How do I know if I can afford the vehicle that I have now?

Some people are in denial with their vehicles. They buy new cars because they think they need something reliable, but in reality they’re making ridiculous car payments upwards of $500 when their income just cannot support that. Dave Ramsey offers a great rule of thumb that everyone should follow. If your vehicles are worth more than half of your annual income, your cars are too expensive.

If you’re 1% or 2% over, it’s no big deal, but there are people that have $30,000 worth of cars and make that same amount each year, and that’s ridiculous! Cars are a liability, they go down in value. New cars are the worst offenders; they can easily decrease in price by 20% each year for the first few years. This depends on the make and model, but vehicles generally take the largest beating in value when they are new. This is why I recommend that one should never buy a vehicle that’s newer than two-years old.

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