The Truth About Cars and Debt

Cars are one of the biggest expenses most people have—and one of the easiest ways to sabotage your financial future. While it’s easy to convince yourself that a new car is a “need,” the truth is that vehicles lose value fast. That means every dollar you put into a car is a dollar that’s not working for your future.

Keep Wheels and Motors in Check

As a general rule, the total value of all things you own with wheels and motors—cars, trucks, boats, RVs, motorcycles, and more—should not exceed 50% of your annual income. If your household income is $80,000, then the total value of everything with a motor should stay under $40,000.

Why? Because these are depreciating assets—they go down in value the moment you buy them. Every mile you drive or hour you use them reduces what they’re worth. Keeping your total “motor value” within reason protects your long-term financial health and ensures you’re not tying up too much money in things that lose value over time.

A good used car that is less than three years old is often as reliable—or even more reliable—than a new car. A new car costing $48,000 (the current average) will lose about $9,600 of value in the first year you own it. That’s almost $175 per week in lost value. Choosing a lightly used vehicle can save you thousands while still giving you a reliable car.

Manage Your Car Payment Wisely

If you do have a car loan, your car payment should never exceed 10% of your monthly take-home pay. For example, if you bring home $5,000 per month, your car payment should be no more than $500. Anything beyond that means you’re driving too much car for your budget.

The Real Cost of Car Payments

Car payments don’t just take money out of your pocket today—they also steal from your future. Every month you send a payment to the bank, you’re growing their wealth, not yours. Imagine what would happen if you invested that same $500 each month instead. Over time, that could add up to hundreds of thousands of dollars.

The goal is to reach a point where you never have another car payment again. That means driving what you can afford, paying off your current car, and saving for the next one. See our article on Breaking Free from Car Payments. Once you own your vehicle outright, you gain flexibility, margin, and freedom.

Why Leases Don’t Make Sense

Leasing may sound appealing—low payments, a new car every few years—but it’s actually the most expensive way to “own” a car. You’re essentially renting a depreciating asset and paying extra for the privilege at high rates of interest (which is not disclosed). At the end of the lease, you have nothing to show for all those payments. Studies show that leasing is generally the most expensive way to have a car in the long run.  Use this calculator to find out the hidden interest rate with your car lease.

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The bottom line: Cars should be tools, not trophies. Drive something reliable, keep your payments (if any) manageable, and aim for the day when your next car is bought in cash. That’s when you’ll truly be in the driver’s seat—financially and otherwise.