Do you consider yourself a “car person”, or are you simply looking for a car that will get you to and from work every day?
If you’re not particularly passionate about driving a certain make or model, the amount of your salary you spend on your car should show this.
The 20% rule
Some money saving websites recommend using a number of percentages as a rule of thumb to work out how much you can really afford to spend on a new car. These aren’t set in stone, but they are a good way to determine what it is that you really need. If you’re comfortable with not having the latest up-to-date technology in your car and are simply looking for something affordable that will be good enough to get you to and from work on a daily basis, you should be looking at a car that costs no more than 10-15% of your annual income. If you travel a further distance to work every day, or use your car for weekend trips, look at a car with the value of 20-25% of your income. These cars tend to be more comfortable and have better safety features. Those who are self-confessed car lovers tend to spend anywhere in the region of 50% of their annual income on a new car, which may seem like a lot to some, but not for those who see their car as a big part of their lives.
If you’ve already made the mistake
It’s very easy to overspend when it comes to shopping for a new car, so if you’ve already committed, then here’s what to do. If you know you’ve gone over budget, then you’ve already recognised your mistake. The next step is to fix and to do this you can choose from a number of options. Firstly, you can keep a hold of your car and drive it around until it reduces its market value from 50% to 10% of your annual income. However, if you’re looking for a more short term option to better your finances, you should bite the bullet and sell up. Even though you won’t get the same amount back that you paid for it, it still may be worth selling and buying a cheaper model.
Consider a car lease
If you don’t need a car on a full-time basis, you may want to consider leasing one instead, you could save you money in the long-run, and is a great option for those that only need a car for a weekend trip away. The short-term monthly cost of leasing is usually around 30-60% less than the monthly loan repayments you’d have to pay when buying a car and can sometimes allow you to drive a better quality and more modern car than you could afford to buy with your income.