Cars have no long term value and yet we get obsessed with buying them, spending fortunes just to be seen in them. The reality is that we soon lose the fuzzy feeling of driving a new car and yet have to contend with paying it off in the years to come.

From the time that you drive your brand new car off the show room and onto the street it is worth less. The value continues to depreciate year on year from then onwards. It gets even worse if at the end of your finance agreement you have a the proverbial balloon or residual to pay off. Don’t be fooled, the financial institution has collected the interest on the whole deal throughout the term and you then have to pay more interest when you refinance the balance owing.

So how should you approach buying a vehicle?

If you have set aside the must have provisions in your financial plan first and then ensure you have enough to comfortably get through the month for living expenses, then the remainder of your disposable income can be allocated to debt. In other words, the car you can really afford is the one which can be paid for after your savings have been allocated.

It’s a tough call for most. The car you drive defines you, right? However, if you haven’t set aside enough for your future you will have to redefine yourself in a very harsh way having to drastically scale down your lifestyle to get through.

The money you spend on cars in your life will not feed you in retirement. Only the money you saved and invested from them will.