As someone who plans to buy a new car in 2025, I’m thinking. With the average new car price nearly $50,000, it seems like only the rich can afford new cars today!
Think about it. If you follow my 1/10 rule for buying a car, you’ll 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 breaks my 1/10 rule and spends 20% of their gross annual income on a car, that still means they make $250,000 or more a year.
Below is Kelly Blue Book’s average new vehicle transaction price chart through January 2023. As you can see, the average transaction price is $49,388, up 5.9%, or $2,768 from a year ago
In contrast, the average price of a used car is around $27,000. A difference 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, get an average new car! People will treat you with more respect.
However, if you believe in Stealth Wealth, owning an average new car will never happen. You don’t want to draw unwanted attention to the land of envy and thieves. As a result, you rationally drive an old car that is less expensive.
Of course, you can 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 buying the new car.
If you’re buying a new Honda Civic for $25,000 at age 25, you’re considered rich. But if you buy a new Honda Civic at age 60, you’re considered relatively frugal. After all, average income increases with age.
So if you’re buying the average new car today, hopefully you’re over 50 and/or have squared off retirement savings. Otherwise, you may end up working a lot more than you want to.
New cars everywhere are a bullish indicator
Unfortunately, I drive 40-100 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 estimated price of the car by 10 to arrive at the driver’s potential household income. I am in awe of how there are so many high income households.
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 terrible.
But one day, to help my mood, I changed my mindset.
Instead of getting annoyed with the huge amount of traffic in the city, I started to get 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 keep myself free.
Go with traffic jams! Drivers who double park on busy streets rock!
The media likes to focus on death and sadness because negative stories get more attention. However, if you sit in traffic every day like I do, you will quickly realize that the economy is doing well.
The average new car price of almost $50,000 is not sustainable if there is no demand. And demand is not sustainable if household incomes do not rise simultaneously.
Maybe the fools are buying new cars too
Yes, the rich are probably the main buyers of new cars. But maybe fools are buying new cars too?
After all, the average monthly payment for a new car has risen to a record $777, nearly doubling since the end of 2019, according to Kelley Blue Book. Even used models have climbed to $544 a month on average in car payments.
However, call me naive, but I do do not do it Think that a rational American seeking financial freedom would never spend that much money on a new car. To think that the average American is irrational is also to think that the average American is a fool.
And we are not fools!
We all know that new cars have the steepest depreciation curve in the first three years. Also, saving and investing aggressively are essential to achieving financial freedom.
Since 70% of Americans are disengaged from work, it also means that 70% of Americans don’t want to be slaves to their jobs forever.
If you hate your job, it doesn’t make sense to use a large chunk of your savings or take on a $777 monthly payment to buy a new car.
New cars priced around $50,000
Since only the rich can afford the average new car, here’s a list of the top-rated new cars priced around $50,000. This way, we can quickly identify who is rich and who is not!
- Lexus IS
- 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 Tesla Model 3 cars.
Even my softball acquaintance drives a Model 3. Even though he doesn’t make more than $500,000 as an educator, he built up a nearly $1 million position in Tesla stock on the side. Therefore, people who buy the average new car have financial resources other than their income.
There is more wealth 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 for safety, I think the ideal time to own a car is when the car reaches 10 years old.
Safety features are always improving every year. Automotive engineers don’t just twiddle their thumbs every year for a paycheck. Since I have to transport children, I am not willing to drive a car that is more than 10 years old.
I’ve driven much older cars before. And just like with rental properties, something always comes up.
Here are some of my examples of vintage car failures:
- The timing belt on my 15 year old Toyota Corolla broke one day.
- The brakes failed on my 18 year old 1989 BMW CSI while pulling into a Best Buy parking lot
- My 12 year old 1997 BMW M3 engine started knocking because the transmission was failing
Your car’s spare tire should be replaced every 10 years as the rubber hardens and cracks. Meanwhile, airbags may not work properly 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 have the nicest car you can afford is when you have kids.
I’m sure I could drive my car until I’m 15 to save money as I only drive about 6000km a year. However, it’s probably not worth the risk since I can afford to buy a new car sooner.
You will probably still buy a lightly used car
Having a new car is nice. Who doesn’t love that new car smell?! But the depreciation of a new car is too dramatic to bear. 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 with moderate equipment! If I really want to ride in style, I’d better start writing more best-selling books.
It really seems like only the rich can afford to buy new cars today. Are you one of them? If you’re not, how did you afford to buy a new car at today’s astronomical prices? Please reveal your financial secret!
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