The biggest reason why most Americans spend more money than they should on their car is because they use financing to make the purchase. Borrowing money to pay for things that you consume is never good financial strategy. Only classic cars appreciate over time. The car you are buying to get you from point A to point B is only going to depreciate as you use it. When you are paying interest on something that is losing value, you will never come out on top. Here are some rules to follow in order to stay ahead of the game when buying a car:
Do not finance. Since most of us want a car we can not technically afford, there will always be a loan office waiting to approve us. Because we love our cars so much and always want the nicest and newest ones, these loan companies prey on our desires with ridiculous interest rates and terms. You end up paying much, much more when you lease a car rather than buying it with cash.
Do not lease. Leasing is just like renting a car long term. It's not a good idea because most people do not treat their leased cars very well. The car dealership knows this, and the cost of this is calculated into the leasing agreement. Why should you have to pay for other people misuse of the car? When you lease you have nothing to show for your lease payments at the end of your lease agreement.
Do not buy new. You've probably heard the adage that a new car starts depreciating the moment you drive it off the lot. You will pay a hefty premium for a brand new car because it will never be able to be resold at a price near what it originally sold for. The moment it's not a new car is the moment that it loses that new car value. Even if you wanted to sell your car just a year later, you'll have to eat a lot of the cost you initially paid. You can get a quality car at a fair price when you buy used with cash.
Do not get fancy. Many people make the claim that they need new or luxury model car for their job. They claim they can not have their clients see them in anything less than the best. If you are going to use your car as an indication of your success, be prepared to back it up with designer suits, a briefcase, and cappuccino's from Starbucks. People will be able to tell if you only have a nice car and nothing else. Also, it is counter-intuitive to think that people will judge your business success by your car. Bill Gates drives modest cars and no one thinks less of his money-earning ability. If anything people will think you are just using them to get rich, or you do not know how to make wise use of your money.