How Much Car Can You ACTUALLY Afford | your finance coach explains #Finance

car payments are getting closer to the $1,000 Mark averaging $734 for new cars and $525 for used cars meanwhile Interest Rates have doubled since 2022 touching almost 8% unsurprisingly auto Loan delinquency has increased in recent years in response to this

new auto Loan reality in this uncertain economic environment a lot of us are facing a difficult decision when it comes to cars to buy to get a Loan or even lease how much car can I actually afford let’s break it down together first things first it’s

crucial to understand what’s optimal for you I resonate with this point that Dave Ramsey makes that the value of all of your vehicles should be no more than half of your total household Income so if you’re making $100,000 as a household the total value of all of your

vehicles should be no more than $50,000 so again if that’s two cars that you own the total value should be no more than $50,000 and this is regardless of if you take out a Loan or pay cash if you’re paying cash for a used car then theoretically you can buy a slightly

nicer vehicle then the same brand new car would be maybe have less features or less exciting or maybe a smaller compact vehicle for the same price now this approach helps you avoid overspending and keeping your Financial priorities straight building more freedom for yourself and your family instead

of just driving the most expensive car that you possibly can just like with home buying lenders will lend you a lot more than maybe you can actually afford they’re not in there living your day-to-day life they don’t know the pressures you face at work and one of the most frankly

irresponsible things you can do is just max out what you can possibly buy that is going to put the pressure on you to show up and perform at work maybe staying at a job you hate because you’re trapped in a car payment that you probably shouldn’t be have afforded in the first place so

there’s also another car buying rule the 35% rule so similar to the DA of Ramsey thought this is really just that you shouldn’t spend any more than 35% of your total gross Income so again if you’re making 100,000 no more than 35,000 so if we look at this compared

to Dave’s example that’d be more like no more than 70,000 total when you add all that in so think of those as two kind of different in options you know obviously Dave’s being the more conservative one could be a healthy way for you to um think about that although if you want to be

a little more frugal great consider that maybe the 20 25% rule for yourself if you’d like the point is these are just rules of thumb everyone’s Situation’s going to be a little bit different like if you’re a traveling salesperson and you’re on the road all day you

probably want to spend a little more than someone like myself that works from home or if you’re a you know Mom shuttling around all kinds of young kids you maybe buy a slightly nicer vehicle with you know more reliability more safety Etc let’s talk leasing leasing might seem attractive

because you can get even more car for your money due to the lower payments Associated but just remember you’re just renting the car when the lease ends you own nothing and have to start the game over again I think leasing is probably the worst possible way to drive a car even if you buy a

brand new vehicle which is isn’t great because of the depreciation you know the second you drive it off the lot it’s going to plummet in value you can still mitigate this by driving it for 10 or 15 years until the wheels fall off as they say so a new car for 30,000 let’s say might

depreciate to 20 to 24,000 pretty quickly but if you keep the car for 10 years the depression is spread out over that 10year period making it more economical let’s compare two scenarios Leasing and a Loan now you can see here on the graph with the lease you’ve got a 36

month term maybe you paid nothing out of pocket but your total cost is going to be $14,400 again not even factoring Interest Rates here compared to a Loan with a 6% interest rate for $400 a month over 36 months you’re going to pay 15,77 but you actually own

the car in the end owning might cost more up front but at least it gives you something to show for it at the end you have an actual asset at the end of that time period but ideally buying a card that’s a couple years old is the real sweet spot because the majority of depreciation has already

occurred this concept is really expanded on in the book The Millionaire Next Door they talk a lot about this concept and how a lot of wealthy people will often times go this route when purchasing a vehicle so again just to expand here a $30,000 car is going to be worth $20,000 in a couple years so

you can literally save $10,000 by buying a 3-year-old car think of it like a new iPhone new model comes out old model drops could be a brand new phone still you’re still getting something powerful but you’re saving money on the price tag and when you’re thinking about buying

versus paying in cash there is opportunity cost to consider really everything is a tradeoff if you buy the brand new car you have less money to invest in other things if you are saving up your cash sure that might take some time but then you don’t have a car payment and you can use that

monthly Cash Flow to invest and do other things to have more freedom across the board and mathematically speaking just looking at the numbers buying a car cash is the cheapest way to go managing your Cash Flow is critical again you want to make sure that

you’re not using all of your free Cash Flow for this new car payment one of the ways to keep this in check is the 241 rule which suggests putting 20% down financing for 4 years and keeping the payment under 10% of your take-home pay again just another rule of thumb to make

sure that you’re not overdoing it in the car category again ultimately minimizing your car payment gives you more freedom and choice in other areas when you prioritize living below your means you have that freedom to invest in things like your education which should be ongoing post colle in

my humble opinion you can take the risk to switch jobs if you hate it or simply invest those dollars in the Stock Market giving you an 8 to 10% return over long periods of time and that will make you way more money way more wealth make you way richer than continuing to invest in a

depreciating asset overspending to impress is all too common most people are overspending on vehicles frankly to try to look cool it’s easy to be lured into this when new cars have such a sexy appeal and the bank will Ling you way more money than they probably should but ask yourself is it

really worth it to risk your financial stability and your peace ultimately to look cool to a stranger at a stoplight in October 2022 the average new vehicle purchase price was over $48,000 while the average wage in 2022 was $63,750 something isn’t right about that every year auto

manufacturers pump out new cars that are incrementally better or cooler convincing the masses to overspend on a functional item that doesn’t really do anything to actually improve your life in the grand scheme of things it just keeps you locked into the hamster wheel it’s just like a

new iPhone but with cars it barely changes year to year and probably isn’t worth the upgrade when buying a car 90% of people neglect this one important thing maintenance let me tell you a story 10 days before my wife and I got married both of our cars died on the same day we had the same tow

truck driver her engine blew up my transmission died true story we had to take a rental car to our wedding in Jacksonville Florida 2 years later the same thing happened this time one day apart both of our cars dead she looked at me and said the last time this happened something really good happened

we got married maybe I’m pregnant and that is when I found out that we were pregnant with my son this is just my personal example of why having an emergency fund is so important for unexpected things like this and it seems like so many people deal with Automotive headaches they can torpedo

your budget for the month or quarter or 6 months even but the flip side is picking a car that is statistically reliable can save you thousands in the long run these cars cost less over time saving you repair headaches and the time spent you know sitting in a repair shop for like 3 hours and having

to coordinate you know an Uber or someone dropping you off and picking you up there’s a great tool on edmonds.com called the the true cost to own calculator we’ll link that in the description below for you to check out it helps you compare the long-term cost of multiple different cars

including maintenance and repairs as a fan of Brands like Toyota Honda and Acura I found they’re not only reliable but cost less to maintain compared to other more luxury Brands so like a Toyota might cost $500 a year I’m just making that up to repair versus a more luxury vehicle like a

Mercedes or BMW cost maybe $1,500 or more to repair over the course of a year those Savings absolutely Stack Up think over a 10-year time period that’s a lot of money and by the way feel free to criticize my car choices in the comments below if you want to rre me over the

coals be my guest another tip is Insurance all Insurance is not created equal sure there might be Statewide mandatory limits and things like that but there are so many other Brokers in places that sell Insurance that you could

probably save a lot of money here’s what I do and what I recommend for every single client you type the name of your city or town into Google so for me I would say Charlotte in see Independent Auto Insurance and then a list of vendors will come up and you make a couple calls

and what the magical thing is instead of it being like you call State Farm State Farm can only get you State Farm Insurance these independent Brokers can shop around and find you the best rates the best deals for again reputable Insurance providers

not like you know EDS Insurance or something like that that’s going to screw you but reputable providers and you can often times save hundreds of dollars by just making a few phone calls buying a car should be about making a wise decision based on your salary avoiding leases

when possible and managing your Cash Flow prudently even though there’s a lot of factors to consider making a great decision doesn’t have to be that difficult and the easiest way to stay out of Debt and save money for a car sustainably is to automate

your Finances if you automate your Finances you

don’t have to worry about late payments micromanaging a budget or finding the right app to track your Finances watch this CashNews.co linked up above where I show you

how I help all my clients automate their Finances if you find this helpful like And subscribe if you’re still here watching for more Savvy Financial tips peace out

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