two.
Investing $150 every month for 30 years at a 6% return will be worth $151,581 at the end.
Investing $367 every month for 30 years at a 6% return will be worth $370,867 at the end.
We’re not saying you shouldn’t do both (invest the coffee and the car money). But the reality is you will spend money. So if you want to be smart about spending and maximize your savings, focus on the biggest expenses most of us take on, particularly housing and transportation. They add up much faster than the small ones.
And, aside from how your savings will add up, the lower your overhead, the more money you’ll have left at the end of the month to fund current discretionary spending and your plans for the future.
So don’t nickel-and-dime yourself to death over coffee. But talk some sense to yourself when you’re about to “sign on the line that is dotted” (guess the movie that line came from!) and commit to an outsized major monthly expense that obligates you way out into the future.
The Bottom Line: We’ve normalized spending choices such as paying interest when the interest you pay on a mortgage or car loan can be a healthy nest egg in itself. Logic dictates that if you buy the less expensive house or cheaper car, you’ll save in two places: on interest and on your monthly payment. That’s all free cash flow for you to do with as you please.
You simply won’t see the magnitude of savings by passing by rather than stopping in Starbucks on your way to work. Or when you take a break from working in your pandemic-era home office.
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