Ramit Sethi's Warning: Hidden Costs of Homeownership and Car Buying You Need to Know
Personal Finance Expert Warns Against Common Spending Mistakes
Ramit Sethi, the New York Times bestselling author of “I Will Teach You To Be Rich” and host of Netflix’s “How to Get Rich,” has identified the two biggest spending mistakes Americans make: overspending on homes and cars.
Sethi, whose net worth is estimated at $25 million, argues that Americans have developed a “religion” around ownership, leading them to overlook significant costs that might make renting a more financially sound option for some individuals.
“There’s a societal pressure to own homes and cars, but people often fail to consider the ‘phantom costs’ associated with ownership,” Sethi explained. These phantom costs include interest expenses, repair bills, transaction costs, and opportunity costs.
In the housing market, Sethi points out that home values have increased by 50% since the pandemic, with the median sale price of a home in the US exceeding $412,000 in the second quarter of this year. Rising interest rates, real-estate agent fees, and insurance further add to the cost of homeownership.
To illustrate his point, Sethi compared renting an apartment in New York City for $3,000 a month to owning a condo costing $6,600 per month. He suggests using online calculators to help decide whether renting or buying is the better financial choice, emphasizing that savings from renting could be invested in low-cost index funds for potentially greater returns.
Regarding car ownership, Sethi criticizes the trend of buying large SUVs when having children. With car prices increasing by roughly 25% for new vehicles and the average new car payment reaching $735 a month, according to Lending Tree, Sethi advocates for more financially sensible alternatives. These include keeping an existing car, opting for a smaller vehicle, or even forgoing car ownership altogether.
Sethi, who owns a 2005 Honda Accord and has deliberately avoided purchasing homes or condos, stresses the importance of financial awareness and informed decision-making. He notes that overspending on housing and cars often leaves little room for other expenses, leading to arguments over smaller purchases due to a lack of understanding about financial connections.
“It’s crucial to run the numbers and make informed decisions,” Sethi advises. “I’m not strictly for or against renting or owning. What’s important is spending on things that truly matter to you, even if they’re luxury items, as long as they align with your personal values and financial goals.”
By highlighting these common financial pitfalls, Sethi aims to encourage individuals to reassess their spending habits and make more informed choices about major purchases like homes and cars.
