Buying a car is a major decision that will affect your current and future spendings. How should you go about it to keep your spending rational? What are some of the questions you should ask yourself before buying a car? Are there any common rules to follow?
So, Do You Even Need a Car? 🚘
This mostly depends on your location and type of work. The infrastructure varies even between the huge cities around the world. In some, you will easily get from point A to B with public transportation, car sharing or a bike. If this is your case (and there are no other reasons such as kids or frequent travels), you should just write down what your personal top reasons for getting a car are. Is it worth the investment?
Car Doesn’t Mean Happiness 🙅🏼♂️
We know that it’s tempting to make big purchases right after getting your degree or a first job. Even though many people see cars as the ultimate gate to adulthood and independence, it’s not necessarily true: they’re here to help you with transport. That’s the reason you’re thinking of buying it. Not to impress your neighbour.
Used Car Will Get You Far! ♻️
Far with your budget. 😉 The very second you buy a brand new car, the value of it drops significantly. If you really have all the money, it’s all right, go and buy it. But chances are, you will be making a smarter financial decision going second hand. So, the question now is…
What’s Your Car Budget? 💰
How much would you like to pay for your new car and what necessities are you looking for? Visit a nearby dealership and get an idea about the price range and types of cars. Getting to know what your car budget is doesn’t take seconds. You need to truly understand what you’re able to afford vs. what you need.
20/4/10: The Only Car Budget Rule You’ll Need
This rule will help you determine if you can really afford the car you chose and keeps you from overspending! Remember, cars are just means of transportation. Let’s break down what the numbers mean:
20% Down Payment 💸
This may seem like a lot, but a more substantial down payment will keep you from owing more than your car is worth. Typically, when you drive the car off the lot, your car’s worth can plummet. Having something that’s worth more than what you owe on it is a primary key to staying above water with debt. So — the key question is — can you put down 20% of the price at signing? Lots of dealerships will require some money at signing anyway, and by putting down as much as you can, you will reduce your interest.
No More Than 4 Year Loan 🗓
To keep your loan under 4 years will minimise the amount of interest you pay over the lifetime of your loan. This especially helps if you have to pay a higher interest for your car loan. Make sure that you’re limiting the loan period, but that you’re able to pay your monthly fees without any significant problem.
10% Monthly Fees 💰
Keeping your car loan payments and other fees associated with having a car (eg. gas, maintenance or insurance) under 10% of your net income will help keep you within your budget parameters.
Is It Too Overwhelming? 🤯
If purchasing a car is stressing you out, we will make our advice simple: buy a used car and drive it for at least 10 years. Purchasing a brand new car won’t help you out. In fact, many people who are now living a high-end lifestyle started out the same.
Start by creating a budget and sticking to it!
