There is an inverse correlation between the price of the car you drive and building wealth. Cars are possibly the biggest wealth-destroying purchase you will make throughout your lifetime. From the moment you drive the car off the dealer lot, you lose up to 30% of its value.

Don’t be tempted into driving a nice car. Many of us justify spending extra on a nice, new car because it is something we ‘deserve.’ The prestige of displaying success intoxicates too many people into spending way too much on transportation. Don’t get me wrong. I enjoy a nice car. But there is a time and a place for making a significant purchase on a nice car. Its not when you are trying to build wealth for your family. Its after you have achieved wealth and can easily afford a large purchase

Cars are a depreciating asset. They provide utility to our lives, get us to work and provide freedom to travel. But their value depreciates over time. They cost money to insure, run, and maintain. They are not an investment. They are an expense. Understanding they are an expense (not an asset), is the essential toward managing that expense.

The first restraint is don’t finance the purchase. If you can’t pay cash for your car, you can’t afford it. And leasing doesn’t count. Leasing is the most expensive way to finance an automobile. If you stick to a cash purchase you will do well to manage your expense.

Secondly, your vehicles should never be more than half of your annual income. This includes cars, trucks and motorized toys (motorcycles, ATVs, boats, snowmobiles). If the purchase price of your vehicles exceeds 50% of your annual income, you are destroying too much of your biggest wealth building tool – your income.

In her book, The Next Millionaire Next Door, Dr Sarah Stanley Fallow, listed the top three cars driven by millionaires

  1. Toyota
  2. Honda
  3. Ford

Millionaires, people who have successfully built wealth, learn how to manage their transportation expense and purchase cost friendly cars with reputation for lasting a long time. In fact, in her father’s book, The Millionaire Next Door, Dr. Thomas Stanley noted the average millionaire’s car is 10 years old.

Buy a used, reliable modestly-priced vehicle for cash. Don’t waste your income on supporting an excessively expense vanity car. Build wealth for your family to create freedoms and choices.

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