Dave Ramsey Has A Blunt Financial Wake-Up Call For Anyone Thinking About Buying A New Car
Let’s face it, there’s something undeniably appealing about driving off the lot in a shiny new car. The fresh smell, the sleek design, and the status symbol it may represent can be alluring. But have you ever stopped to think about the actual cost of that brand-new vehicle? David Ramesy, the renowned financial expert, puts things into perspective with a brutal truth about new cars.
New Cars Depreciate “Like a Rock”
“A new car is the largest purchase most of us make that actually goes down in value and it goes down in value ‘like a rock.’ That’s where Chevy got the line!,” Ramesy writes on his Facebook page.
This comparison is far from being an exaggeration. A car is not an investment; it’s a rapidly depreciating asset. As soon as you drive it off the lot, it loses significant value.
The Staggering Numbers
Ramesy provides a sobering example: “If you buy a brand-new $28,000 car, it’s going to be worth $8,400 in four years. That means you’re losing $408 every month in depreciation.”
To help us visualize this loss, he adds a startling image: “Once a week on your drive to work, roll down the window and throw a hundred-dollar bill out. Can you afford that? I don’t think so.”
No Good Deals on New Cars
According to Ramesy, there’s no such thing as a good deal on a new car. The instant depreciation means you’re immediately losing money, and there’s no way to recover that loss.
“Is it ever okay to buy a brand-new car?” he asks, and then answers: “Sure, when you have a million dollars in the bank and can actually afford the financial hit of throwing tens of thousands of dollars away just for fun.”
The Millionaire’s Way
If you’re looking for financial wisdom, why not take a page from the book of millionaires? Ramesy’s advice is to buy slightly used and pay with cash. This approach allows you to avoid the immediate depreciation hit and to make a financially wise decision.
The 20/4/10 Rule: A Guideline for Smart Car Buying
While discussing the pitfalls of buying a new car, it’s worth mentioning a valuable guideline known as the 20/4/10 Rule. This rule is a simple yet effective way to gauge whether you can afford a car, whether new or used. It suggests that you should put down at least 20% of the car’s value as a down payment, finance the car for no more than four years, and ensure that the monthly car payment does not exceed 10% of your gross income.
By following this rule, you’ll not only avoid buying a car that’s out of your financial reach but also minimize the impact of depreciation and interest costs over time. It aligns perfectly with Ramesy’s philosophy of buying within your means, and it’s a practical tool to implement alongside his advice to buy slightly used and pay with cash.