They say the three biggest expenses you will make in your life are your house, your kid’s college tuition, and your car. It can be daunting to purchase your very first car, but it’s also very exciting. Having one of your own means you have complete freedom to go wherever you want. However, you don’t want to fall trap to the mistakes most people make when it comes to buying a car. That’s why in this article, we’ll share with you some tips on deciding how much you should spend on your first vehicle.
1. Remember, you’re not just buying the car
When going car shopping, you should take into account the other expenses that go with it such as insurance, maintenance, parking tickets, traffic tickets, repair, etc. The higher the price tag, the more expensive it might be to maintain such a car. You can’t avoid these expenses since frequent use will eventually lead to your car breaking.
2. Consider buying used
A car’s value depreciates really fast. The moment you buy it and use it, it’s already depreciating. What most savvy buyers will do is opt for a used car instead of a brand new one. You’ll save thousands of dollars if you opt to go this route. You won’t be surprised to hear some folks brag about how cheap they got their used car for. Some even go as low as $100! Think about it. The excitement of driving a new car only lasts for a few months. Then, the excitement wears off and it’ll feel like driving an old beat-up car again.
3. Pay cash or finance it
Buying for your first car in cash means get to have your peace of mind knowing you have no debt. However, when you finance it, the burden will not feel as heavy but every month is a reminder that you are paying off some debt. Not that there’s anything wrong with this. Sometimes, financing a car is the most practical thing to do when you have no cash saved up.
4. Consider your lifestyle
Let’s say you decide you want to finance your car. How much are you able to pay monthly? Will you have enough left on your paycheck to survive each month? Do you need to make some sacrifices to your lifestyle so you can make these car payments? Money stress is real. If you can afford it, by all means, do it. But if you’re the type that easily gets stressed out, settle for a price that won’t hurt your wallet.
There’s a general rule that you should spend no more than 35% of your gross annual income on a car. So let’s say you make $60,000 a year. That means you can spend $21,000 on your car. But do you really have to?
Again, it all depends. Do you consider yourself frugal or a spender? Does having a nice car matter to you? Do you want to pay in cash or finance it? Do you have other big financial responsibilities besides the car?
Some people are able to manage to spend just 20% of their annual income while some take pride in going as low as 10%. There is no right or wrong here. What matters is if you are comfortable with the amount you are paying and not putting yourself in a compromising position financially.
Just remember, marketers spend millions of dollars conditioning you to think that brand new is better. As we said earlier, cars depreciate really fast and it’ll be like throwing money down the drain when you buy a new one.
Nevertheless, there are car lovers out there who want nothing less than perfect. If you really have a thing for cars, by all means, get it. If it makes you feel happy, get excited to go to work, that’s no problem. Just be aware that this is a big expense and that you will be paying for it with your time.
We hope this helped you decide how much money you should spend on your first car. Which of these tips did you find useful? Share your thoughts in the comments!