Ben Todd | Jun 3, 2017 | 2
How Much Should You Spend On A Car
There are so many tips in this article that it should have had its own book published. You will find out what to do if you are career minded, if you are looking for a vehicle for private use, for if you want to get the most value out of your new car, what to do if you want a pragmatic vehicle, what to do if you want a good secondhand car, and much more.
Save 10% of Your Wages Every Month
If you want a car and you are not in any urgent rush, then simply save 10% of your take-home wages every month. As your savings climb higher, you may start to look at what is on offer in your local classified adverts. The more time goes by, then the more you may afford.
Do it over a long time. This will help you save more money, and it will help you learn which cars keep re-appearing on eBay, Craig’s List, and other online classified adverts.
The cars that keep reappearing are either terrible, or they are overpriced. Watch as the seller becomes more frustrated and starts to lower the price over time. Watch the cars and snipe the best ones by using your savings.
Do Whatever You Can to Stay Out of Debt
The pull, the appeal, and the draw of getting a car from a car lot is the fact that they will allow you to use finance to get it. They are willing to allow you to drive away today if you agree to a car finance deal that lasts three to six years, that costs you 30% more than the value of the car, and that says its APR starts at 5.8%, but yours starts at 29.99%.
There are only two circumstances where it is acceptable to get into debt. The first is where you need a car to do your job (not to get there, but to do it, such as if you are a midwife and need to visit your clients). The second reason is if you are willing to do all it takes to maximize the return on investment you get on your car, by which I mean you run it into the ground (that is covered later). Running it into the ground means you keep, use and repair it all the way up to the day where it finally falls apart on you.
Consider the 20/4/10 Rule if You Are Buying With Financing
If you are going to ignore my advice, then use the 20/4/10 rule for your financing. Your deposit (down payment) should be 20% of the total cost. You should set your financing deal to just four years at the most, and the cost of the entire car should not come to more than 10% of your gross income.
Remember That a Car Purchase Often Involves an Emotional Decision
Before you go any further, you are going to be sold to be everybody who shows you the visual image of a car, from the classified trader to the banner across the car lot that has a cartoon car image on it. Car purchases are often very emotional decisions and car salespersons and sales companies know this. That is why cars are rarely sold the same way lawn mowers, electric toothbrushes, or PCs are sold. You rarely see an advert for a PC on the Internet with a fat geeky guy using the PC with the wind in his hair and a posh woman beside him. You do not see him smoothly navigate the mouse through a tunnel or close a window very slowly. Car sellers will try to sell to your emotions–so be aware.
10% of Your Gross Yearly Income
If your car is just for you, and if your car is being bought outright, or being bought using credit, it should only be worth 10% or less of your gross income. Any more and you are being silly with your money.
20% of Your Gross Yearly Income
The only time the cost of your car should rise above 20% of your gross yearly income is if you are going to use your car for business and pleasure. Driving yourself to work every day doesn’t count as using it for business. Using it for business means having to travel to different places in the country for meetings where you are able to claim your gas expenses back off your boss. The last thing you want is to break down while trying to conduct business or strike the deal of your lifetime. Only then may your car cost up to 20% of your gross yearly income.
Haggle if You Know What Is Good for You
When you buy, do not be afraid to ask for a lower price. Make childish demands if you wish and see which get the most attention. Even people who buy luxury cars are not above having a haggle and getting the car they deserve.
Buy A New One And Run It Into The Ground
If you are going to get a new car, then you need to be in a full-time job and working on your career. You also need to have a savings account that you can dip into. You are going to need at least a good deposit in order to get a favorable finance deal. You are better off getting a personal loan for your car, but your credit rating may not allow it.
If you are getting a new car, you need a full-time job and you need to be working on your career because a new car is not for a person who sits at home dreaming.
Buying a new car is a big expense, it may mean getting into debt, and it is a luxury because the fact is that you can get a secondhand runaround that will do all the transport jobs that a new car will do. The only way you can justify a new car is if you have a busy career where you cannot be bothered with car repairs (other than servicing and general maintenance), and where you are willing to run the car into the ground.
When you buy a new car, you should not think of it as a short-term thing. When you buy a new car, you should think of it as a commitment that will last over a decade in most cases.
You can financially justify a new car if you take it from day one and look after it as if it was holding your life in its hand. After buying the car, your job is to look after it like it was the son you always wanted. Take care of it so that it lasts two times longer than the manufacturer said it would. Look after it so that it still looks great in a decade.
If you are willing to do all of this, then the value you get from your car will justify the over-inflated price you are going to pay for the privilege of having a new car. You will balance be able to control the love and abuse it gets over its lifetime. You will be able to love and care for it so that you get more than your money’s worth.
Buying A Car That Is Nearly New
When you drive a car out of the showroom, it sheds at around 20% of its value if you ask me. However, the Trusted Choice Independent Insurance Agents say that it loses 11% of its value by driving it off the lot and taking it home.
With that in mind, do not buy a new car; buy a car that has around 10,000 miles on the clock. It is a car that is not new, but it is very close to new. It is still in the part of its life where it will not cause the owner any problems. It is not going to be due a new gearbox and the clutch or brake pads will not need doing. The tires will probably still be in great condition too. Buy the car at a slightly depreciated rate, and it is like you are getting a new car that you have had for a few months already.
You can find steals like this from older people who have made the same mistakes that spotty teens have made. They have bought a car, realized it is a big waste of money, and now they want to recoup some of their money without accepting the bare-bottom offers that car companies give them.
Consider Taking a Chance on a Secondhand Car – My Method 1
If you are buying a second hand car, then save up your money until you have one or two thousand in the bank. It is going to take you time if you are young, but it is not worth getting into debt for a car.
My mindset is that no matter how much you save, you should only spend half of it on your secondhand car. Let’s say you save $1800. I say you should only spend $900 on a car. You are not going to get anything nice, but there is a small chance that you will get what people like to call “A nice little runner.” It is a car that should have ended its days a few years ago, but it still runs and doesn’t give the owner many problems.
My mindset is that even if you do your homework and you do your best to get a good (albeit cheap car), you still end up with a car that has more problems than a pregnant 15 year old, then you have not made a big loss. You can sell the car for parts or sell it for scrap, and then use the other $900 to try to get another car.
It sounds like a waste of money, but there are plenty of ways to waste money when buying a car. With my method number one, you double your chances of getting a good runner. It is will not impress people, but it will get you where you need to go.
Consider Taking a Chance on a Secondhand Car – My Method 2
Do the same thing as method one and save as much money as you can. You may have more luck saving if you set a savings goal and a time limit. Let’s say you have saved your $1800 again. Read online classified ads and local adverts in shop windows and find a cheap secondhand car in your area for around $900. You then keep the other $900 in your savings account. That money is used to fix any problems that come up with the car. That way, you get your nice little runner and you are not stopped or tripped up by car problems.
Consider Taking a Chance on a Secondhand Car – My Method 3
When I was in college, I used to encounter scores of people my age who would put a big sexy deposit on a car, get a finance deal, and then realized they couldn’t afford the car around six months into having it. They become desperate and find out they cannot sell it for what they bought it. They cannot sell it for a good price at all because who is going to buy from a spotty teenage boy who has been doing doughnuts in the parking lot. The teens become desperate and start going to car buying companies that offer them a pittance.
I would write down the car registration number, and using its information, I would get a quote from car companies that buy cars to sell on (you can do it on the internet these days without having to visit the car dealer), and then offer the teen 10% more than the company would offer. If the teen protests, simply ask them to take the car to the car buying company and get a quote, and the teen will see how “generous” your offer is. You buy the car, you clean it up, you take some professional photos, you build a fantastic and well thought out advert on a classified advert online and eBay. You then sell it for a despicable profit. I made a handsome profit each time because the teens were very eager to sell quickly, but I had time to wait and negotiate for the right price from the eventual buyer. If you are a spotty teen (as I was), then get an older adult to negotiate the sale and give them a cut. The money you make with this method should be used to buy yourself the type of car you want without getting into debt.
Conclusion – What Have You Learned?
There is plenty in this article for you to be getting on with. You should be saving, avoiding debt, and checking out the current second-hand car scene to see which owners are willing to give a massive discount on their car. Follow the advice in this article and do not jump straight into debt and you will be fine.