Written by: Josh P.
Since our country doesn’t have a very big public transit industry compared to other countries, you have to own a car to do essential tasks such as go to work or get groceries. So how much should you spend on your car? It depends on how much money you make and what your personal interests are.
Morgan Housel, one of the writers from the Motley Fool, (an investing blog) says that saving money comes down to making good financial choices in life. The three main expenses in life are what house you buy, what car you buy, and how much you pay for college or any other education. The more you spend on these big expenses, the less money you’ll be able to save for an emergency, or invest for your retirement. And although the little expenses matter too, such as eating out every night, or buying a coffee from a chain every morning also eat into your investments, it’s mainly these three expenses that hold you back.
Knowing that a car is one of the three biggest expenses in someone's life, you should try and put some thought into how much you spend on a car.
The graphic below shows three different viewpoints, the far left being a more frugal person who doesn’t want to eat into their savings/investing money. The middle is the average consumer who wants a nice car for their salary and is willing to sacrifice a bigger portion of their paycheck to have a nicer car. Finally, the person on the right is someone that has a passion for cars and is willing to fork over half of their income on cars because that’s one of their biggest hobbies.
First you have to figure out which of the three categories you fit into, then based on the percent in each category, calculate how much money you should spend on a car. Knowing this, I hope you can make an educated decision on how much you spend on your first or second car
Works Cited
Housel, Morgan. “How to Actually Save Money.” The Motley Fool, The Motley Fool, 24 June 2014, www.fool.com/financial-advice/2014/06/24/save_money.aspx.Weliver, David, et al. “How Much Should You Spend On A Car?” Money Under 30, www.moneyunder30.com/how-much-car-can-you-afford.
This is a super helpful article given we are buying a car for our budget project this week. I didn't have much of an idea how much of my income to put towards a car as it isn't as expensive as a house but still a very important part of your expenses. Knowing my stance of what kind of car I would like your article helped pin point how much I really should be spending on a car based on my preferences.
ReplyDeleteSince we're purchasing an automobile currently in personal finance, I thought reading your blog would be fitting. It definitely got me thinking about what of the three example groups I fall into and how much I am willing to spend on a car. It also made me consider since I am already spending significantly on college and housing to potentially drawback my spending on a car.
ReplyDeleteThis is interesting because I've never seen actual numbers put to recommendations on car buying. Sure, I haven't done a ton of research on this, but often the suggestions are all holistic: "Don't live above your means!" "Make the smart decision" without giving numbers. Super helpful graphic and a good topic for us seniors. Thanks for sharing!
ReplyDeleteWhile reading through this I thought that it was very helpful for buying a car. I don't think a lot of people know how much of their income to set aside or save for a car monthly and I feel as if your blog gave good points on just the basic how much do you make.
ReplyDeleteThis article I have read has been helpful for me because it'll help me in the future when buying a car and know what I can afford or not. This article had gaving me points on the basic on how much you make a year and making the smart and wise desion. Good Job, Josh!
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