As someone planning to buy a new car by 2025, I’m having second thoughts. With the average new car price at nearly $50,000, it seems only the wealthy can buy new cars today!
Think about it. If you follow my 1/10 rule for buying cars, you need to earn $500,000 to buy the average new car. However, a household income of $500,000 is the start of a top 1% income!
Even if a new car buyer violates my 1/10 rule and spends 20% of their annual gross income on a car, that still means they’re making $250,000 or more a year.
Below is Kelly Blue Book’s new vehicle average transaction price chart through January 2023. As you can see, the average transaction price is $49,388, up 5.9%, or $2,768 over one year ago.
In contrast, the average used car price is around $27,000. A spread of $22,388 between the average new car price and the average used car price is significant.
Owning a new car is an indicator of wealth
Based on the average new car price in 2023, owning a new car is an indicator of wealth. If you want more status, then own an average new car! People might treat you with more respect.
However, if you believe in Stealth Wealth, owning the average new car will never happen. You don’t want to draw unwanted attention in the land of envy and thieves. As a result, you rationally drive an older car that is less expensive.
Of course, you could also buy a cheaper-than-average new car, like a Honda Civic for $25,000 and not be considered rich. It all depends on your age when you buy your new car.
If you’re buying a new Honda Civic for $25,000 at age 25, you’re considered rich. But if you’re buying a new Honda Civic at age 60, you’re considered relatively frugal. After all, median income increases with age.
So if you’re buying the average new car today, hopefully you’re over 50 and/or your retirement savings have balanced out. Otherwise, you may be working much longer than you want.
New cars everywhere is a bullish indicator
Unfortunately, I drive between 40 and 100 minutes a day due to school and sports activities. I don’t like driving, but there are no efficient transportation alternatives for children.
I always notice new cars everywhere when I drive. And every time I see one, I multiply the car’s estimated price by 10 to arrive at the driver’s potential family income. I am amazed how there are so many high income families.
Rush hour traffic is also bad in San Francisco. Even with the work-from-home movement gaining popularity in the Bay Area, traffic is still awful.
But one day, to help my mood, I changed my mind.
Instead of getting annoyed with the sheer amount of city traffic, I started getting inspired. Heavy traffic means business is booming! And when business is good, that means I should be able to earn more passive investment income to stay free.
Go to traffic jams! Drivers double parking on busy roads are great!
The media likes to focus on doom and gloom because negative stories get the most attention. However, if you sit in traffic every day like I do, you’ll quickly realize that the economy is doing well.
The average new car price of nearly $50,000 isn’t sustainable if there’s no demand. And demand is not sustainable if household incomes do not increase at the same time.
Maybe fools buy new cars too
Yes, the rich are probably the main people buying new cars. But maybe even fools buy new cars?
After all, the average monthly payment for a new car has soared to a record $777, nearly doubling since the end of 2019, according to Kelley Blue Book. Used models also climbed an average of $544 a month in car payments.
However, call me naive, but I don’t think a rational American trying to achieve financial freedom would ever spend that much money on a new car. To think the average American is irrational is also to think the average American is a fool.
And we are not stupid!
We all know that new cars have the steepest depreciation curve during the first three years. Furthermore, aggressive saving and investing are imperative to achieving financial freedom.
Given that 70% of Americans are disengaged at work, it also means that 70% of Americans don’t want to be a slave to their job forever.
If you hate your job, there’s no point in using up a large chunk of your savings or taking a $777 monthly payment to buy a new car.
New cars priced around $50,000
Since only the wealthy can buy the average new car, here is a list of the highest rated new cars with a price tag of around $50,000. This way, we can quickly identify who is rich and who is not!
- Lexus ES
- Audi A4, A5, S3, A6
- Volvo V60, XC60, S60
- Volvo XC60
- Volkswagen Arteon
- BMW Series 2, 3, 4, I-4
- Acura TLX
- Tesla Model 3, Model Y
- Hyundai Genesis G80, GV80
- Mercedes Benz C-Class
- Kia Stinger
- Cadillac CT5-V
- nissan z
With taxes and fees, some of these cars are pushing $60,000. Here in San Francisco, many of these new car models are a dime a dozen, especially the Tesla Model 3 cars.
My softball acquaintance also drives a Model 3. While he doesn’t make more than $500,000 as an educator, he has amassed a nearly $1 million position in Tesla stock on margin. So, people who buy the average new car have different financial resources than their income.
There is more wealth out there than we know.
Thoughts on buying a new car for my family
The reason I’m looking to buy a new car in 2025 is because my Range Rover Sport will be 10 years old by then. Mainly due to safety, I think the ideal length of time to own a car is when the car reaches 10 years old.
The safety features always get better every year. Automotive engineers don’t just twirl their thumbs every year collecting a salary. Since I have to transport children, I am not willing to drive a car much older than 10 years.
I’ve driven much older cars before. And just like when you own a rental property, there’s always something going on.
Here are some of my old examples of car breakdowns:
- One day the timing belt of my 15 year old Toyota Corolla snapped.
- The brakes stopped working in my 18 year old 1989 BMW CSI as I pulled into a Best Buy parking lot
- The engine of my 12 year old 1997 BMW M3 started bouncing because the transmission was not working
The spare tire on your car should be replaced every 10 years as the rubber hardens and cracks. Meanwhile, airbags may fail after 10-15 years.
If a car malfunction were to cause an accident and injure my passengers, I would never forgive myself if I could have afforded a safer car. The best time to own the coolest car you can afford is when you have kids.
I’m sure I could drive my car until it’s 15 to save money since I only drive about 6,000 miles a year. However, it’s probably not worth the risk since I can afford to buy a new car sooner.
He will probably still buy a slightly used car
Owning a new car is nice. Who doesn’t love the new car smell?! But the depreciation of a new car is too dramatic to digest. Instead, I’ll probably buy a two or three year old car to save money. Better mental health is one of the best reasons to drive an older car.
Personally, I like the new design of the latest Land Rover Range Rover. Too bad it costs about $150,000 moderately equipped! If I really want to ride with style, I better start writing more best-selling books.
It really seems that today only the rich can afford to buy new cars. Are you one of them? If not, how could you afford to buy a new car at today’s astronomical prices? Please reveal your financial secret!
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