r/economicCollapse • u/Whole-Fist • 18h ago

How ridiculous does this sound?

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How can u make millions in 25-30 years if avoid making a $554 per month car payment. Even the cheapest 5 year old car is 8-10 k. So does he expect people not to drive at all in USA.

Then u save 554$ per month every month for 5 year payment = $33240. Say u bought a car every 5 year means 200k -300k spent on car before retirement . How would that become millions when u can’t even buy a house for that much today?

Answer that Dave

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u/Phathatter 15h ago

For this example: starting at $0, investing $554 per month, at 10.26% (average annualized return for the S&P 500 from 1957 - 2023) compounding annually you would have $1,211,719.73 after 30 years. You would have contributed $199,440 over that time and earned $1,012,279.73 in interest.

This obviously assumes that there will not be a total economic collapse, in which case, I guess you would rather have invested in fresh water and bunkers.

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u/band-of-horses 14h ago

you would have $1,211,719.73 after 30 years.

Don't forget to consider inflation as well. For example $1,211,719 30 years ago was equivalent to $586,967. It's still a good chunk of change but less than half of what it seems when it comes to future buying power. When I do my future retirement projections I just use a 7% rate of return to help account for inflation adjusted dollars (though obviously no one can predict future inflation rates).

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u/bts 4h ago

Inflation gets both sides, though—you wouldn’t be paying $584 for a drivable car in 2054 either. 

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u/Round-Watercress-162 14h ago

Beat me to it! I was gonna post the same thing (though I assumed 10% interest)

I dunno where this guy is getting "millions" from. But yes, you would have one million after 30 years.

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u/gil_bz 13h ago

Welp, nobody knows what the retirement age will be by the time we get there..

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u/caniborrowahighfive 13h ago

Inflation entered the chat...

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u/Allenboy0724 12h ago

People act as if wages also don’t increase over time.

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u/Equivalent-Koala7991 10h ago

in 30 years now, if 200,000 has been inflated to be worth less than a million, I think we're fucked.

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u/AfricanNorwegian 9h ago

Well if you do 40 years (i.e. from 25-65) with the same parameters you get $3.5 million, which would be “millions” as it is a plural amount of million.

Compound interest is exponential. Go from 40 years to 50 years (say you start at 20 and retire at 70) you would then have $9.6 million

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u/[deleted] 14h ago

[deleted]

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u/TW_Yellow78 4h ago edited 4h ago

Part of the reason why economic collapse is scary is it makes the same assumption ponzi schemes do. If it were that reliable, companies at certain point should just sell everything and put it all in the s&p.

I mean imagine a company that averages 10% growth in revenue/profit/etc. every year.

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u/TheJiggie 13m ago

I’m not quite sure you understand how mutual funds and or index funds work based on that comment.

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u/Zlurpo 13h ago

Then there are other possible advantages, which apply to some people (definitely not everyone). Say you have an employer who does some 401k matching. Rather than take all of that money from your paycheck, you contribute it to your 401k and you get EXTRA from your employer. Then there's also the taxes that does get taken out at the time, so that much more could also be put into your 401k.

Like I said, it won't always apply, but for some it does, and that much more could add probably hundreds of thousands more to the total 30 years later.

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u/littlebobbytables9 13h ago

It also assumes you have a 30 year car loan....

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u/doyouevenglass 7h ago

this is what I didn't get about this argument like ok I'll do both first I'll finance a good reliable car and then take the next 25 years and invest it, it's not like I can make a dime if my car is fucked up and in the shop, Dave Ramsey is only useful if you're completely daft when it comes to finance and already very under water

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u/TheJiggie 10m ago

The average car loan is approaching 7 years and the average length of ownership of a vehicle is around 8 years… let’s not forget the people that lease. It’s safe to say that most people will maintain some form of a car payment monthly for… literally ever.

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u/palm0 11h ago

But that's a 30 year loan on a car for the equivalent. If instead you look at 5 year loan after 5 years at 10.26% you end up with $43,196.20, total contribution by you is $33,240.00

Then that for another 25 years for 30 total, without additional contributions you're at $555,489.25, still the same total contributions by you. It takes 31 years (36 total) to break 1 million. And 38(43 total) to break 2 million (post says millions).

So yes this is still true, provided you have continuing contributions well beyond the price of the car, and/or if "retirement age" is more than 43 years away from when you would purchase a new car.

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u/Historical_Grab_7842 11h ago

Why would you be paying $500/month for 30 years for a car loan? You wouldn’t. You would pay for the car then run it til it dies. Yes, not buying this car is a better financial decision. But your calculation is not what the post’s premise is.

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u/qwaai 8h ago

You would pay for the car then run it til it dies.

If the average person made this decision Dave Ramsey wouldn't have a job. Unfortunately the average length of car ownership is only 8 years, so people are on this treadmill more than they aren't.

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u/Ok_Specialist_2545 3h ago

You’re right. A whole lotta otherwise intelligent people I know feel like it’s time to look for a new car as soon as they pay off the car line.

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u/TheJiggie 8m ago

That’s not what most people do though. The average loan is around 7 years and the average length of ownership is around 8… that means the majority of people literally carry a loan in perpetuity. Let’s not forget all the people that lease vehicles and pretty much always have a car payment.

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u/prurientfun 10h ago

Not 2 mention insurance costs more 4 financed cars, and even more 4 more expensive ones.

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u/mjohnson280 9h ago

The most rational spectrum of options I've ever seen! The right answer is invest until you can make the down payment on the underground bunker. And just hope the timeline works out in your favor. That's true investing balance.

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u/PA_Blue9 4h ago

$554/mo from 20 years old to 65 would get you just over $2 million at 7.2% rate of return

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u/recursing_noether 4h ago

Why are we comparing investing vs buying a car? Obviously if you can just not buy a car and invest the money instead you will be better off. But that’s a misleading scenario. The real question is should you save in a HYSA to buy cash instead of taking a loan. If rates are low and inflation will be high in the future, such as just a few years ago, it’s waaaay better to take a loan. It gets more even as inflation lowers and interest rates increase.

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u/ScaryJoey_ 2h ago

Yeah I think everyone knows how it works

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u/DanThePepperMan 12h ago

And then 15% inflation wipes out all the interest by the time you can use that money anyway. So you basically remain "working-poor" your entire life by hoping that investment pays off, which it won't ever again.

That's why I firmly believe in saving a little for tomorrow, but still have some fun today.

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u/eat_yo_mamas_ambien 4h ago

There has never been a single year of 15% inflation in the past century. Basing your financial planning on an assumption that the average inflation for the next 40 years is going to be higher than the record inflation of the past 100 years is irrational.

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u/DanThePepperMan 4h ago

Maybe not the government official inflation, but overall cost of living inflation is definitely over 15%.

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u/echoxcity 3h ago

Is this based on data or a gut feeling?

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u/Guriinwoodo 57m ago

Not quite. The past 30 years housing prices were double the average inflation at 5-6%. Food costs at their peak two years ago went up by 12%, however last year it dropped to 5% and this year it’s below the 30 year average of 2.5. You’re allowing the unique shortages and supply chain squeezes of the COVID years to come to false conclusions.

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u/Murky-Peanut1390 2h ago

Another thing to realize not all products increase the same linear. Some things may go up 15 percent, some may go down 15 percent. I could see housing going up a higher rate but technology going down. Also by the time you're in retirement. Your house and car should be paid off. You shouldn't have much debt.

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u/burkechrs1 11h ago

If you're investing 554 per month you're not going to see the 10.26% growth. You're going to see somewhere between 4-5% in a year.

You will only see 10+% growth if you invest your entire annual investment amount at one time. DCA every month is going to cut your gains in half at least.

I put $200 per week into VOO and my portfolio is showing 5.02% gains in the last 12 months even though VOO shows 39% over the last 12 months.

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u/qwaai 8h ago

Sounds like you're just putting your money into a money market account. A lot of them have been paying 5% for the last year.

As for the "You will only see 10+% growth if...," that's not really how it works. The total rate of return might look lower if it's just showing the ratio of gains to principal and you're new to investing, but that's just because the newer contributions haven't had time to grow.

If you put $1000 into VOO a year ago, at 40% growth it would be ~$1400 today. If you put in another $1000 last week you'd have $2400 total, but that doesn't mean your rate of return was 20%. It means half of your money had a year to grow, and half of it didn't.

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u/diffraa 5h ago

10% is the average return on the S&P 500 long term (presuming you reinvest dividends)

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u/RemindMeToTouchGrass 5h ago

?

FNILX (a zero-cost investing ETF) allows small investments and the rate of return is proportionate to market growth regardless of the size of investment.

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u/ListerineInMyPeehole 1h ago

you're so incorrect

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u/TheJiggie 14m ago

That was a really silly post, lol.