In this article, we will reveal in detail the question of how much you can afford to spend on a personal car and tell you about the various options for the cost of a car, taking into account your income since a car is one of the goals for a successful life.
We’ll start with Europeans who have experienced a great desire to take possession of a personal car. There it is accepted that the car should cost about 6 months income. This is due to the relatively high incomes of the population, the tightening of environmental standards that stimulate the purchase of more environmentally friendly new cars, with an adequate credit policy, and also with the fact that cars are affordable enough for Europeans.
If you follow this practice, then a person earning about 1000 dollars may hardly afford to buy a good car. And if people followed this practice, then the number of cars would reduce significantly.
Wealthier and better-earning people recommend that the cost of a car should not exceed 3 months income. For many people, this amount is too small. What car can you buy for 3 thousand dollars? In other words, this is a fantastic option.
Therefore, for Americans, we believe that the optimal breakdown will be the cost of the car equal to 6 to 12 monthly salaries, that is, the same income for 1 year maximum.
How to calculate the monthly income for buying a car?
Many people are interested in the question of how to calculate monthly income for buying a car? If you earn 1000 dollars, it doesn’t matter what your expenses are, you can afford a car that costs from 6 to 12 thousand maximum.
Let me emphasize that we are talking about the cost of a new car since the cost of a used car is not correct because it cost completely different money when it was new. Otherwise, you can buy a used car, and it will “spend” all your income on repairs and maintenance.
If you are not alone and have a family, then the cost must be calculated taking into account the total income of a husband and wife. If you want everyone to have their own car, then you cannot add up the income, you can estimate the total income from the husband and wife divided into two cars. If you both earn 20-30 thousand dollars in 6-12 months, then you can buy one car within these boundaries or two cars that will be in total within these boundaries.
Why is it important to remain within the established budget?
These boundaries are not set by chance, they allow saving for a car without really straining. In 1-2 years, it is quite possible to save money to buy a car at the price of 6-12 monthly income. That is, you do not have to get into debt or take payday loans Illinois.
It is also important because you will have to service the car. A new car also needs to be serviced, insured, refueled… If you buy a car above these limits, you will have to spend a significant part of your budget on the car.
Buying a car for the price of 6-12 months will reflect your real income. Everything that is higher will be show-offs, for which you will have to pay the cost of maintaining the car.
Car loans, savings and debts
Not all people like the idea of taking auto loans and cash advance loans Illinois to buy a car. If you do this, then this is a clear sign that you cannot afford this very car and it will hit your budget.
There is no need to borrow funds to show-off – many people regret this decision. Buy a car according to your pocket and income. Moreover, a car is such a purchase that becomes cheaper, you will never get your money back, and if you have loans and debts, you will have to pay even more. A car is not a thing to buy on credit unless it helps you make more money.
There is also a type of people who buy cars that cost more than their 6-12 months income but do it for their own savings. This is better than buying an auto on credit but also bad. Usually, they buy a car with all or most of the savings. Although such people are not in debt, they still cannot afford such a purchase. Its service will still eat up their income. It’s not recommended to buy a car more expensive than you can afford.
When buying a used car, remember that you must proceed from its price for a new one, and not the one that it costs now, otherwise, you will fall into the trap of low prices and expensive maintenance. Of course, if the car is pretty old, then spare parts and its maintenance also become somewhat cheaper, but why do you need an old car unless you really like it?
It is especially sad when people buy expensive business class cars for $10-15k and naively think that they have cheated the system: they bought a business class for the price of a budget segment, and then complain that they have no money to serve them. They ride winter tires all year round because there is no money for summer tires.
You should focus not only on the cost of the car itself but also on the cost of car maintenance. You need to know what parts can be changed under the guarantee, what parts cannot be changed, how much scheduled technical inspections cost according to the regulations, how much gasoline the car consumes, how much consumable parts cost, how much the car loses in value after a few years… This way you will know your future maintenance costs. You can even save money and buy a smaller engine – thus you will not have to pay a large tax and spend a lot of money on fuel.
We would also like to dwell on such a point as unforeseen or non-warranty breakdowns. There is an opinion that we share that the car should be of such value so that you can cover absolutely any breakdown with 1-month income. If this does not work out for you, then most likely you cannot afford the car.
A more advanced option: if you lose a car, you will buy the same one without even worrying much about the money lost, but not everyone can afford this. There is also full insurance for any occasion. If you have one, congratulations, you have reached a high level in income balance and personal money management.
We want to note that if your income does not allow you to buy a car within 6-12 months income, then buying a car is contraindicated for you. You just haven’t made money on it yet. Many people buy cars on credit, buy junk, but then pay for such decisions with long debts and a constant life without money.
We recommend that your car (a new one) should cost no more than 6-12 months income. We all love show-offs, but you have to pay a high price for them. Be reasonable people, develop, earn more and you will be able to buy expensive and beautiful cars within your pocket and according to your income.