Dave Ramsey guarantees that if you get a car payment, “you’ll be broke your whole life” and says the average millionaire drives a four-year-old car with 41,000 miles — if you invest the payment, you can get $5 instead earn a million

By | February 29, 2024

Despite being a self-proclaimed car enthusiast, financial guru Dave Ramsey calls cars a significant financial burden. Through a series of TikTok videos, he underlines the crucial decision to buy vehicles with cash and the financial pressure that car payments bring.

Ramsey compares houses, which generally increase in value, to cars, which decrease in value, saying, “I guarantee you’ll be broke your whole life as long as you keep making car payments because it’s the most expensive thing you buy something that decreases in value.”

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He points out the irony of high car payments for luxuries like DVD players at the expense of important financial goals like college funds. Ramsey highlights the societal shift that views minivans as status symbols and questions the wisdom behind such spending, especially when a vehicle like the Honda Odyssey commands a price comparable to luxury brands.

Ramsey shares insights into the spending habits of millionaires when it comes to vehicles. In a TikTok video he said: “The average millionaire drives a four-year-old car with 42,000 miles on the odometer, and of course it pays off.” This practice is very different from the prevailing consumer behavior of accepting car payments that now average more than $500 per month for 84 months.

He emphasizes that these individuals have not had car payments in decades, a factor he attributes to their financial success.

Ramsey calculates the opportunity cost of such payments, which suggests that investing the same amount between ages 30 and 70 could earn about $5 million in a Roth IRA, negating the trade-off between short-term satisfaction and long-term wealth term is illustrated. “I hope you like your car,” Ramsey jokes, underscoring the trade-off between immediate satisfaction and long-term financial growth.

Ramsey’s advice extends to the practice of purchasing vehicles, warning against buying new due to the steep depreciation that cars experience in the first four years, losing 60-70% of their value. He suggests buying a high-quality used car as a financially sound alternative, except for individuals with a net worth over $1 million, for whom new car depreciation has a smaller impact.

Through these observations, Ramsey’s message is clear: the path to financial wellness involves making informed, wise decisions about one of the most common yet important expenses: vehicles. His emphasis on avoiding car payments and considering the financial implications of vehicle depreciation serves as a guide for those pursuing financial success.

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In a video from the Ramsey Show, he offered advice that highlighted a common pitfall among the middle class: owning two expensive cars with hefty monthly payments. “The way you know someone stays in the middle class is if they have two really nice cars with clear payments of five to seven hundred dollars on a middle class house,” Ramsey explained. He described this scenario as a “huge indicator” that such individuals would remain in the middle class until they change this habit.

Ramsey addresses concerns about purchasing used vehicles and offers reassurance about their reliability. “If you drive a car you bought two months ago, it’s now a used car,” he argues, noting that modern vehicles, if properly maintained, can last between 200,000 and 300,000 kilometers. According to him, this sustainability should remove the fear of buying second-hand cars.

Ramsey’s advice resonates with a broader financial philosophy that prioritizes long-term wealth accumulation over immediate gratification. His perspective encourages individuals to think about the true costs of their purchases and how these decisions align with their financial goals.

Consulting a financial advisor can further enhance the benefits of Ramsey’s approach to managing car costs. A professional advisor can offer personalized investment strategies tailored to individual financial situations and goals, potentially maximizing the return on the money saved by avoiding new car payments. They can help navigate the complexities of investment options, tax implications and retirement planning, and ensure that decisions such as buying a used car instead of a new one align with a comprehensive financial plan.

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*This information is not financial advice and personal guidance from a financial advisor is recommended to make informed decisions.

Jeannine Mancini has written about personal finance and investing for the past thirteen years in various publications, including Zacks, The Nest, and eHow. She is not a qualified financial advisor and the contents of this document are for informational purposes only and do not and do not constitute investment advice or any investment service. Although Mancini believes that the information contained herein is reliable and from reliable sources, no representation, warranty or undertaking, express or implied, is made as to the accuracy or completeness of the information.

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This article Dave Ramsey guarantees that if you have a car payment, “you’ll be broke your whole life” and says the average millionaire drives a four-year-old car with 41,000 miles – if you invest the payment, you could make $5 million to deserve. Instead originally appeared on Benzinga.com

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