It’s no secret that buying a car is an important decision, largely because of just how expensive cars can be. The costs don’t end once you drive off the lot, either. Maintenance, insurance, gas, repairs, and more can translate to major expenses over time. In fact, the global automotive aftermarket industry is expected to reach $722.8 billion by 2020.
So … with such a major purchase that usually ends up costing more the longer you own it, just how much should you be budgeting for your car? To help answer that question, here is a simple guide that is designed to help point you in the right direction.
Used or New?
The amount you end up spending on your car will vary greatly depending on whether you purchase your car new or used. A used car might seem like the less expensive option at first, but remember that your maintenance costs are going to be higher for a used car. So, which is the more expensive option? Unfortunately, the answer is going to depend on the specific vehicle you’re looking to buy. While you might pay less for a used car at first, it could cost you more in the long run, depending on the shape your vehicle is in when you drive it off the lot.
The Initial Purchase
With the debate of new versus used in mind, how much should you aim to spend on your initial car purchase? Experts say that generally speaking, you should budget about 35% of your income for your car’s asking price. If you make $20,000 a year, that leaves you with $7000 — enough to buy a reliable (albeit older) used car. However, if you’re living paycheck to paycheck, 35% of your income can be difficult to manage. In these cases, you can aim for as low as 10% or shoot for a middle ground of roughly 20%.
Once you’ve made your first purchase, what should you expect to pay long-term? After all, cars are machines, and machines need maintenance. This can be a bit more difficult to predict, as it largely depends on the state of the car. Approximately 13% of the world’s steel is used in the automotive industry, and steel can rust over time. If you’ve bought a car with rusted parts, you’ll need to budget more for repairs and maintenance than a new car. However, a good starting point would be to budget no more than 22% of your monthly take-home pay for monthly car ownership fees. This includes insurance, gas, repairs, and any payment you make regularly for your car that isn’t an auto loan payment.
Cars are expensive and usually make up the second-largest purchase a person will make in their life besides a house. But before you can figure out how much you should generally budget for your car and the related payments — or whether you’re paying too much — it’s important to remember that you always have to ask the right questions first.
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