How Rich People Buy Cars

May 7, 2013 — 18 Comments

How rich people buy cars

I hate new cars – at least for people who can’t afford then, and think that you shouldn’t spend more than 20% of your income on a new car.  The reason I say these things is because I want you to be rich and the easiest way to stay broke is to continue to purchasing cars with car payments.  This is how most rich people buy cars.

Let me tell you about a rich reader who recently sent me his family’s story.  First, a little background.  The couple is in their late 30’s/early 40’s and they don’t have kids.  They are both professionals in their field and have done a great job of handling their money.  Their combined income is $300k+ and he recently purchased a new car.

What kind of car would you guess they purchased?  Mercedes?  BMW?  Ferrari?  If you said Mercedes, you were right.  However, there’s a catch.  When I say he purchased a new car, what I really mean is he purchased a car that was new to his family – his “new” car is 7 years old.

He searched around for many months as he compared prices of different models between dealers and private sales.  He even test drove some new cars but he couldn’t bring himself to spending so much on a new one when he could get a great used one for so much cheaper.  Why should he take a $15,000 hit by driving a new car off the lot when he could buy it from someone else who already did??

In the end, he purchased a 2006 Mercedes with just over 50,000 miles on it for $16,000 from an older couple who completed regular maintenance on it and had the receipts to prove it.  I’m not the kind of guy who could tell you every make and model of Mercedes, but when I saw a picture of it, it sure looked new to me!

So how did his purchase compare to the 20% rule for buying cars?  He only spent around 5% of his annual income on his new car and he bought it for cash.  That’s how rich people buy cars.  Most of the time, the people driving around in new BMW’s and Mercedes only look rich, but in reality they’re saddled with high payments.  Don’t be fooled!

Do you agree that this is how rich people buy cars?

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18 responses to How Rich People Buy Cars

  1. We always buy used cars. The markup on new has always been something I am unwilling to pay. Our last purchase we did end up spending a bit more than we would have liked but the car we are driving now met our needs for seating space almost perfectly. Doesn’t hurt that it is the nicest car we have ever owned too.

    • Jon – probably a good formula that the later you get in life, the nicer car you buy. I turned that upside down when I bought a new car right out of college and it screwed me up. I’m with you, just can’t stand the beating you take when you drive a new car off the lot.

    • Millionaires do not usually show how rich they are. My parents are millionaires and my dad has a 2017 Audi Q7 and a 2006 Honda Pilot. My mom has a 2013 Volvo XC60. We buy cars that will last us 10 years, but we still like some luxury. However, we do not go overboard. Although we can afford much more, we like the cars that we buy to be under $80,000 and still be luxurious and reliable. Reliability and safety is the thing we look for the most in a car. One of my friends has a 10,000 square foot house they are very wealthy. They drive a 2009 Honda CRV and a 2014 Volkswagen Passat.

  2. I used to believe in buying used cars. Then I realized that I am just buying someone else’s problem. What we have done is to lease a car first and then at the end of the lease you purchase that same car. Cheaper that way and you have that new car. We still stay within the recommended parameters that way too.

    • The way I see it, if I can find someone who has all of their records with their cars, there’s a good chance they took care of it better than I’d take care of a new car!! I was always reluctant to do all of the service check ups every 10k miles or so… especially when I was making payments every month!

    • I work at a dealership and lease over 5 cars a month. and let me tell you, buying a car at the end of the lease is WORSE than buying a new car. You are paying WAY more than the car is actually worth. Who ever sold you that idea is a great sales person because I would NEVER buy my car after i leased it.

  3. I have always bought used cars and paid them off and then owned them for several years before I gave them away and bought a new one. This last time, I spent a little more on a used car. It has been nothing but a piece of problem for me. And, yes, it had one owner, under 50,000 miles and I had all the timely maintenance in receipts on it. So it doesn’t always work out so good. So, I have thought about buying a new one the next time, but in the end I probably won’t because I can’t imagine paying that much for a car. In the meantime, I will just continue to clunk around in my used car.

    • Wow, sorry to hear you did all of the right things and got stuck with a lemon. It’s always a risk, but the hope is that you’ll pay less in repairs than you will for the huge depreciation on a new car. I got pretty luck with my last used car and only had one major repair (AC) in 50k miles.

  4. I’m with this guy. I do purchase modestly priced new cars and then hold on to them forever, or until they die. For example, I have a Honda CRV that is in mint condition and is 12 years old. We get offers to buy. It is a work horse and a favorite of our family to drive especially the kids. 🙂

    • Susan – I love it when people take pride in how far they can take their “work horse” cars. My father-in-law had his truck for over 200k miles and even replaced the engine twice! He just didn’t want to spend the money on a new car even though he had it.

  5. For the most part, my husband and I have bought new reasonable cars, and then we hang onto them until they’re too old to be reliable any longer. A used car can come with hidden maintenance problems. I’d rather keep something new in mint condition and keep it a long time.

    • Jeri – my problem was that I didn’t buy a “reasonable” car and instead I paid $510 per month in payments… when I sold it and got my used car, I definitely wasn’t spending that much on maintenance 🙂

  6. G’day Dan,

    Whilst not rich by any stretch of the imagination, I am clearly in the mould of your example reader…. I just collected a 6yr old E Class Mercedes Station Wagon with low miles, a full service & maintenance history, a year manufacturers warranty, fixed price maintenance (almost identical to my previous Smart Car!) and avoided the massive depreciation drop a number of folk mention. Add to this M-B have the highest residuals of most marques and the engines in this model are known to be good for 500,000 miles….it should see me through for a while….and will be your limo when you finally arrive in the UK ;0)

    • Rob – you better mean it when you make offers because we’ll definitely cash it in!! Looking forward to seeing the new ride in person and knowing you didn’t take the depreciation hit on it 🙂

  7. I bought a brand new 2.5l Demo Model Toyota Hilux in 1996 and I still have it, great for everything, also have a Porsche 911 Turbo, and a Bentley Continental GT 2013 model, still good, but in a lot of debt now that I have spent £250,000 on a brand new car! Should have just kept the 911

  8. Dan,

    Thanks for the advice. I’ve read many of your articles today and yesterday. Partially because I’m always in the market for certain types of cars but partially just because I like to see how other people think about some things. What about opportunity cost though? With current used auto loans under 2%, wouldn’t someone (regardless of income level) be better off financing the car at such a low rate and investing the money they would have paid in cash for the car?

  9. John and Greg,

    The answer is yes. You’d be better off if you can earn more than 2% after taxes and fees on an investment. The problem is that most consumers don’t have the discipline to actually put that money away and keep it invested.

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