Wallet Wings

An item that continues to become more expensive year after year is the cost of purchasing a car. According to an October 2025 Kelley Blue Book article, the average price of a new car in America costs $50,080. Your grandparents were probably paying that amount of money to buy their first house back in the 1950s! Luckily, you do have options and don’t necessarily have to buy a new car. You could buy a used car, a motorcycle, or an electric bike. You could consider leasing a car if you have a fairly short commute and prefer to not deal with major car maintenance bills. A couple of other mobility options are public transportation or taking as needed Uber and Lift rides. Obviously, how you decide to transport all depends on where you live and the type of transportation that you need.

For many of us, we do need to purchase a vehicle whether it be a new or used one. As most of you already know, a car is a depreciating asset. This is true whether you buy a truck, SUV, sedan, etc. Once you begin putting miles on your vehicle, the value of your car begins to decrease. Additionally, as time progresses and your car ages, this also contributes to depreciating your asset price. This is a very important factor to consider when you are purchasing a car.

Now let’s talk some numbers. Say you are the average American citizen and want to buy the $50,080 new car. You decide to put 20% down ($10,016) and finance the rest of the car purchase ($40,064) with a five year loan. Assume that your loan interest rate is 5%. That has you looking at a monthly car payment of $757! That is a big number to pay monthly for your transportation needs. Mind you, we didn’t even include your other vehicle costs which include car insurance, gas, and car maintenance. Is it Halloween already? Did I scare you? This is why I stress how important of a decision purchasing a car is to your financial well being. If you are making $300k annually, this monthly car payment may not bother you, but the majority of Americans are not in that tax bracket.

Let’s say that you are a little more fiscally conservative and your new or used car costs you $35,000. You put 20% down ($7,000) and finance the rest of the car purchase ($28,000) on a five year loan. Again, assume a 5% loan interest rate and your monthly car payment is $529. This is still a good chunk of monthly change for the average person.

Assuming that you are required to buy a car based on your location, how do we make it to the magical place where we don’t have one of these high monthly car payments? There are a couple of different strategies to get there. First, buy a smaller, lower priced car in the $10k to $18k price range and pay for it all upfront. It may sting a bit to outlay all that cash, but if you buy a decent car and keep it for many years, that $0 car payment is going to feel really good! Option two, buy the $50k or $35k car mentioned above utilizing a five year car loan. Plan to keep this car for potentially a decade. If you are lucky, you may receive five years of $0 car payments once your loan has been paid. Hopefully you also purchase and extremely reliable car that has minimal repair bills during your decade of ownership.

If you make it to the sweet spot of not having a monthly car payment, consider taking the extra monthly cash and saving or investing it. You could save or invest the extra $400-$700 per month (that otherwise would have been paying for a car) into stocks, real estate, bonds, money markets, CDs, bank savings account, etc. If you are able to save or invest this money over a fiver year period, it could really bulk up your savings. Example one, saving $400 per month during a five year term in a bank savings account that offers no interest. At the end of the five year term, it would grow to $24,000. Example two, investing $400 per month during a five year term in an S&P 500 index fund with an average annual return of 9%. At the end of the five year term, it would grow to $30,170. As you can see, there is a nice savings opportunity here. Instead of all that money pouring into your car payment, it just went right back into your pocket!

In conclusion, not having a monthly car payment is a great financial goal to aim for. It can free up a lot of cash for you to save or invest elsewhere. Over time, this strategy can really help you grow your wealth!