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The Invisible Math of Car Buying: Ramit Sethi Reacts to People Who Bought Too Much Car

I Will Teach You To Be Rich · ▶ 17:22 · 10 min read
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Overview

Ramit Sethi opens with a type of person he says he sees all the time: someone who is fairly smart with money but drives a car they can barely afford, and who has convinced themselves the purchase made sense. In this video he reacts to clips of real people dealing with the consequences of buying too much car, tries to pinpoint where each decision went wrong, and ends with his own test for whether a car purchase is a good one.

10 min read
0:49

Signing Paperwork for an Hour and Leaving With an Unwanted Car

The first clip shows a woman explaining how she ended up with a tiny car. A sales manager kept bringing her paperwork to sign. She kept agreeing to sign it while telling herself she wasn't actually buying the car. After about an hour of signing, she had bought it. The clip then shows her struggling to fit inside: she can barely get in or out, has to curl up to sit, and has to shift her leg just to press the brake. Sethi guesses it might be a Miata. She now plans to list it on Facebook Marketplace and try to sell it. When asked whether anyone she knows might want it, she says no, because everyone she knows is practical, and jokes that she is "a victim of good-looking men."

Sethi compares this to guests on his podcast who walked into timeshare presentations laughing that they would never buy, then walked out having bought one, even though they were already in debt. When he asks why, they tell him the salesperson "was just so nice." He imagines the dealership pitch: times are tough, but there's a special "friends and family" deal just for you.

2:54

Why Saying No Matters

For Sethi, the core problem in this clip is an inability to say no. He suggests that many people have never said no to their kids, their partner, or a timeshare salesman. He offers an observation from his own conversations: in his account, 100% of the people he speaks with who are in credit card debt cannot say no to their children. His broader claim is that if someone can't say no with money, they almost certainly can't say no in other parts of life.

He acknowledges the video is funny and the woman seems to be having a good time. Still, he estimates that tens of thousands of dollars will probably be lost within a matter of weeks, and says he takes that seriously. He asks viewers how long it would take them to save $12,000 and how many hours of work that represents, arguing that many people don't respect money. He describes his own approach: for most purchases he doesn't look at the price because he planned for it months or years earlier, but for big purchases like a car, a home, or a vacation, he is very careful about running the analysis.

5:40

A $108,000 Tesla That Lost $61,000 in Two Years

In the second clip, someone asked about their worst recent purchase names their Tesla. They have driven it for two years and say it lost $61,000 in that time. They bought it new for about $108,000, and it is now worth roughly $40,000, losing around half its value. The owner also shows parts of the car held together with duct tape. They say the part keeps falling off, that they see the same thing on other Teslas, and that the problem is known but not yet fixed. The interviewer remarks that their own $25,000 Honda looks better.

Sethi notices that people tend to laugh about their car losses, as if overspending on cars is just part of being American. He breaks the number down: losing about $60,000 over two years is roughly $2,500 a month, or about $80 a day "lighting it on fire." He grants that depreciation isn't quite the same as burning money. His point is that almost no one would happily write a $2,500 check or put that much on a credit card every month. Yet people accept the same loss when it happens through a car, through a financial advisor charging 1% of assets under management, or through a house with invisible "phantom costs" such as interest. According to Sethi, as long as people don't have to personally swipe a card, they tend not to care. He argues that living a rich life requires being conscious of these costs.

7:45

A Lesson Each Generation Relearns

The Tesla owner's takeaway is to never buy a new car, especially a new Tesla from an early production run. They say they would rather wait a couple of years. Sethi finds it interesting that so many young people buy an expensive car, then make a video warning others not to buy new. He says videos like this have been made for something like 50 years, and that young people seem to insist on making their own mistakes instead of learning from older people.

He adds that a $108,000 car requires a very high income. Even though he says he earned around $120,000 to $150,000 or more in his later twenties, buying a car at that price would have been inconceivable to him then. The figures people cite for their first cars, he says, blow his mind.

9:58

Two Luxury Cars at Once During the Pandemic

The third clip features a creator who bought two high-end cars during the pandemic, a BMW and a Range Rover. They say they regret it. They could afford the cars then and can now; the regret is that they no longer care about keeping up appearances. They call the cars "dumb investments" and say prices were inflated during the pandemic, so the cars lost value quickly and aren't worth what they still owe. Their lesson: if you want a higher-end car, lease it rather than financing it for six or seven years, because a lease gives you an easier way out and keeps you in a new car. Now 30, they say they want to actually be wealthy, with real assets and real money in the bank, rather than look wealthy.

10:20

Cars Are Not Investments

Sethi seizes on the word "investments." He defines an investment narrowly as something that has the possibility of generating a financial return. If you stretch the definition to things like health, he argues, then his sparkling water could count as an investment because it brings him joy and makes him more productive in his business. He calls that delusional.

He thinks Americans like to "wrap ourselves in the shroud of an investment" because they hate admitting they simply like luxuries. He wants people to say it plainly: I like the luxury of a new car, or I like spending $1,000 a night on a hotel. He stresses that buying luxuries is fine as long as you can afford it and love it.

12:21

Why Leasing Isn't the Real Takeaway

Sethi explicitly disagrees with the creator's conclusion. In his view the lesson is not "lease instead of buy." The lesson is that taking on two major expenses at once hits hard, often in ways people don't realize. He compares it to people who have a child, buy a car, and move into a new house in the same year, which he describes as financially devastating because they weren't prepared for everything at once.

He also points out that a lease doesn't necessarily save money. It just means you pay for the depreciation over the first 18 months, two years, three years, or however long the lease runs. His alternative advice has two parts. First, whether the car is entry-level or luxury, run the numbers carefully, because you need to know you can afford it both today and five years from now. Second, don't rush to buy everything at once.

14:03

Sethi's Own Car Story

Sethi then describes his own history. He drove a four-door Honda Accord for 19 years, kept it meticulously maintained, and says it looked brand new. When he and his wife chose "beauty" as their theme for a year, his wife pointed out that the car was 19 years old and suggested it might be time for a change. They gave the Accord to someone who needed a car but couldn't afford one, which he found gratifying.

They then leased a new electric vehicle after running the numbers carefully. He shares two lessons from that experience. First, even with careful planning and the buffer he always builds in, the car turned out more expensive than he had projected. Second, after about three months they asked each other what they thought of it. To them it was a real luxury: their old car didn't even have Bluetooth, and the new one had massaging rear seats and many cameras. Still, they concluded "it's just a car" and that they didn't care about it. After 18 months they returned it and went car-free. He notes that he got to the recording location by sitting in the back of someone else's car.

His point is that buying an expensive car in his twenties would have locked him into tens of thousands of dollars of spending. Instead he bought a modest car he could easily afford, drove it for years while figuring out whether he cared about cars, and experimented carefully when he tried something nicer. If he did it again, he says he would probably rent a car on Turo for a couple of days to see whether he truly loved it. In his view, people get trapped by jumping ahead too quickly without asking whether they actually love what they're buying.

16:22

The Test That Matters More Than Buy vs. Lease

Sethi closes by setting aside the usual arguments: buy or lease, new or used. The test he cares about more is whether the car makes your life better or more stressful.

A good car purchase, as he describes it, fits comfortably within your income, doesn't require you to think about it every month, and supports your lifestyle. When you get it right, the car "just works," and you aren't worrying at the end of each month about where the payment will come from. A bad purchase forces you to worry about money, to make trade-offs you didn't plan for, and locks you into years of payments you may not know how you'll cover. His final warning: if your car makes you hesitate to go out to dinner, it is shaping your life in ways you never intended.

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