Value of Your Car

Many people spend crazy amounts on their car payments. Usually those car payment are for 3-5 years. So, if you drove an old car for the first 3-5 years of your life and paid car payments to yourself, at the end of the 3-5 years, you should be able to pay for your car outright. While you drive your new car you have no payments, therefore, once again you can make payments to yourself and at the end of another 3-5 years you can buy another car outright, if you want. You have to be disciplined and treat those car payments to your separate savings account as a bill. Paying interest on the car payments to a loan company is like paying someone to make sure you put that money away. Do you really need to spend 5%, 10%, 20% of the value of your car on having someone look over your shoulder?

Also many people buy cars that they are unable to afford. A car's value together with all other motorized things in the house (i.e. boat, plane, motorcycle, ATV) should never total more than half of your salary. If it does, you have poured too much money into something that you cannot afford, especially if you are making payment on it. Therefore, if you just started working and are making $30K, and have signed a car loan for a brand new $25K car, you have overspend by $10K.

And, since new cars loose much of their value within the first few years, it is always a smart idea to buy a used car, even if it's just a couple years old.