"So, there are people out there who are listening to us and saying, 'Guys, I just found you. I'm a brand new listener. I love what you guys are saying, and I hear this 20/3/8, but I've got bad news. I made a decision before I found you guys, and I am in a situation now where I'm not adhering to 20/3/8. Maybe the payment is more than what I should be paying on the car. Maybe I financed for longer. Maybe I didn't put 20% down.' So, you're asking the question, 'I did not follow 20/3/8. What are my choices? How do I right this ship?'
Yeah, it really comes down to having two options. Let's talk about the first one. You've got to first get your numbers in line. Now, let's kind of talk about this. If we're using a case study, because we know a lot of people are financing cars for 69 or even 72 months, and you hear that we're doing 20/3/8. You know, like, 'Whoa, my $500 car payment would, in order to get it on track, I would have to pay something like maybe $913 a month.' Yep, that seems like a dramatic change, but you do have that option. But a lot of you are like, 'Wait a minute. If I have to go from $500 a month to $900 a month to get within 20/3/8, what if that blows up my 8% of income? What does that mean?'
Well, then you have a problem. Then you have to do a second assessment. And this is what you have to determine: where am I in my financial order of operations? Brian, you were holding the thing for me. Where am I? If you are someone and you're in Step seven or you're in Step eight of the
financial order of operations and you're saving 25% for the future, we're going to give you a pass and say, 'Hey, if you break that 8%, that's okay because above 25% savings, you get to choose what you do with your dollars, and one of those things might be to aggressively pay down this debt to right the ship. However, if you are someone who is earlier in your
financial order of operations, you're not in Step seven or eight, then you might have to make some difficult decisions.'
I mean, if you're not fully maxing out your Roth IRA or your employer's retirement plan and because of your car payment, you know what, I think that leads to option two on how you get yourself out of the ditch. And that is you've got to ditch the car. Now, this is cold water. This isn't super fun. No one wants to hear this, but it can literally be financial napalm for your financial life. So, if you are in a car that you cannot afford, the very best decision you might be able to make is to get out of that automobile, get into something that you can afford, and start building actual wealth for the future, not just looking cool in the car. And time is of the essence.
I mean, we still look at car prices, and they are falling right now. Used car prices are falling, but they're still currently elevated compared to where they were pre-pandemic. So, I think you have a moment in time to really measure twice and cut once and see if this can be the way to get your financial life back in order. And you already mentioned this. We've recently done a show that asked, 'Are thousand-dollar car payments the new norm?' And this is what we uncovered: what seems like a very simple, meaningless decision that you can make around your car could cost you nearly a million dollars in retirement if you get this out of whack. So, you want to make sure that you are approaching this in an intelligent manner so that your future self is not so upset that you didn't make the hard decision when you were young." For more information, check out our
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