Would you like to drive free cars for the rest of your life? And what if I told you that you could become a millionaire while doing so? According to a plan entitled, "Drive Free, Retire Rich" on Dave Ramsey's website, you can do just that. Interested? If you are like me, then I bet you are. Who wouldn't want to drive a different car every 5 to 6 years without ever making another payment?
The first time I viewed this video I was so excited and inspired that I made my wife watch the video with me. I sent the link to my family, and I even posted the link on my personal finance class discussion board for my classmates to view. The video assumes that by making a car payment to yourself every month for 6 years and investing it in a mutual fund earning 12% each year, you will be able to purchase new cars off the interest earned in the fund. It assumes that after the first 6 years of payments, you will never again have to touch your principal investment, or have to make another payment and still purchase an $18,000 vehicle every 6 years.
I first viewed this video during the summer of 2008, almost one year ago to the date. Things sure have changed since then.
Although it appears we have rebounded from the market's bottom, the majority of investors watched their portfolios lose 50% of their values during the past 6 months to a year. What if you had begun paying yourself that car payment, let's say $500, every month beginning in January, 2003? You would have invested $36,000 by January, 2009. Now if your investment had actually grown 12% for 5 1/2 years, then your total investment would have grown to $46,423! Awesome. But we all know what happened during the fall of 2008. For the sake of simplicity, let's assume like many, your portfolio was roughly sliced in half by January 2009, the time when you are supposedly able to make your last car payment and drive free cars for the rest of your life. Your balance would have fallen somewhere in the $20,000 to $25,000 range. Now this would enable you to purchase your next car, and you will never have paid a dime in interest to the bank. However, you would have been sorely dissapointed once you realized that you would have to continue to make car payments to purchase your next vehicle, even if the payment is to yourself. (Assuming your purchase price is near $20,000 as illustrated in the video.)
I do think this is a great idea, and one that my wife and I are working to implement. But you must keep in mind that if something sounds too good to be true, it probably is. This video totally ignores the risk involved when investing in stock mutual funds. Many financial experts recommend keeping any money you will need in 5 years out of the market, because of the risk involved. This is something to keep in mind when considering if this plan is right for you and your family.
What are your thoughts on this idea? I would love to hear what others think regarding this one! You can view the video here.
