Financial guru and host Dave Ramsey shared another wealth-building tool: don’t tie your wealth to things that depreciate and exceed half your income.
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“Your cars, trucks, boats, motorcycles and other vehicles should not have a total value that exceeds half your annual income. Why? You don’t want too much of your wealth tied up in things that depreciate. And cars, trucks and things with motors depreciate big time,” Ramsey posted on X.
According to a post on Ramsey Solutions, if you wonder what type of car you can afford, the answer is simple: “The car you can afford is the car you can pay for in cash.”
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“And as a general rule, the total value of all your vehicles combined shouldn’t be more than half your annual income,” according to the post.
Why?
“Well, you don’t want too much of your wealth tied up in things that depreciate (or go down in value). And things with motors depreciate big time. So, make sure the car you’re looking at won’t push you over that line,” according to the post.
In a 2022 Facebook post, Ramsey also said that if your car is worth more than 50% of your annual income, it’s time to sell it.
“Better yet, add up the total of everything you own that has a motor in it (boat, lawnmower, motorcycle, cars, etc.), and make sure the total value of those things doesn’t exceed 50% of your annual income. If it is above 50%, that means you have too much of your net worth tied up in things that typically go down in value,” Ramsey wrote.
As he explained, that is a lot of wealth-building potential sitting in a garage or shed, instead of contributing to your financial success.
“And every day you hold onto it, it’s worth less and less. In other words, you’re losing money,” he wrote. “Of course, I want you to have nice things, but I also want you to be able to afford them.”
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This article originally appeared on GOBankingRates.com: Dave Ramsey: Here’s Why Your Vehicles Shouldn’t Be Worth Over Half Your Annual Income
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