How Much To Spend on a Car?
Do you know that how much you spend on a car affects your wealth in the long run? Yes, This is true. Buying a Car is a Financial Decision and what will be your future wealth will really depends on which car you buy in the which stage of your life?
What most of the young working couple do is, they buy expensive and luxurious cars during the first 5 years of their working life. This is because they are earning a lot. But they don’t realize that this financial decision will erode their over all wealth over a period of long time.
Ideally you should buy a car which is less than 1 % of your total net worth. Rich people buy their new car in this way. While middle class people buy a car that may be worth of 30-70% of their total net worth…!!!
You will ask me than that, in my city I am seeing lots of luxurious cars. Does it mean that all of them are rich? Well, No. 95% of them are upper middle class. They just earn more and that’s why they qualify for large loans. But in reality they have a little accumulated wealth.
Remember, A Wealth is something which you accumulate. Your Income is not your wealth. Many people don’t agree with this argument. But this is the Truth. Your Bank or a Car Company will never tell you this Truth. Because they are not in the business of spreading financial awareness to the people. So if you understand the meaning of this article than never buy a car that is worth more than 1% of your total net worth.
Now, what if your current net worth is very low and it’s 1% is not sufficient to buy a new car? Well, than buy a second hand car. The people who are rich today have drive the second hand car for several years of their lives and that’s why they are rich today.