Vehicles and Your Net Worth
by Justin Lukasavige
When most people study their finances to try and decide
how much money to set aside for retirement, when to save
for their kid's college and whether or not to pay off
their home early, a crucial part of the equation is usually
left out. The missing step is vehicles.
What kind of vehicle should we be driving and how much
should we spend on them? What makes sense in a solid financial
plan?
Nothing screams status to most people more than an automobile.
When your neighbor pulls up in a new car, isn't their
usually a crowd of people secretly admiring it, saying,
"Wow, George must really be making it!" Think
about it, we usually assign wealth and status to the people
who drive really nice cars.
The truth is, if George is like the majority of Americans,
he is dragging around quite a bit of debt with that new
car. Over 70% of cars on the road today are hauling either
a lease or car payment in the trunk. And you've seen the
statistics that say if you lighten the weight of your
car you'll get better gas mileage, right?
The rule I use for automobiles, and anything with an engine
really, is to add up all of their values. If the combined
dollar amount is more than half of your annual household
income, then you need to think about making a change.
Let me put this in perspective. I love nice things, and
especially nice cars. I want to have those nice things,
but I do not want those things to have me. See, if you
have more than half of your income tied up in things that
are going down in value ('like a rock' usually), then
your financial plan simply does not make much sense.
There is certainly a time and a place to buy nice vehicles,
but that time only comes as you get out of debt and have
a fully-funded emergency fund of 3-6 months of living
expenses in place. At that point you are free to purchase
nicer things such as cars, but if you also want to save
for retirement, put your kids through college and maybe
even pay off your home early, make sure to live your financial
life in the right order.
Can you delay your pleasure long enough to make it count?
People all across the world are starting to, but you have
to develop a plan and make it happen. To view the 7 Financial
Freedom Steps, visit our free
resources page and download a copy for free.
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