Dave Ramsey says this is what keeps Americans in the middle class — explains how 1 crucial decision can prevent families from ever getting rich in the US. Are you making the same mistake?

Middle class indicator

Ramsey’s advice was simple: say no to the second car. As for his reasoning, the finance guru pointed to something he’s noticed over the years: “The way you know someone is going to stay middle class is when they have two very nice cars — that are obvious [sic] $500, $600, or $700 payments — sitting in front of a middle class house,” he said. “100%, those people are going to stay middle class.”

In some instances, America’s obsession with automobiles may have prevented many families from accumulating wealth. At the end of 2023, U.S. households collectively had $1.61 trillion in auto loan debt, just slightly higher than the $1.6 trillion in student loan debt outstanding, according to the New York Federal Reserve.

The average consumer had $23,792 in outstanding auto loans last year, according to Experian data, which was up 5.2% from 2022.

Unlike a college degree or a house, vehicles do not boost income or deliver capital gains. Instead, vehicles rapidly depreciate in value over time, especially if they’re purchased brand new. “[New cars] lose 60% of their value in just five years,” co-host George Kamel added.

By comparison, wealthy people often own modest vehicles. Ramsey said his team’s survey of American millionaires found that most of them were driving “very conservative used cars until [they] got substantial money.”

Based on this data, Ramsey developed some guidelines for people who want to build wealth.

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Ramsey’s wealth-building guidelines

“If you're going to build wealth, you have to keep as small an amount as possible going into things that go down in value,” Ramsey said. According to him, a person trying to build wealth over time should have no more than 50% of their income in depreciating assets such as cars.

Micah would be breaking this rule-of-thumb if he purchased the $30,000 sports car and kept his current $13,000 vehicle. His total collection of vehicles would be worth $43,000 — 53.8% of his annual salary.

Purchasing the sports car wouldn’t be a total financial disaster. After all, Micah planned to purchase it in cash and avoid auto loans. “You can afford it, obviously,” Ramsey acknowledged. “But the warning is [that] you’re putting money in the wrong places if you want to be wealthy.”

Hypothetically, if Micah placed the $30,000 in a low-cost index fund that tracks the S&P 500, his net worth could grow over time. The Vanguard S&P 500 ETF (NYSE:VOO) has delivered a 12.57% compounded annual growth rate over the past 10 years. At this pace, Micah’s investment could potentially be worth $98,027.5 within the next decade.

The most extreme example of this is Warren Buffett, who has driven used cars with cosmetic damages for several years, according to interviews with his family by the BBC, but is currently worth $135.9 billion, according to Forbes.