Steps 1, 2, and 3 of Car Buying

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I love those Christmas commercials where someone surprises their spouse with a $70,000 Lexus.

They make the most unhinged decision seem so normal - I have a Money + Marriage blog that’s perfect for them.

But let’s talk about cars.

In America, for better or worse, you likely need a car.

And car ownership ain’t cheap.

For most of us, transportation is our second largest expense behind housing.

It’s also one of the least flexible expenses since you lock-in to a car for years.

So, when it does come time to buy a car - what is the best way to avoid making a big mistake?

First, think of what you want from a car.

And be honest with yourself.

How long do you want to keep it?

• Less than 3-4 Years, may be better to lease
• Longer, may be better to buy new or used

Am I okay with a large repair or two in the next few years?

• That’s more likely with a used car vs. new.

What will you actually use it for?

• Do I love my F-150? Yes.
• Do I use the truck bed more than once per year? No.
• Would it be cheaper to drive a sedan and just rent a U-Haul when I need the space? Next question.

What do I want the car to say about me?

• Perhaps you want the feeling of being a tradesman who needs a pickup truck. In reality though, you may live in a big city and work from home on a computer all day… speaking hypothetically of course.
• Cars can absolutely reflect our personality - might as well be honest with yourself on how important (or not) that is to you

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After you think through what you want from a car, think through your purchasing options:

Buying used gives you:

• The benefit of avoiding large depreciation. Cars lose 20-30% of their value in the first year - let someone else take that depreciation.
• A lower purchase price which generally lowers taxes and insurance

Leasing gives you:

• Lower monthly payments compared to financing a new car
• The latest car every few years
• Warranty coverage
• Essentially a subscription to your car - so, make sure you’re fine always having a car payment

Buying new gives you:

• The latest technology available
• Warranties from the dealer
• Confidence in the vehicle’s history (or lack of) - no worries of who owned it before you and how they treated it

Finally, and most importantly: How Much Car Can I Afford?

Most Personal Finance experts recommend:

• No more than 10% of your monthly take-home pay going towards a car payment
• Putting 20% down
• Paying it off in 36 Months (3 Years)

See what that means for you below:

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Is this table a shock? It was for me.

With today's interest rates and inflated car prices, even a high salary doesn't buy as much car as you'd think.

Now a car dealer will tell you that you can afford way more.

And that makes sense: The bigger the loan, the more the lenders make. They’ll always tell you you can afford “just a bit more”.

Whether you follow this table exactly or not:
​When it’s time to buy a car, know your monthly number.

Human nature combined with a good car sales rep will lead to you spending more than you need if you don’t plan.

Car Buying (like most things I write about) is personal. Everyone will vary slightly on how much they want to spend.

As always, as long as you think through the purchase you’ll be in a great spot:

• Would spending less let me spend more in another area of life I care more about?
• Am I saving at least 10% of my income?
• Am I aggressively paying off student loans?
• Any other big purchases coming up I need to be planning for?

However you decide to hit the road, let this article help you do it with a less stressed wallet.

Happy Trails!