How much should you spend on a car? This is one question that many people ask when buying a car for the first time. As much as getting a car is an ideal move, you should strive to do it within your means. Avoid loans, avoid selling assets to acquire one.
Cars are costly, even the ones that are marketed as the cheapest. And with that, you need to get your finances right before making a move to acquire a new car. So, how much should you spend on a first car? Find out below.
How Much Should You Spend on a First Car?
How much should you spend on a new car? Spend the cheapest amount you can, for the best car available. Never spend more than you earn when buying a car.
Spend 10% of Your Annual Income
As you may already know, you should never spend more than 100% of your income on purchasing a car. That means you should not borrow to buy a car. On average, you should spend between 10-15% of your yearly income on affordable cars.
If you’re earning, say, $100,000 per annum, your car budget should be around $15,000. With this budget, you can settle on a used car that’s still functional and useful. With that, how much should you spend on a used car? 10% of your income should suffice.
Spend 20% of Your Annual Income
If a used car is not what you desire to have, you can compromise and stretch your budget a little more if you need something more reliable. You do not need to buy a car that will keep you at the garage now and again just because it fits in your low budget.
That is where you compromise and stretch the percentage from 10-15% to about 20-25%. If you are earning $100,000, then your dream car at this range should be priced at about $25,000. With this amount, you should be able to get yourself a decent family car.
Spend 35% of Your Annual Income
This is yet another further stretch when budgeting for a car. Going further than that may attract adverse financial implications on your budget. You still have additional costs to cater for after acquiring the car, and so you must spare some cash for that.
With 35% of your annual income, you will attract up to $35,000 from your yearly salary of $100,000. This amount can fetch a great car and still leave you with cash to source for great insurance policy companies or get linked to one on this website.
Spend 50% of Your Annual Income
This is the furthest you should go in the quest of answering ‘how much should you spend on a car?’ Financial experts may advise you to set your car budget at half your total annual salary. With a yearly income of $100,000, you can secure a whopping $50,000 for a new car.
However, while this advice may help you accumulate enough money for a great car, the formula doesn’t consider that you may have current financial obligations. It is a plan you should think of if you have savings for a down payment.
Important Additional Costs to Include in your Total Car Cost
The car’s price is not the only cost you’ll incur to have your car fit and running. There are several additional costs to consider after purchasing the car. They are:
Car Service and Repair Cost
These costs can be a bother when you choose a used car since new cars come with a warranty cover that will give you some breathing space for some time. That means, if your budget allows, you should consider a new car as the best car for your money.
The used car will demand that you set aside some money to cater for the repair and service cost as this will start immediately when you start using the car. Saving the maximum you can on your bargains leaves you with enough money to get you up and to run.
Whether you purchase a new or used car, you will need fuel for it to commute. Your question, ‘what car can I afford,’ should get an answer that revolves around the car’s fuel consumption rate. Not just the car’s price alone.
While a used car may cost less than a new one, the used one’s fuel consumption may be higher. You may end up spending more on fuel on an older car. Therefore, you should check the fuel consumption rate and include your total cost calculations’ projected cost.
Car Insurance Cost
You need the best car insurance policy to cover your car against several risks. You avoid so much damage costs transferring to you when you can barely cater to them by getting an excellent insurance policy.
You should work with the best companies to get the least costly yet valuable insurance cover for your car and yourself. While you can’t dodge paying for insurance, you can avoid paying for higher charges that cover little of your demands by choosing the best insurance.
Car Tyres Cost
You need to change new tires, especially when buying a used car. But why is this important? Car tires expire between 6-10 years, and this will mean you might be dealing with tires that are nearly hitting their expiring date.
A single tire goes for about $150. Buying four will cost you a total additional cost of about $600. Getting great tires gives you the confidence of minimal chances of accidents and protects your car from possible ruins.
There is much that adds up to get the right car at a given price. However, you should start by narrowing down on the ideal car’s features that you may wish to purchase. So, how much of your salary should you spend on a car? Pick a car with all the features that suit your needs and is within your budget.