Is Your Car Running Over Your Ability to Build Wealth? Here’s How To Know
Written by
Laura Bogart
Edited by
Kristen Mae
Commitment to Our Readers
GOBankingRates' editorial team is committed to bringing you unbiased reviews and information. We use data-driven methodologies to evaluate financial products and services - our reviews and ratings are not influenced by advertisers. You can read more about our editorial guidelines and our products and services review methodology.
20 Years
Helping You Live Richer
Reviewed
by Experts
Trusted by
Millions of Readers
Maybe you’ve gotten your first promotion and you’re revving up to show off your new status with a new set of wheels. Or perhaps you’ve come into an inheritance from a beloved grandmother. What better way to honor her legacy of charity and compassion than by parking a flashy muscle car in the garage?
A gorgeous new car may seem like a rewarding purchase, but it might actually be hindering your ability to grow and sustain your money. From driving it off the lot to taking it to the repair shop — even for routine maintenance — your car could become an unexpected, high-octane money pit.
Fortunately, there are ways to know whether the occupant of your garage could be sending you to the poorhouse.
You Overpaid for Your Car Off the Lot
As co-host of The Money Guys show, Bo Hanson, CFP, is no stranger to helping people budget better and build wealth. When it comes to cars, he says there’s only one kind of car that can make you a millionaire — and it’s the car you don’t have to make monthly payments on.
He shared that the average car payment is now $735 per month, and that people are generally financing cars for almost 68 months at an interest rate of 7.2%. Essentially, you’re stalling out financially before you’ve even taken the car off the lot.
Hanson added that the team at The Money Guys prefers listeners to pay for their cars in cash outright. However, acknowledging that for some people, this option simply isn’t possible, he did offer another solution: the 20/3/8 rule.
Essentially, you’ll want to put 20% down, finance for no longer than three years, and ensure that your car payments don’t exceed 8% of your monthly gross income. “What this rule is, is allowing you to buy a reasonable, reliable car,” said Hanson. “What this rule is not, is allowing you to get into a little more car than you can afford. Remember, we’re talking about Corollas, not Land Cruisers.”
You’re Paying Too Much in Maintenance
When it comes to cruising over the cost-effectiveness highway, a little research into the car you’re buying can help you avoid costly potholes. Previously, GOBankingRates spoke with Joyce Ann Gutierrez, an auto expert at 4WheelOnline, about the ways you can ensure you’re not stuck with a lemon.
Gutierrez said that if a car comes with incomplete or inconsistent information or records, a price that seems a little too good to be true, multiple owners or re-sales, or numerous mechanical or repair issues after purchase, you’ve likely got a lemon on your hands — a car that can cost you a fortune in maintenance and upkeep.
Even if you have a perfectly functioning vehicle, neglecting regular maintenance checks and standard repairs can lead to damage that may cost hundreds or even thousands of dollars. So get that oil change, even if you hate waiting in the lobby of your local Mister Tire.
You Don’t Focus on Reliability
When Brian Preston, CPA, CFP, PFS, co-host of The Money Guys, shared a story about talking to someone who was buying a new car, he was appalled by the other person’s choice. Preston revealed that his conversation partner’s soon-to-be luxury car chariot had a miserable rating from Consumer Reports. The other fellow brushed off Preston’s concerns, saying that he didn’t plan on keeping the car for more than three years anyway.
Flipping from one elite luxury car to another in short intervals is not a way to build wealth — it’s a high-speed path to wasteful spending. To truly get the value from your car, plan to own it for at least eight years, though 10 years is even better. Adopting a mindset that prioritizes longevity will push you away from trend-chasing and leave you in a better position to find a reliable, affordable car that will last.
More From GOBankingRates
