Buying a car is many things. Some people will say it’s just a piece of metal that moves you from Point A to Point B, others will say it’s a reflection of power and success. What do you think?

The problem lies in how much to spend on a car. You don’t want to be the person driving a nice car and then eating rice and beans just to be able to afford insurance, so IN THIS Post I will go over the calculations on how much car you can actually afford and the options to do this, so you take the best decision for your money! So stay tuned!

When you want to buy a house, or a car, or really anything in life you need to ask yourself 2 questions: how much money you take home every month and how much do you owe?

That’s why Dave Ramsey always asks those 2 questions, and if you don’t believe me watch one of his videos after watching this. 

Some people recommend one thing, and another recommends a different thing. Summarizing what experts say about Car Affordability, your monthly payment on a loan should not exceed 10 to 20% of your take home pay, and the loan shouldn’t be more than 5 years long. 

People used to pay cars in 3 years back in the days, before the average car went to $45,000 as it is now. 36 months is the best loan term you can get for your car. Why is this? It takes the depreciation hit but it’s still sellable if you want to get rid of it. 

The longest loan I believe exists today is 7 years or 84 payments. The interest on this is really high almost 10%, and imagine the car you bought is $40,000. You will end up paying $60,000 because of the interest and after 7 years that car is worth 15 the most. So, highest interest, you never end payments in your life, and the car is unsellable after. Worst option. 

You might say: I cannot afford the car in 36 payments! Well, if you increase your down payment on the car, maybe you could. But also take into account how much the insurance will be, how many miles per gallon you get, what gas it uses, and how expensive repairs are. There are reviews of every single car on Google. 

If the car you are thinking of buying is on Google and everyone is saying that it breaks down more than any other, and it costs thousands of dollars to fix and the dealerships suck. Would you buy that? You gotta be smarter. 

Now, a good question to ask yourself is: do you want a new car or a used car? I would recommend anyone making under $200,000 a year shouldn’t even consider buying a new car. 

New cars are extremely expensive, depreciate like crazy, and don’t give you anything more than the new car smell which lasts around 2 months and that’s it. Once the smell is gone, the temporary tag is replaced by a license plate and the car is dirty, it looks the same as a used one. Also leasing is not an option unless you own a company that produces cashflow and you can buy the lease with the company’s profits pretax. Otherwise, don’t even consider it. 

Dependent on the interest rate you can get and the amount you can put down is the car you can afford, is that simple. A $40,000 car with a $2000 down payment will be way pricier than the same $40,000 car with $15,000 down. 

That’s why I always tell you to eliminate debt and save your money. The more cash you have on hand, the better car you could get. The same as buying a home, you shouldn’t go for the most expensive car you can afford, but something in the middle range. 

After you negotiate on the car price, you still have to add sales tax which here in TX is 6.25%, registration and title fees, and other fees. So, the price you see is not the price you pay. Negotiate the price down so you end up not paying all those extras. 

Buying a three-year-old used car with low mileage, clean record, one owner, and well kept, even certified if you can find one, is your best bet. 

Also find cars that have been sitting on lots for some time, less demand and more supply means lower prices. Be prepared to respectfully place an offer and walk away if the salesperson gets too cocky. 

A great place where you can buy a car with no negotiations is EchoPark. But careful because they will try and add all these insurances after you say yes. Reject all of them one by one. And also try and get the loan yourself before heading there because their rates are not the best. 

Careful with electric cars as well. They are tremendously overpriced for what they are. And charging them is not free, and for small gas cars it might cost almost as much as a tank of gas, last less and take a hell of more time to charge. 

Hybrid cars on the other hand are your best bet. You don’t need to do anything but put gas on them and they will give you 45 miles per gallon. The Toyota Prius Hybrid is one of the most popular in the market. 

Also be aware of going to dealerships to ask for cars. I will recommend you buy a car in places like Echopark where there is no negotiation, or online like CarGurus where they tell you if the price is a good deal or not right off the bat. Fighting a salesperson for hours is not the most efficient use of your time and money. If you are an experienced car salesperson like Marko on YouTube, no problem there. But if you are not good negotiating, stay away from dealerships because they will rip you off. 



Also, unless you are making over $200,000 a year and have absolutely no debt, you have cash in the bank, and also investments, stay away from expensive German brands like Mercedes, BMW and Audi. Those cars are very nice don’t get me wrong, but they cost an arm and a leg every time you take them back to the dealership for service. 

Stick with the good Japanese like Toyota or Honda, if you want something better and you can afford it, go for their luxury brands like Lexus and Acura. They are nice cars, and still don’t cost as much to fix as a BMW. 

Rich people buy cars as investments. You see someone who bought a Porsche 911 GT3 RS for $300,000, and you want to buy it as well. They will keep the car for 6 months, and then trade it in for more than what they paid for. Also, they don’t drive their cars as much, only like 500 miles per month. 

If you buy a car and drive 200,000 miles on it, the car is worthless, no matter if it’s a Ferrari La Ferrari. Rich people don’t drive their super luxury cars. They have SUVS with drivers for that and those cars are only at the garage for the videos. 

Now, another thing. You won’t like me for this. If you are renting an apartment or a house, and you don’t own any Real Estate, you shouldn’t buy a new car, and you shouldn’t buy a luxury car. 

Because you need to set your priorities straight like the rich do. You want to be rich right? Be financially free, stop worrying about money, you are watching channels like mine. Well, a rich sets priorities, number 1 the business. Number 2 investments. Number 3 the house, number 4 the car. 

After producing the income, after securing the investments, THEN they start looking at their home to buy, and after they got the home then they look at a car as an investment. 

Poor people make $60,000 and don’t own investments or a house and are thinking about buying a Corvette that costs $75,000. That is a difference between a rich and a poor mindset. Get a used car who is reliable, and you can afford with 15% of your take home pay. You will thank me later. 

But remember, TAKE CONTROL OF YOUR LIFE AND TAKE CONTROL OF YOUR MONEY!!