Make a new Car Affordable

Earlier we used to drive a BMW when I traded that in for a Hinda CRV, it depreciated by as much as 70%. If I consider the maintenance cost we incurred in all 4 years of owning it, that BMW cost us a fortune. I vowed to never ever buy a German car while living in the USA.

Here’s a reality that makes perfect sense when you think about it; even though most people avoid actually doing so. There’s a whole lot more to having a new car than just buying it. Getting the car, as much work as that can be — if you take your time and pick the right car at the right price — is just the beginning.

Once you’ve bought it, you have to keep it too. This is why knowing how to afford a new car is just as important as figuring out which one you want.

Here’s what you need to know to make your next car affordable.

1. Your Monthly Budget

Most experts recommend spending no more than 30 percent of your yearly pre-tax income on a car. Depending on your income you can add or subtract some.

But beware of spending too much. As a rule of thumb, a car that costs more than 30% of your annual salary is not your car, you look for a cheaper model or smaller size or go for a base model. No leather, or GPS, etc.

Now, before you get excited, charge off and spend one-third of your annual salary on a new car, keep in mind this 30 percent also includes all of the other expenses associated with car ownership.

We’ll go into those in more detail below for now though, keep in mind the percentage of your income you choose to put on the street (so to speak) should also be relative to all of your other obligations.

So, make a list of all of your current monthly expenses; rent/mortgage, savings/investments, food, clothes, utilities, entertainment, credit card payments — whatever you have to pay out each month.

Then, total them all up. Subtract that amount from your monthly take-home pay and you’ll see how much you have leftover to put toward a loan for a car and the costs of keeping it.

2. Expenses associated with Owning a Car

This would be a much simpler subject to discuss if the costs stopped at the monthly loan payment. However, you’ll also have to buy fuel, insurance and pay registration fees.

You’ll pay for oil changes and other maintenance activities such as replacing tires, windshield wiper blades, fan belts, and water hoses too.

The amounts you’ll pay for most of these items will vary with the type of car you choose and the way you drive.

For example, when it comes to insurance, your age, gender, driving record, credit history, ZIP code and the distance you commute to work in the car every day will also be factored in.

Registration fees vary in direct correlation to the market value of the car. Also, you’ll have to consider tag and license fees, which are an annual cost associated with vehicle ownership.

Because the costs vary from car to car, it’s important to get a handle on them, find out the cost of vehicle ownership for the one you’re considering before you buy it. If you have an idea of the type of car you want, narrow it down to three or four models that fill the bill and look up the associated expenses for each of them.

3. Which cars you can comfortably afford

With steps one and two above complete, you’re now ready to look for the car you’ll buy. It is nigh impossible to overstate how important it is to approach buying a car in this order.

Once you know how much disposable income you have and what costs to anticipate, you can use an affordability calculator to see which of the cars you have in mind will best fit into your financial situation.

Being realistic about your purchase in this fashion will help you find a car you can both love and comfortably afford.

Sure, you might have Porsche dreams, but if you do the math and see that’s not going to happen, you can look at something like a Nissan Z or a Toyota 86 instead and still have a sporty car you’ll enjoy driving.

And that’s how to comfortably afford a new car.