Dave Ramsey has done the math on new car loans. If you have a 30 year old couple, and like many couples do, every three years they both buy new cars. If that is a $35K car, there will be about $5,000 depreciation for each car, every year. That is ten thousand a year in depreciation plus maybe $300 a month in interest. That is about $14,000 a year lost because of new cars. Gone with the wind.
If, on the other hand, the young couple buys a good used car for $15K, like the way I bought my pickup three years ago, there is little, if any depreciation. Maybe a thousand a year. Also, save up the money and pay cash and there is no interest.
So as Dave says, the young couple with the new cars is throwing away about $14,000 a year on new cars. Take that forward thirty years, it is getting near retirement time, the young couple has thrown away over $400,000 on new cars. Had they put that money in a mutual fund, where the average return is 12 percent annually, as Dave says they would have $2,000,000 for their retirement fund. They could have retired as millionaires but instead they retire broke because they drove new cars.
