I read an article that made its way to CNBC limiting your car budget to 10% of your adjusted gross annual income. If you make $50,000 per year, spend only $5,000 for your car! Wow! That’s harsh! I recommend purchasing a 2-4-year-old car after the value reducing depreciation has stabilized. It is possible to find good quality good used vehicles that are a few years old in the $10,000 to $15,000. Then drive the car six to eight years enjoying maximum benefit of owning a reliable car and paying less than $2,000 per year ($15,000/8 years = $1,875) for it. If you are a savvy car person with access to an amazing mechanic, you “may” be able to find a reliable $4,000 to $6,000 car. You will have to swallow your pride though. They rarely are clean and many of these cars smell funny. Well, maybe not literally. I am also concerned about your safety. It would be better to drive a late model car with the latest safety features. I drive a 10-year-old car. However, I bought it new for a great price. $16,800/10 years = $1,680 per year. That’s reasonable. I know how and who maintained the car. Me. It is a very reliable, clean enough car that is safe to drive. I believe you can afford to spend $2,000 per year for your car if you make $40,000 to $50,000 annually. Yes, insurance and maintenance are additional. You should be OK.
It’s humorous to see a high school aged teen driving a new $35,000 BMW. According to the article I read, those students must make $350,000 annually to justify purchasing a $35,000 car. For several reasons including cost, I believe a teen should drive a cash car. Auto insurance for teens is astronomical. My teens drove family hand-me-downs, and both teens changed the aerodynamics and front-end alignments on the cars available to them. Teens need not drive new cars to damage. I saw a teen last Sunday driving a BMW, swerving through traffic. When she got next to me the nose of the BMW was let’s say, not original. The nose hit something… Charming. I am sure that teen has an amazing self-esteem though.
This Depreciation Chart is from Edmunds. After two years the sample car loses 31% of its value! You could buy this car after 5 years for about $12,000. The estimated mileage would be 75,000 miles.
How much do you spend for your car? Inquiring minds would like to know!
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