This Simple Dave Ramsey Advice Could Make You a Multimillionaire

Should you follow it?

Dave Ramsey is a financial expert who is dedicated to helping people build wealth. He has provided a lot of different financial tips for saving more and avoiding credit card debt, but one simple piece of advice could make a huge difference in whether you end up rich.

In fact, if you follow this suggestion, you could potentially end up a multimillionaire. Here's how. 

Dave Ramsey says you can end up rich

According to Ramsey, there's a really easy solution to end up a multimillionaire that almost anyone can put into place. It involves changing the way you buy a car. 

"This 'always have a car payment' cycle is holding people back from really moving forward with their money," Ramsey explained. He believes that if you avoid car loans and instead save up to pay cash for a car, you can invest the extra money and end up rich. 

This isn't just a hypothesis either. He actually provided some hard numbers. Specifically, Ramsey pointed out that the average car payment on a new car is $577 and that new cars lose 60% of their value over the course of the first five years. And he demonstrated exactly what could happen if you skipped out on taking out that big car loan. 

"Let's say that at 21, instead of taking out a car loan, you invested that $577 every month. At an annual return of 11%, you'd have $9,630,619 when you retire at age 67," the Ramsey Solutions blog reads. 

If you end up with close to $10 million -- which is indeed a reasonable amount to expect if you save $577 per month for several decades -- then you would be quite rich indeed, all because you didn't borrow for a vehicle. 

Should you listen to him?

Ramsey is absolutely right that taking out a car loan could cost you a lot more money than you realize once you factor in the lost gains that you passed up by borrowing for an asset that loses value, instead of investing in assets that produce a generous rate of return.

Of course, his math overlooks the fact that you probably need to have some kind of car. He suggests saving up and paying cash for it, which is a smart move. However, you'd need to use some of your money to do that. So, you wouldn't necessarily end up with an extra $577 every month for your entire career if you took Ramsey's recommended approach, since some of the money you save on your car payment would need to be diverted to actually buying a used vehicle with cash. 

Still, it is absolutely possible to end up a lot richer if you avoid borrowing for and buying new cars. As I wrote in an article a few years ago, if you save up for reliable used cars and invest the difference between what you'd pay for a used car versus a new one, you could easily (and realistically) find yourself with a lot more money. 

Whether you end up a multimillionaire will depend on just how much you can cut off your car costs by paying cash and buying used. If you can drive your cars for a long time and pay little money for them, you can save most or all of that $577 a month and get close to Ramsey's numbers. It's absolutely worth the effort.