buying a car Archives — Beating Broke

“How much should I spend on a car?” is a big question that’s not always easy to answer at first. Deciding how much to spend on a car can be challenging, especially when considering a $100,000 annual income. While it’s tempting to splurge on a luxurious vehicle, it’s essential to balance this desire with financial prudence. Factors such as debt, savings goals, and overall budget play significant roles in determining the appropriate expenditure on a car. Here are some guidelines to help you make an informed decision about how much to spend on a vehicle.

The 20/4/10 Rule

The 20/4/10 rule provides a practical guideline for car purchasing. According to this rule, you should aim to put down at least 20% of the car’s price as a down payment, finance the car for no more than four years, and keep your monthly car payment (including insurance) under 10% of your gross monthly income. For someone earning $100,000 annually, this means a maximum monthly car payment of approximately $833. This rule helps ensure that you don’t overextend yourself financially.

Considering Other Expenses

When answering, “How much should I spend on a car?” consider all related expenses, not just the sticker price. Monthly payments, insurance, maintenance, and fuel costs should all fit comfortably within your budget. On a $100,000 salary, it’s crucial to factor in these additional costs to avoid financial strain. A comprehensive budget will help you make a realistic assessment of what you can afford.

Financial Priorities and Goals

Evaluate your financial priorities and long-term goals before making a car purchase. Are you saving for a house, planning for retirement, or building an emergency fund? Allocating too much money to a car can hinder your ability to achieve these goals. Ensuring that your car budget aligns with your broader financial objectives is key to maintaining financial health.

Total Cost of Ownership

The total cost of ownership (TCO) includes more than just the purchase price of the car. Depreciation, fuel, insurance, maintenance, and repairs all contribute to the TCO. Research the TCO of different car models to understand their long-term costs. This approach helps you avoid unforeseen expenses and ensures you choose a car that fits your financial situation.

New vs. Used Cars

Deciding between a new or used car significantly impacts how much you should spend. New vehicles depreciate rapidly, losing a significant portion of their value within the first few years. A used car, particularly one that is two to three years old, can offer better value and lower depreciation rates. Considering a used vehicle can help you get more for your money while adhering to your budget.

Leasing vs. Buying

Leasing a car might be an attractive option if you prefer driving newer models and want lower monthly payments. However, leasing comes with mileage limits and potential fees for excess wear and tear. Buying a car, on the other hand, provides ownership and can be more cost-effective in the long run. Evaluate the pros and cons of leasing versus buying to determine which option best suits your financial situation.

Emergency Fund Considerations

While answering the question, “How much should I spend on a car?” ensure you have sufficient emergency funds before making the purchase. Financial advisors typically recommend having three to six months’ worth of living expenses saved. This fund provides a safety net for unexpected expenses or income loss. Prioritizing your emergency fund can prevent financial stress in the event of unforeseen circumstances.

Avoiding Overextension

It’s easy to get carried away with the allure of a high-end vehicle, but it’s crucial to avoid overextension. Spending too much on a car can lead to financial stress and limit your ability to enjoy other aspects of life. Aim to strike a balance between a vehicle that meets your needs and one that allows you to maintain a comfortable lifestyle. Staying within your means is essential for long-term financial stability.

Resale Value

Consider the resale value of the car you’re interested in. Some vehicles retain their value better than others, which can significantly impact your financial position when it’s time to sell or trade in. Research the resale values of different models to make a more informed decision. Choosing a car with a high resale value can provide better long-term financial outcomes.

Insurance Costs

Insurance premiums vary significantly based on the car’s make, model, and age. Luxury or high-performance vehicles often come with higher insurance costs. Obtain insurance quotes for the cars you’re considering to ensure the premiums fit within your budget. This step helps you avoid surprises and ensures you can afford the total cost of ownership.

Fuel Efficiency

Fuel efficiency is another critical factor to consider when determining how much to spend on a car. Cars with better fuel economy can save you significant money on gas over time. Evaluate the fuel efficiency ratings of different models to find a balance between performance and cost savings. Opting for a fuel-efficient vehicle can reduce your overall transportation expenses.

Personal Preferences and Needs

Finally, consider your personal preferences and needs when deciding how much to spend on a car. Do you prioritize luxury features, or are practicality and reliability more important? Assessing your driving habits, lifestyle, and priorities will help you choose a car that suits you without overspending. Making a thoughtful decision based on your unique circumstances will lead to greater satisfaction with your purchase.

You Can Figure Out, “How Much Should I Spend on a Car if I Make $100,000?”

When determining how much to spend on a car with a $100,000 income, consider these guidelines and factors to make a well-informed decision. Balancing your desire for a new vehicle with your financial responsibilities and goals ensures that you make a purchase that enhances your life without compromising your financial health. Making smart financial choices today will provide stability and flexibility for the future.

Road Trips Gone Wrong: 10 Common Pitfalls and How to Avoid Them

Catherine Reed

Catherine is a tech-savvy writer who has focused on the personal finance space for more than eight years. She has a Bachelor’s in Information Technology and enjoys showcasing how tech can simplify everyday personal finance tasks like budgeting, spending tracking, and planning for the future. Additionally, she’s explored the ins and outs of the world of side hustles and loves to share what she’s learned along the way. When she’s not working, you can find her relaxing at home in the Pacific Northwest with her two cats or enjoying a cup of coffee at her neighborhood cafe.

When I graduated from college and came back to live at home for a few years, I went with my mom to the furniture store to buy a bed, dresser, and desk set. We found one that I loved. However, I was embarrassed when my mom started haggling with the salesperson. She haggled for about 10 minutes, and in the end, she got 15% off the set. Turns out my mom knew something I, as a young person in my 20s, didn’t—there are certain items you should never pay full price for.

New Furniture

As per my experience, you should never pay full price for furniture. To save money on furniture, use these tactics:

Shop in Winter or the End of Summer

Furniture stores get their inventory in the spring and fall, so they will be looking to get rid of older pieces and be more willing to negotiate. (I bought my furniture in January.)

Go to Smaller Furniture Stores

You won’t be able to negotiate at a big store like Ikea. However, if you visit a small, local furniture store or chain, the salesperson will likely negotiate with you.

Shop Clearance Items

Most furniture stores have a clearance section. They want to get rid of those items, so you may have even more negotiating power if you shop clearance.

Buy Used Furniture

Of course, buying new furniture isn’t the only way to go. You can save much more if you’re open to buying used furniture. For instance, I was driving through a neighborhood one day when I saw a dining room table as part of a garage sale. That table was only $50 and included the table, leaves, and four chairs. It has lasted us for 10 years, though we’re due to replace it sometime soon.

In addition to garage sales, you can find good used furniture advertised on Craigslist and at second-hand shops. You’ll pay only a fraction of the new price.

Hotel Rooms

You can save on hotel rooms in a variety of ways.

Use Online Tools

Many online tools can help you pay less for a hotel room. Consider using Kayak, Expedia, or Priceline.

Use Your Membership

Do you belong to AARP, AAA, or the military? If so, mention that when you check in, and you will likely get a discount.

Avoid Hotel Rooms

Another option is to bypass hotel rooms altogether. You may find that vacation rentals are cheaper than hotel rooms, especially if you have a large family.

Rental Cars

Rental cars are a necessity, but the price can add up quickly, especially when you add optional insurance coverage. Luckily, you can use these strategies to save.

Book in Advance

The earlier you can reserve your rental car, the less you’ll pay. Our family had to rent a minivan for a trip, and we booked three months in advance. As the day got closer to our day to pick up the van, I was astonished to see how much the price went up. We easily saved 20% by booking in advance. Most reservations are non-binding, so booking in advance is a low-risk proposition.

Use Your Costco Membership

If you have a Costco membership, use their travel tab online and make your reservation through Costco’s website. You’ll pay the least amount of money with your Costco card. That’s the only way we book rental cars now.

Don’t Rent at the Airport

Most people get off the plane and go right to the airport rental car desk. Sure, doing so is convenient, but you’re paying extra for that perk. You’ll likely save more if you take an Uber or Lyft to a rental car location a few miles from the airport.

Use Your Credit Card for Insurance

One of the costly fees when renting a car is to pay for the daily insurance. Before you rent the car, call your credit card company and see if they offer primary insurance on rental cars when you use their card to pay for the rental. If so, you could save a bundle by opting out of insurance.

Vehicles

In the market for a new car? Get ready to haggle because you don’t want to pay full price for a vehicle. The car will likely be listed with the MSRP (Manufacturer’s Retail Sales Price). However, to negotiate successfully, you’ll also need to know roughly how much the dealer paid for the vehicle. Then, you’re ready to negotiate. Consumer Reports has an excellent tutorial on how to negotiate with a car dealership.

One caveat: the used and new car markets are strained due to the pandemic, so we’re in a seller’s market. You may not be able to negotiate as successfully as if there wasn’t a supply chain shortage and an increase in demand.

School Supplies

Items You Should Never Pay Full Price For — Photo by Kelly Sikkema on Unsplash

Our family never pays full price for school supplies. Instead, we buy an excess of school supplies in July and August when they’re dirt cheap. Then, when we need glue, or scissors, or paper, or a notebook some other time in the year, we just reach into our stockpile. By shopping like this, you can easily get school supplies for 90% off the retail price.

Mattresses

Look to buy a mattress during the major holidays and Black Friday. They will often be offered for 10 to 20% off. Also, just like furniture, you can save a bundle if you buy right as the new season’s mattresses arrive. That means if you buy last season’s model in April, you should save a significant percentage because the store wants to make room for the new models. You can also try to negotiate with the salesperson to save a bit more.

Final Thoughts

If you’re in the market for these items you should never pay full price for, I hope you can use these tactics to save money. Many of these items are big-ticket items, so the more you can save, the better.

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MelissaB

Melissa is a writer and virtual assistant. She earned her Master’s from Southern Illinois University, and her Bachelor’s in English from the University of Michigan. When she’s not working, you can find her homeschooling her kids, reading a good book, or cooking. She resides in New York, where she loves the natural beauty of the area.