Buying a Car is the Third Step to Financial Freedom and is very much like step two except it deals with cars instead of home ownership. Thethought here is to not buy more car than you can afford or at least to get the most automobile for your funds. Since an automobile purchase is generally the second largest purchase that you will make (home purchase being the first), you should not rush into it or you will be affected with buyer’sregret.
You have heard all kinds of scare tales about how much your car depreciates after you drive it off the dealers lot. Well those facts are all true. First yeardevaluation is murder on a car. Depreciation of 10% to 25% or more on high line cars is very widespread. You need to try as hard as possible to not get caught up in the new car buying frenzy as this will certainly slow up your capability to attain financial freedom.
So with that being explained you can make a very astute purchase by buying used. Particularly since in the last number of years, all of the major auto manufacturer’s are supplying what is known as “Certified Pre-Owned”. Under thistype of deal, the dealer performs a verydetailed inspection on the used car which enables the purchaser to drive away with a used car guarantee. These 100-point inspections (or some such number) are wonderful for confidence building when buying used. I bought a Certified Pre-owned 2005 model in 2008 for my daughter and it hasperformed very well for the past four years with whatseems to be much more life left.
If youneed to have new, try to beconsidering about long term ownership, something on the order of ten years or more. The rule of thumb for a car purchase is 20/10/4 which means you will invest at least 20% as a down payment, the monthly payment ought to be no more than 10% of your net monthly pay, and youshould finance for no more than 4 years.
Let’s run a scenario. If you generate $50,000.00 per year we will suppose your take home pay is $35K or $2,917.00 per month. Weshould to get an auto loan payment around $300.00 per month (10% of $2917.00) for 48 months at the present rate of 7.3%. If you put 20% as a down payment, you should shop for a car with a sticker price of roughly $15,000.00. To verify on current auto loans, you can visit bankrate.com
One final aspect to take into account before you rush out and put down your hardearned money on that brand spanking new red sports auto you that you had your heart on. People veryfrequently forget about the true cost to own a car. They only hone in on the sticker price but inreal life, the true cost to own a car is much greater. When you take into account the depreciation, interest, taxes, fees, insurance, repairs, fuel and such, you come up with a better reality of what it truly costs to own that new product. So, how can you get at this number. When buying a car simply visit edmunds.com and click on the tab about “True Cost To Own”. The more youunderstand about the true cost to own ancar, thefaster you will be able to attain that state of financial freedom that youseek out.
