The Rachel Cruze Show - Why Owning a Car Can Kill Your Budget (and What to Do About It)

Episode Date: August 5, 2024

💵 Start your free budget today. Download the EveryDollar app!   From rising insurance prices to increased inflation rates, there are countless factors that affect the cost of owning a car these days. So this week, I’m sharing practical ways to take control of your money in the auto section of your budget.   In This Episode: ·      Why It Hurts More Than Ever to Own a Car ·      Top 11 Worst Cars to Have During Inflation ·      This 9-Minute Video Could Save You Hundreds   Next Steps ·     💰 Check out the Ramsey Car Guide. ·      💸 Take the 5-Minute Coverage Checkup.   Offers From Today's Sponsors ·      🏥 Learn more about Christian Healthcare Ministries today! ·      🧩 Use code Rachel20 for 20% off your TruPlay annual subscription.   Listen to More From Ramsey Network 🍸 Smart Money Happy Hour 🎙️ The Ramsey Show   🧠 The Dr. John Delony Show 💸 The Ramsey Show Highlights 💰 George Kamel 💼 The Ken Coleman Show 📈 The EntreLeadership Podcast   Ramsey Solutions Privacy Policy Learn more about your ad choices. Visit megaphone.fm/adchoices

Now, the best strategy during tough times like this is to be aware of what's happening in the economy and know which you can control. So it's called personal finance, personal for a reason. Money is always going to have a personal, unique bent to your situation. Hey, guys, welcome to this episode of the Rachel Cruise Show podcast. I'm so glad that you're here. So in this episode, we'll discuss the top 11 worst cars to have during inflation. Then we'll chat about the rise in insurance and what to look out for that can save you hundreds. But first, I want to talk about why it hurts more than ever to own a car. Take a listen. So remember during the pandemic when it seemed like all of our basic necessities cost way more than they used to? I mean, used cars went up, I mean, more than even

new cars, which was crazy. Well, listen, it is no longer. 2020, 2021, which means the cost of used cars now has dropped back to normal. But all other expenses related to cars, like insurance premiums, repair services, and replacement parts have drastically increased recently. And not to mention interest rates being crazy high over the past couple of years, which affects you big time if you're taking out a car loan, which I don't want you to do that. But yeah, that's another episode for another time. All right, the bottom line is, is that it's hurting more than ever to own a car right now. But in the spirit of hope, you also have more options than ever before. So let's try to wrap our heads around why some of these costs have drastically increased.

And then I'm going to share some tips on how to handle these changes in your budget. So first, let's just look at the numbers. According to a Fox Business article, the cost of auto insurance jumped 1.8% in April of 2024, causing the annual gain to reach about 22.6%. And according to data from the labor department, this is the fastest yearly rate on record. Motor insurance is more than 50% more expensive than it was in early 2021 before inflation started increasing. And there are a few reasons for the sudden rise in car insurance costs. So number one, inflation is real. Now, this may feel oversimplified, but it's just true.

Inflation has affected every single industry over the last three years, and there's no way of knowing if or when this trend is going to go into reverse. So it seems to be here for a little bit. Number two, the car insurance industry tends to be delayed and reactionary. So we are living in the aftermath of the supply and demand challenges that we faced a couple of years ago following the pandemic. And due to global shortage of production, parts, makes, models, prices have risen to offset that demands.

But it's not just car insurance. All right, like I said earlier, even though the sale price of cars has calmed down a bit since record highs a few years ago, the aftermath is still having an effect. So another aspect of all of this is repair costs. So we're now experiencing a shortage of mechanics and other service professionals who specialize in car repairs. And there is some data that shows a decrease in graduates from post-secondary institutions, aka essential worker jobs that help keep systems. society running smoothly, literally, are becoming less popular for young adults today. So why is this the case? Well, I think a lot of people just assume, okay, in order to live in our world today, I have to

make a lot of money. In order to make a lot of money, I got to go get a four-year degree, and that's what I do. And the truth is, you guys, the trades is still a great place to make great money. People are still actually finding, gosh, if you get in a niche part of a trade and you're good at what you do, you do make a lot of money. But again, we're seeing the trades going down, and people are going in to get a four-year degree, you know, to enter in the corporate world. So if you're seeing the cycle, it's making sense now. And again, I'm not sure if it's the chicken or the egg,

but I do know that the average American is still feeling the pain of this perfect storm that's happening. If you feel that, you're not alone. You know, the stats of people living paycheck to paycheck are basic necessities like we've talked about, even from food, but everything from owning a car, all of that, we're all feeling that increase. And again, there are unique challenges right now

when it comes to cars specifically. But at the end of the day, we have to have them. I mean, for most people, depending on where you live, a car is a necessity. And when you think about your four walls, which is at Ramsey what we say, have to be paid first. It's food, shelter, utilities, and transportation, transportation right there. So we're feeling it. Now, the best strategy during tough times like this is to be aware of what's happening in the economy and know which you can control.

So it's called personal finance, personal for a reason. Money is always going to have a personal, unique bent to your situation. So here's how you evaluate your situation when it comes to car costs and other things around this. Step one. Make sure the total value of your car, or if you have a family, the total value of all the cars you own, does not exceed 50% of your annual salary. So if you make $80,000 household income and you're driving a $50,000 car and your wife is driving a $60,000, or, you know, SUV, that is more than your annual salary.

You have too much car. And so making sure that that is in limit. So anything with motors and wheels needs to be 50% of your annual income. All right, step two, if you currently have a car loan and you can't pay it off in 18 to 24 months, you need to sell it. That's what you have to do. And what happens is if you bought a car when it was really high, you know, a couple years ago, like we were talking about, there's a good chance that you're underwater on your car. You bought your car, you know, let's say for $25,000, and maybe, you know, you owe, you know, I don't know, 20,000 on it. But Kelly Blue Book says you can only sell it for $15, which means there's a $5,000 gap.

So there is a chance you may have to take out a loan for maybe $10,000, go get a $5,000 car, pay the difference to make sure you have the title, all of that. And again, if you cannot pay it off, selling it even if you're underwater might be your best bet. And then step three, your ultimate goal. is to eliminate your car payment all together. And so not only could this free up again hundreds of dollars for you every single month that can help to pay off other debt that you have or go into savings, you want this to be back in your life. The money that is going out in your car payment, you want back to you. So if you're someone who dreads every single time that your car needs gas or an oil change, you know, or new tires, you want to make sure that you are planning for all of that.

So if you're doing your budget every month, have car maintenance in there. So that's what Winston I have, is that we have a car line item, and everything that we need for our car on average per month is in there. And so that's for gas, maintenance, all of it. So again, planning ahead because cars cost money, even if you don't have a payment, still there. Now, you might be thinking, well, that sounds great, Rachel, how do I do that? Well, a monthly budget is going to be your best friend. And if you're not doing one, you guys, you need to do a monthly budget.

You can download every dollar. It is my favorite budgeting app. It is so great. So you can go to every dollar.com slash Rachel and actually create your first budget there. And you can do that for free and actually get started to see, hey, where can I find margin in my life? Where can I plan my necessities, which is your car and everything around it, to make sure

that you have a plan in place when something happens. All right, you guys, I am back to chat with you about our favorite topic. cars. I mean, obviously, I'm so knowledgeable on cars. No, but for real, this is such a part of our life, and we need car content to make sure that we're not overpaying for things. We know what we're doing. And let's be honest, it's just a part of our life. So let's get to it. Because unless you are, you know, riding in a taxi or taking the subway every day, you're going to have a car. You're going to have a car. And when it comes to deciding the right car to own the right way, it can get a little complicated, and especially since inflation is so high and everything still is crazy,

we need to chat about this, because apparently I'm not the only one that has noticed this. I saw an article recently with this exact point. So today, together, we're going to unpack this subject. We're going to talk about the 11 cars you don't want to have during inflation. And I'll give you all the details and share my honest reactions and opinions. Plus, stick around to hear my top three tips for car ownership. Okay, recently, consumer reports put together a list the vehicles that were the most expensive to fill with gas. Now, these aren't necessarily the cars on the market that get the worst gas mileage, just the ones that cost the most when you fill them up. And there are obviously pros and cons with every vehicle, but gas is always a consistent part

of the equation. And the cost of gas typically takes up. up space and the American budget every single week. So it's something to look at. Now, based on the average gas price of $3.65 cents, here is what we found. Number one, the Toyota Sequoia. Yep, it can hold up to 22.5 gallons and approximately 21 to 24 miles per gallon. And the cost to fill up the tank is $82.13. And you can buy this car for $61,275 new. Number two is the Chevy Tahoe, 24-gallon capacity, approximately 15 to 20 miles per gallon, and the cost to fill up the tank is $87,60, and the price for this car is $56,200. Number three, the Chevy Silverado, 24-gallon capacity, approximately 18 to 21 miles per gallon,

and the cost to fill up the tank is $87.60. And the price of this is only $36,800. it's getting a little cheaper. All right, number four is the Cadillac Escalade, 24-gallon capacity, approximately 14 to 18 miles per gallon, and it costs $87.60 to fill up, and the price of this car is $81,895. Number five is the RAM, 1,500.

It has a 26-gallon capacity, approximately 19 to 24 miles per gallon, and the cost of fill up. This tank is $94,99. And the car price for this is $39,420. Number six is the Nissan Titan. It has a 26 gallon capacity, approximately 15 to 21 miles per gallon, and the cost to fill up this tank is $94.90. And the price for this is $46,690.

Number seven, the Infinity QX80. It can hold 26 gallons of gallons. gasoline, approximately 14 to 20 miles per gallon. The cost to fill up this tank is $94.90. The car price is $74,150. Number eight is the Nissan Armada. It has a 26-gallon capacity, approximately 14 to 19 miles per gallon in the cost to fill this tank up, $94.90. And the car price is $56,520. dollars. Number nine, the Ford Expedition. It holds 27.8 gallons. That's a lot. Approximately 17 to 23 miles per gallon. Now the cost to fill up this tank. We broke it, y'all. We broke the $100 ceiling. $101.47. And the price for the expedition is $55,525. And the next, the big one. Man, I see this one around not everywhere. The Chevy Suburban. Now it holds 28 gallons, approximately 15 to 20 miles per gallon,

and the cost of Philip. This is $102.20. And the price is $59,200. And number 11, the most expensive. And this is what my husband has. So I'm like, oh no, we made a mistake. The Toyota Tundra. Okay, but it holds, I'm going to justify this one, it holds 30. gallons, 32.2, to be exact, and approximately 18 to 23 miles per gallon, the cost of that is $117.53. Oh my gosh. And the car price is $39,965. Okay, listen, I know there are a lot of factors that go in to buying a car. And you got to do what makes sense for your family, but I didn't see a minivan. I did not see a minivan there on that old list, no, a proud minivan owner. But for real, you know, if you're the SUV, it's mostly SUVs and trucks,

right, on this list, because obviously, you know, they're bigger. If you have a lot of kids, you want to look cool. I mean, you're going to get the SUV. Let's just be honest. But for real, you do want to think through, you know, hey, if this is going to cost this much to fill up the tank, every time we fill up, you know, what's that look like for our budget? And so, ultimately, though, all of this is up to you. And no matter what your priorities are, go the smart way. So here are three things to remember when it comes to buying a car. Number one, buy used until you can buy new. So buying a used car, you guys, it's great. Okay, you can find great used cars. Even two, three, four, five years old, they're going to be fine. And most of the time, the owner that bought it initially when it was brand new is going to take the hit for the depreciation. I mean, they go down so fast of value. So go and buy it, you know, a few years old. And it's great. I mean, even the things that people can do to clean. up cars, make it smell like new, it's going to be fantastic. Now, if you have a million dollar net worth, that's when we always say that you can then go buy a brand new car off the lot, because at that

point, you can take the hit of the depreciation and not affect you financially as much. But until then, buy used. Number two, pay cash. A lot of people are like, wait, what? This is crazy. Listen, a car payment is one of the worst things that you can have in your financial life, because you are taking out a loan and paying interest on something that's going down and value. So, drive a car that you can afford. It may not be a great car. It may not be beautiful and wonderful, maybe, you know, a couple thousand dollars. But drive that, save up what the average monthly car payment is. And then in a year, I mean, you're going to have thousands of dollars where you can sell that car, put it together, and step up in car and just keep going up that way. Because let's be honest,

a car is to get you from point A to point B. So don't go and waste your money on car payments. and interests. Pay cash. All right, number three, never let the value of your car or cars exceed more than 50% of your annual salary. So this is something to look at, you know, if you're a dual-income household, take both of your salaries, put them together and make sure your cars are not more than 50% of that number. Now, if you're thinking about buying or selling a car, make sure to check out the Ramsey Car Guide, because from everything, vehicle maintenance to purchasing, all of it. It is a great tool to navigate the ins and outs of the car industry the smart way. All right, I hate to be the bearer of old news, but in case you've been living under a rock,

almost everything has gotten more expensive recently. Yeah, have you noticed? We've all caught a little bit of a break, specifically, you know, with eggs and toilet paper, you know, over the last year or two, but overall inflation is still sticking around. And one area that this is majorly affecting is the cost of insurance. So everything from car insurance to health insurance to home insurance. insurance, the cost of these continue to increase, it seems like, by the day. And it's just, it is so frustrating. My sister, she went to go renew their homeowners insurance. She's like,

can you believe this? I mean, it's true. I mean, we're all seeing it. So today I'm going to give you a heads up on what to watch out for and talk through some solutions when it comes to this issue. All right. First, I started thinking about this topic when someone called The Ramsey Show and they said they couldn't get their car covered by any insurance companies. And I was hosting the Ramsey show with Dr. John Deloney that day. And we both were like, what? Really? Are you sure? We were like, totally questioning the guy. And he was like, no, really, really. So then finally, we looked it up after we got done with the call. And he was right. Like, there's a specific model of a Kia that had a bad track record with safety features or part repairs. And basically, insurance companies refused

to get involved because they didn't want to pay for the high risk and everything. And so, like, it was just, it was crazy. So then I knew, like, that was kind of going on. And then some other insurances were going up. So it's like, we just need to look at this and get the facts. So let's look at some recent stats just to wrap our head around all of this. According to the S&P Global Market Intelligence, insurance companies aim to raise home insurance premiums by more than 11% last year on average. And in addition to that, car insurance premiums are now starting to outpace inflation. So for example, Farmers Insurance raised its private auto rates to double digits in 43 states last year. And health insurance rates are rising in an estimated 8.4% of Americans,

aka 27.6 million, were going without health coverage in 2022, according to Forbes. So what happens as a result of inadequate coverage when things happen in life? Debt. Debt ends up being the safety net for many people's situations, whether it's health insurance, car insurance, all of it. And now, medical debt is really common. And honestly, it is, it is so sad. It's actually the number one cause of bankruptcy is medical debt. And you think about that. It's just, it is. It's so sad. But I think we can all say that it does suck that, like, yeah, in order to take care of ourselves, it costs a lot of money. And you have to have adequate insurance to make sure that it's covered. Because if that doesn't happen, then you are paying a premium out of pocket. And it leaves a lot

of people in financial distress. And it's really, really difficult. And so what I want to do, though, is talk through some practical solutions to this problem in a minute. But first, let's look at the why behind rising insurance rates as a whole. So there's a few reasons for this. Number one, insurance execs claim that they're being forced to raise rates because that it's legitimately required because of the lifestyle norms of people today. You know, the cost it takes to take care of things like your car being replaced or things going on in the healthcare industry. Because things are more expensive, they're having to charge more. Number two, an increase in natural disasters over the last couple of years, along with the increase of population, has affected supply and demands.

And number three, the culprit that we can all agree on, inflation. So clearly, this is a challenge for so many people, but we're feeling it even in insurance. Now, listen, I am not here to invalidate the struggle, because it is very real. But I do want to offer some solutions that help because I want you to be able to control what you can control. And sadly, we can't always control what the insurance companies are going to do, but we can control what we do with our money. All right, here are three things that I want you to do, ASAP, that are going to pay off big time. Number one, ditch unnecessary coverage. So insurance is an important part of life, but there is coverages you guys you don't need. So things like whole life insurance, you need life insurance,

but whole life is so expensive. Accidental death insurance, you don't need that. Mortgage protection insurance. Any insurance that is for kids. kids, okay? So a lot of people try to sell like a whole life policy for your child or things like that Gerber insurance, all of this stuff. You don't need that stuff. So when you take those things off the table, if you have them, that's going to save you some money. Number two, be diligent and asking questions. So whether it's phone calls to your doctor's office or a quick meeting with your HR rep at work, asking questions specifically around the health insurance stuff can be really finicky but really important because sometimes these insurance companies just bank on you not

asking questions. They send you the bill and you just keep on moving. But we've heard so many stories that people like keep pushing and pushing and pushing and they get their bill lowered because whether they found something to find print or there's errors or there's things going on, again, ask questions, dig in and that could save you some money. And number three, price out what's best for your family. Time is money people. And there are pros and cons to different coverage packages with different insurance companies. So don't forget that you hold the power when you decide your options and you get to say, hey, which option do I want? So if you and your spouse maybe have different benefits packages between both of your job, sit down and say, hey, is it better for you

to take the family and the kids on yours and I'll go as an individual or is it better for us to come together just to see, hey, what's going to save us? You know, even if it's $200 a month, that's $2,400 in a year. So it's worth the trouble to do the math and figure that out. And spoiler alert, if you got extra money, that's margin that you have to use for your life. for pay off debt or save, and that's great. Now, before I share the two types of insurances that most people skip most often, let's circle back to our chat about debt a little bit earlier.

Because if you're someone that feels the weight of the past when it comes to specifically medical debt or an emergency expense that you weren't prepared for, here's what I recommend doing. Number one, get an emergency fund ASAP. So this is a $1,000 emergency fund. And then number two, I want you to start paying off your debt. Now, again, if medical debt is one of those in there, do what we talked about earlier and ask some questions, see, hey, are there places here that the bills can be lowered at any portion? And even if they go into collections, which some of them do, sometimes you can negotiate with the collection company, get everything in writing if you can do that. But again, this is something that it's so burdensome on people because it carries such a sad story usually with it. But here's the thing, if it's a mountain, you can take it a little bit at a time. And, you know, just as I see people with student loan debt in the six figures,

but they pay it off. It takes a while, but they focus on it. They put extra money towards it, and they actually start to see it lower and lower and lower. That can happen with any type of debt, you guys. So again, having a plan puts you in control, which, again, I think is so key, and it's just one step at a time. All right, you guys, the two insurances that you want to make sure that are in place, number one, if you are a renter, please get renter's insurance. It is very inexpensive. I mean, I've seen them as low as like $12, $20. a month. Okay, they're very inexpensive. But get it, because if something happens, there's a fire, you know, a natural disaster, whatever, and everything is gone. That's all your personal belongings,

like making sure that all that's covered. And it's really inexpensive. It may not happen, but again, it's something to protect yourself. And then number two, identity theft insurance. So this is a big one, too, in our world that is so digital, that our data is out there. There is so much going on, especially even that we pay online so much with stuff. Like, everything is out there, making sure that your identity is protected. And Zander Insurance is a great place to do this. And just to have somebody on your team that if it happens or when it happens, because I feel like identity is so common now, they take care of that for you,

which is great. Oh, you guys, I know it's the rise of insurance and it's just, it is so much. It feels like in every category, but control what you can control. All right, if you guys love this show, make sure to leave a review because your feedback helps us out so much. And while you're at it, make sure to subscribe to the podcast and share it with your friends and family who want to know more about their money. Thank you guys so much for listening. And remember to take control of your money and create a life you love.