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Recently, I received a call dave ramsey show When asked if he should buy a $250,000 Porsche, he seemed to expect the famously frugal financial guru to veto the idea, but his answer was surprising.
Given the caller’s high income, Ramsey was not theoretically opposed to purchasing a luxury car.
Having said that, he did discourage callers from immediately going to the dealership and signing the loan(1). Here’s the thing.
The caller explained that he was a newly qualified doctor who had just signed a large contract that would pay him an annual salary of $650,000 as a cardiologist. His wife also works and earns $100,000. He wanted to reward himself with a big splurge.
“The training was very tough,” the caller said. “I feel like I want a Porsche, and my wife agrees that I should have a nice car. The problem is, I’m not sure I can afford one.”
Of course, Ramsey questioned the caller and discovered that he owned two properties, one of which had a $150,000 mortgage but was making $1,000 a month in rental profit. The other is his primary family residence, on which he still owes $300,000 on his mortgage. The caller also said he would receive a signing bonus of $75,000 to $100,000 and have a $60,000 emergency fund.
While those numbers sounded good, Ramsey immediately noticed that the man didn’t seem to have enough cash to buy the Porsche outright. Therefore, he advised callers not to do so.
“Have you ever heard me tell anyone, under any circumstances, to get a car payment?” Ramsey asked, before answering his own question with a clear “no.” Ramsey also hit home with his take on the situation: “You’ve been an adult for so long. Just one minute here and you want to be a four-year-old.”
Ramsey offers two suggestions on how to indulge in this immature emotion without breaking the bank or taking on debt in the form of a car payment.
First, the caller could buy a cheaper used Porsche and use the signing bonus to pay entirely in cash.
Alternatively, Ramsey suggested selling the rental property, arguing that $1,000 a month wasn’t worth the trouble given the couple’s high income.
If the caller isn’t willing to do either of those things, Ramsey advises him to wait a few years, when he’s in a better position, to buy a luxury car.
“If you want to buy a $250,000 Porsche, I have no problem with your income,” Ramsey said. “As long as you’re debt-free and have an emergency fund, and pay cash.”
“When you can afford it, you deserve it. Until then, you don’t deserve it,” he said.
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While the caller was clearly excited about his new job and equally generous paycheck, both Ramsay and his partner believed that buying a Porsche would be impulsive and amount to giving in to a desire for immediate gratification.
Rather than rushing to buy a shiny new car, a better option is to get out of debt and save up for a car purchase in three to five years. Doing so will allow the new doctor to use his wealth to build real financial security for his entire family, eventually getting to the point where he can afford a car without affecting his long-term goals.
The advice to postpone buying doesn’t just apply to this situation. Anyone eyeing a luxury item should wait until they can actually buy it without borrowing money.
Postponing also gives you time to think about whether an expensive purchase will actually add enough value to your life to justify the cost. It’s better if after the initial excitement wears off you decide the item isn’t really what you need (2).
Ramsey acknowledged that the caller had worked hard to get here and said there was ultimately nothing wrong with fulfilling his desire to buy a car. While it may be surprising that Ramsey would sign such an expensive purchase agreement, his point is that sometimes spending money is okay if you do it responsibly.
The key, as Ramsay explains, is that you need to put the important things at the top of your to-do list and complete them first. This includes building emergency savings, paying down debt, saving for retirement and saving for your children’s education, among other things.
Once you’ve done all of these things, if you create a budget and have funds left over to buy a luxury car or other splurge, you can fit that splurge directly into your financial plan and enjoy it guilt-free, especially if you don’t borrow the money and avoid interest.
If you’re not yet a high earner but still want to plan ahead for the future, you can also try finding a financial expert through Advisor.com.
How it works is simple: Just enter some information about yourself and what you’re looking for, along with your area code, and Advisor.com will match you with financial professionals near you.
From here, you can schedule a free, no-obligation consultation to discuss your retirement goals and long-term financial plans.
Regardless, if the caller had listened to Ramsey, he could have used his high income to financially prepare for life and then save up to buy his dream car when the time came.
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The Dave Ramsey Show(1); MNP Debt(2)
This article provides information only and should not be considered advice. It is provided without any warranty of any kind.
