The debts are paid off, when can we buy a new car? – Royal newspaper

Created: November 02, 2024 07:59

Dave Ramsey

Dear Dave,

My wife and I have paid off all of our consumer debt and we are in the third phase of increasing our emergency fund to six months of expenses. When do you recommend buying a new car? Do we have to wait until we’ve finished all the Baby Steps?

— Aaron

Dear Aaron,

Congratulations! The two of you are taking really positive steps forward in gaining control of your finances now that you’ve paid off your consumer debt. I’m proud of you!

Okay, I’m not sure if you mean buying a new car – like a great model from two or three years ago – or an actual new car. I don’t recommend buying a new car unless you have at least $1 million in equity.

Why? Because by that point, you’ll have enough assets and won’t be overwhelmed by the crazy depreciation that comes with buying a new car.

Don’t be upset when you hear this. I’m not saying you should drive a junker until you’ve paid off your house. I recommend that people drive as little as possible until they complete the first three “little steps.”

As you already know, Baby Step 1 is a $1,000 emergency fund for beginners. Baby Step 2 pays off all debt except your home, and Baby Step 3 fully funds your emergency fund with three to six months of expenses.

Once you’ve completed the first three steps, you can move on to a nicer car. Notice I didn’t talk about upgrading to a new car. I want you to save up your money and buy a really nice, slightly used car that someone else has taken a lot of depreciation on. This is exactly what a typical millionaire does.

And I want you to model your financial behavior after the people who one day are in the position you want to be in!

— Dave

• Dave Ramsey is an eight-time national bestselling author, personal finance expert and host The Ramsey Show. He appeared on Good Morning America, CBS This Morning, Today, Fox News, CNN, Fox Business and many others. Since 1992, Dave has been helping people regain control of their money, build wealth, and improve their lives. He is also the CEO of Ramsey Solutions.