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One financial rule you should ALWAYS follow
Drum roll, please.
You guessed it.
Car debt.
Why Do People Acquire 6 Figures of Car Debt?
One-person and multiple-person households hold six figures worth of car debt, and I always ask myself, like why?
The interest rates suck.
You end up paying way more than the car is worth.
You stop loving your car after the new car high wears off.
The rate of return on the investment is frequently low unless it’s bringing you money, which is often not the case unless you drive to a job that pays you significantly well to commute to work every day.
My First Car Note Was 14k
Avoid car debt like the plague.
Don’t throw away years of your life and years of paychecks on car notes.
I acquired my first car note in college for 14k and put 2k down. I got a really great interest rate at the time and a reasonable car payment on a six-year loan.
Instead of paying off the loan in six years, I decided to pay it off in 3 years, so I could not only pay little interest but also eradicate the loan altogether.
It was such a drag to make that payment every month.
For the past seven years, I’ve been free of car payments, and it’s an epic feeling.
Would I ever get another car payment?
Yes, but I will only do this because whatever car I buy next, I will have the cash in the bank to pay for it outright.
Whenever you buy a car, follow the 1/10 rule
Follow The 1/10 Rule For Car Buying
I read an interesting article by Financial Samurai that discusses the 1/10 rule everyone should follow when buying a new car. Here it is:
The 1/10 Rule: If you’re looking for a car buying rule, the 1/10th rule will help you spend responsibly, reduce your car ownership stress, and boost your net worth over time.
The rule states that you should spend no more than 1/10th your gross annual income on the purchase price of a car. The car can be new or old. It doesn’t matter so long as the car costs 10% of your annual gross income or less.
Buying too much car is one of the easiest and biggest financial mistakes someone can make. Besides the purchase price of a car, you’ve got to also pay car insurance, maintenance, parking tickets, and traffic tickets.
– Financial Samurai
This content is for informational purposes only — not professional advice. Consult a qualified professional before making any major decisions.