There are some financial decisions that we make that really don’t make a big impact on our financial lives. Things like getting a coffee on the way to work or that streaming service that you really don’t watch anymore. Yes, these expenses can really add up over time, especially if you consume way too much of them. But at the end of the day they don’t make a huge difference in most people’s lives. However, one of the biggest financial decisions that you make every few years is what vehicle to purchase. This decision can really impact your financial health for several years. Let me show you how I go about choosing the right car to buy.
What kind of vehicle do you NEED?
Here is where most people go wrong right off of the bat. Often, when choosing the right car to buy, a person will look at what they want rather than what they need.
Do you have a big family? You probably want a minivan or an SUV. Not a sedan.
If you don’t have children or are a small family, a sedan will work just fine in most cases. You don’t have to spring for the SUV with the third row seats necessarily. Even if you are looking to expand your family in the future, you can wait on the giant minivan or SUV for a while if you want.
Are you doing a lot of home repairs? Maybe consider a truck.
But don’t get a truck because you might use it to get one 2×4 from the hardware store every year. That is just silly.
Also, consider the gas mileage of the vehicle that you are getting and compare that to how much you drive on a regular basis. If you drive a lot, make sure you get good gas mileage.
The last thing that I consider when buying a car is the maintenance cost. Typically luxury brand cars will have MUCH higher maintenance costs associated with owning them. The tires cost way more, the oil changes can be several hundred dollars, etc.
On average, you will replace your vehicle every six years or so.
So do your best to make sure that you have a vehicle that will fit your needs for the next half-decade or so.
You may not get it perfect, but do what you can do to avoid a huge mistake.
How much should you spend on a car?
Here is where people REALLY go off the rails.
Make sure you are not spending too much on a vehicle.
If you can pay cash for a new vehicle, do it. But I understand if you can’t. Vehicles are more expensive than they have ever been. I’m not so naive to think that everyone can just fork out $30,000 for a vehicle every few years.
So if you can’t follow these guidelines when purchasing a new car:
- Put down AT LEAST 20% of the price of the car.
- Have a loan of NO MORE than 48 months.
- All of your vehicle payments need to be LESS THAN 8% of your gross household income.
- You MUST be investing more money in retirement accounts than you are paying in vehicle payments.
For a more detailed explanation of my car buying guidelines, check out this article that goes into more depth.
Final Thoughts
Car buying is a stressful event for all of us. Don’t let the dealership (or anyone else for that matter) bully you into choosing a car that you don’t want or need.
If you strategically think through what kind of vehicle you need and follow the car buying guidelines that I have laid out, you will be in good shape in the long run.
You can do this!
I am here for you!
Until next time!
0 Comments