The argument made by Dave Ramsey against the middle class purchasing new vehicles.
In a bid to help middle-class families make financially savvy decisions, financial guru Dave Ramsey has put forth compelling arguments against purchasing a new car. The crux of his argument lies in the steep depreciation that new cars experience and the long-term financial implications.
New cars, according to Ramsey, lose approximately 60% of their value within the first five years. This rapid depreciation makes buying new a financially disadvantageous choice, as the car's value drops significantly immediately after purchase.
Ramsey strongly advocates for buying cars outright with cash, rather than financing or leasing. He argues that financing typically leads to paying on a depreciating asset, which is a poor financial strategy, especially for middle-class families who would benefit more from saving and avoiding debt.
The expert suggests that leasing or financing does not help build wealth. Instead, he encourages middle-class buyers to save the amount they would otherwise spend on a car payment (often around $500/month) until they can buy a used car with no strings attached.
Ramsey also proposes a rule of thumb regarding net worth. He asserts that purchasing a new car is only advisable if you have significant disposable income, such as a net worth of $1 million or more; otherwise, buying a quality used car is the smarter option.
Practicality over preference is another key aspect of Ramsey's car-buying philosophy. He emphasizes selecting a vehicle that meets long-term family needs and budget, rather than giving in to the temptation of a sporty or flashy new car that may not be practical or affordable in the long run.
In essence, Ramsey's financial arguments against new cars focus on steep depreciation, avoiding debt, prioritizing practical and affordable choices, and emphasizing cash purchases. The goal is to protect middle-class families from losing wealth through poor vehicle investments. Every dollar spent on car payments, according to Ramsey, represents money that could be invested in building long-term wealth.
By advocating cash purchases, Dave Ramsey emphasizes that new cars lose approximately 60% of their value in the first five years, making them a poor financial investment especially for middle-class families. Ramsey discourages financing or leasing due to the long-term debt implications, urging families to save the monthly payment amount and invest it in building wealth instead. According to Ramsey, prioritizing practical and affordable choices over preference is key in car-buying decisions, as buying a quality used car is the smarter option for most.
