If you're working on getting out of debt, you might be tempted to upgrade your car. After all, who doesn't want a shiny new ride? Dave Ramsey, a personal finance expert, has a different opinion and believes you should wait. Ramsey advises sticking with an affordable, dependable and cash-paid vehicle rather than purchasing an expensive one. And there’s a valid explanation.
Don't Miss:
- Are you rich? Here’s what Americans think you need to be considered wealthy.
- Warren Buffett once said, "If you don't find a way to make money while you sleep, you will work until you die." These high-yield real estate notes that pay 7.5% – 9% make earning passive income easier than ever.
According to Ramsey, buying a fancy car while trying to get out of debt can hold you back from reaching your financial goals. He says, "If you want to be middle class the rest of your life, keep a car payment." Ramsey’s idea here is that car payments are a trap – keeping you in a cycle of debt instead of letting you move forward. His advice? Start with a "beater" car that just gets you where you need to go.
Trending: Can you guess how many retire with a $5,000,000 nest egg? The percentage may shock you.
Ramsey advises paying cash for a reasonably priced old car or what he calls a “beater,” and prioritizing debt repayment. The goal is to position oneself for a better financial future, not to impress people or keep up with the neighbors. When you're debt-free, you can start thinking about buying your dream ride – in cash.
Ramsey also notes that the majority of millionaires don’t own expensive vehicles. They are more likely to drive Ford, Honda or Toyota vehicles. It’s not that they can’t afford fancy cars; rather, they’ve put their financial security ahead of flash. For example, Google founders Larry Page and Sergey Brin have been known to drive practical Toyotas and Jeff Bezos, one of the richest people in the world, has driven a Honda Accord.
Trending: $100K Sitting In A CD Account, Should I Move Money Into The Stock Market?
The mindset is simple: avoid car payments and avoid unnecessary debt. According to Ramsey, living debt-free allows you to truly own your life. He believes that instead of always seeing cars as a crisis that needs solving, we should be proactive and take control. By buying what you can afford in cash, you avoid the stress of a monthly payment and can redirect that money toward your future.
See Also: How do billionaires pay less in income tax than you? Tax deferring is their number one strategy.
And it's not just about the car itself. Ramsey encourages people to let their teenagers buy their first car, too. He says buying a car for your teen can create "ridiculous expectations" about money, potentially affecting their financial mindset for life. Rather, he recommends allowing them to save money and purchase their vehicle or provide a matching deal to help them. This method teaches important lessons about saving money, being responsible and making significant purchases.
Read Next:
- Many are using this retirement income calculator to check if they’re on pace — here’s a breakdown on how on what’s behind this formula.
- Studies show 50% of consumers think Financial Advisors cost much more than they do — to debunk this, this company provides matching for free and a complimentary first call with the matched advisor.
© 2024 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.
Trade confidently with insights and alerts from analyst ratings, free reports and breaking news that affects the stocks you care about.
