How Much Can One Afford to Spend On a Car?

>Owning a car seems like a dream. No more commuting with public transport or depending on your friends to take you places; your own car means your own rules. But unfortunately, it also means your own money. Bill Tsouvalas explains how much you can afford to spend on that new car.

Calculating the Costs

While a car gives you enough freedom to transport yourself here and there, you need to keep the costs in mind. Maintenance, fuel consumption, and other similar costs can be even more important that the price of the car. Because let’s face the truth, how many people you’ve known have bought a new hot ride, but can’t afford to take it out for a drive because of the costs? It would just end up taking dust in the garage and you don’t want that.

Pick a car that suits your budget and your lifestyle instead. Become acquainted with the value of your vehicle and read some reviews that bring some light over the ongoing expenses. Keep in mind that as long as you own that car, those costs will not go away. By using a budget planner, you can calculate how much you can afford to spend on your vehicle and see where all the money will go.

Opting for Car Loans

If you want to get a car really fast, a car loan seems like a deal from the heavens. By signing that legal agreement, you state that you will make repayments until the loan is fully paid.

But first, you need to think: can you afford that loan? If you do not have a secure job, and you’ll not be able to pay for the loan, you’d end up with legal problems that could make you pay more than you were supposed to. Talk about the options with someone else who has already supported these costs.

The 20% Rule on Buying a Car

Overall, there is a general simple rule which tells you how much you can afford to spend based on your salary. By taking 20% of your annual income (before social security costs, taxes and so on), you can come to an average number as to how much you can afford. If you are in a relationship, then you can combine it and then divide it by two.

Long story short, if you have an average salary of 30,000 AUD, you shouldn’t spend more than 6,000 AUD on your purchase. That is, if you don’t want to end up broke for the rest of your life. Sounds simple, doesn’t it?

Buying a car can either be a blessing or a living hell. Knowing how to calculate your income and expenses might save you a lot of trouble in the future. Even by following something as simple as the 20% rule, you can save yourself from years of working your butt off to pay for a car you couldn’t afford.

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