This Simple Dave Ramsey Advice Could Make You a Multimillionaire

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should you follow him

Important points

• Dave Ramsey believes many people overborrow to buy vehicles.
• He says avoiding car loans could net you millions more.
• If you follow his advice, you can increase your wealth overall.

Dave Ramsey is a financial professional dedicated to helping people build wealth. He’s shared many different financial tips to save more and avoid credit card debt, but one simple piece of advice could make a world of difference in your end being rich.

If you follow this suggestion, you could actually become a multi-millionaire. Here’s how.

Dave Ramsey says you can get rich

According to Ramsey, there is a really simple solution to becoming a multi-millionaire that almost anyone can implement. It’s about changing the way you buy a car.

“This ‘always have a car payment’ cycle keeps people from really getting ahead with their money,” Ramsey explained. He believes that if you avoid car loans and instead save money to pay for a car, you can invest the extra money and get rich.

This is not just a hypothesis either. He actually provided some hard numbers. Specifically, Ramsey pointed out that the average car payment for a new car is $577 and that new cars lose 60% of their value over the course of the first five years. And he demonstrated exactly what could happen if you didn’t take out that big car loan.

“Let’s say that by the time you were 21, instead of taking out a car loan, you were investing $577 every month. At an 11% annual return, by the time you retire at age 67, you’d have $9,630,619,” he said Ramsey solutions blog reads.

If you end up with almost $10 million — which is a reasonable amount indeed, considering you’ve been saving $577 a month for decades — you’d be pretty rich indeed just for not hiring a vehicle.

Should you listen to him?

Ramsey is absolutely right that taking out a car loan could cost you a lot more money than you think when you factor in the lost profits you gave up by taking out a loan on an asset that is depreciating, rather than assets to invest that achieve a generous rate of return.

Of course, its math overlooks the fact that you probably need to have some kind of car. He suggests saving up and paying cash for it, which is a smart move. However, you would have to use part of your money for this. So if you take Ramsey’s recommended approach, you wouldn’t necessarily get an extra $577 every month for your entire career, since some of the money you save on your car payment would have to be diverted to actually buying a used car with cash.

Still, it’s entirely possible to get a lot richer by avoiding renting and buying new cars. As I wrote in an article a few years ago, if you save up for reliable used cars and invest the difference between what you would pay for a used car and a new one, you could easily (and realistically) find a lot more money.

Becoming a multi-millionaire depends on how much you can reduce your car costs by paying cash and buying used. If you can drive your cars long and pay little money for them, you can save most or all of that $577 a month and approach Ramsey’s numbers. It’s totally worth the effort.