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A radical idea to some, but worth a shot at implementing
Many have told me my philosophy about buying cars is extreme, but these same people have little savings, plenty of debt, and never pay off their car note before trading it in for a new one.
I Have Three Questions For You
Question 1
Why would you compromise your financial net worth, portfolio, and debt load for a depreciating asset?
Question 2
What is the reason you need a new car? Is your current one broke? Do you drive that much?
If you don’t have a car, would buying a car save you more money than hitching a ride with uber, Lyft, or public transportation?
Question 3
How much will you increase your current debt load if you buy a new car?
The Next Piece Of Radical Advice
Don’t Buy A Car More Than 1/10 Your Gross Income
Spend no more than 1/10th of 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 is some golden advice.
If more people took this approach with the cars they bought, they would experience more financial peace, less anxiety, and increase their ability to invest more money into appreciating assets.
Before I Bought My Next Car, I Set The Following Stipulations
Call me crazy, but I call it financial self-discipline.
The following stipulations HAD to be met at all costs before I bought my next car:
Be able to purchase my next car while still painting a positive net worth.
Be without a car note for at least five years after paying off the note.
Keep my car for at least ten years without purchasing another.
Pay off my car in three years instead of six.
Be able to purchase my next car with cash.
Reach 200k mileage.
As I crossed off and completed my list, I kept adding more.
So this is not my most recent list; I’ve added a few more stipulations that are goal related.
Why do I do this? Because it is more important for me to think through the rapidly depreciating car purchase from every angle.
Before you throw away thousands of dollars, you should always ensure it makes sense.
The more time you think about it, the more wealth you can build in the meantime, and the more prudent your decision will ultimately be.
This content is for informational purposes only — not professional advice. Consult a qualified professional before making any major decisions.