How Much Car You Can REALISTICALLY Afford! (By Income Level)

Summary

In this informative video, the host shares financial strategies for determining how much car one can afford based on income and personal finance rules like the 204010 and 50/30/20 rules. They debunk common myths, particularly the dealership's monthly payment trap, and emphasize the importance of considering total car ownership costs beyond just the sticker price. The video also offers advice on choosing reliable car brands to minimize maintenance costs and the benefits of buying a 2-3 year old car for optimal value retention.

Takeaways

• 🚗 The video aims to help viewers determine how much car they can afford based on their income and financial situation.
• 💰 The speaker warns against car salesmen asking for desired monthly payments, as it may lead to being scammed into buying a more expensive car than one can afford.
• 📉 The car market has seen fluctuations with used car prices dipping since 2023, but interest rates remain high compared to the pandemic period.
• 📈 The price of the average car has risen significantly more than the median income over the years, making it harder for people to afford the car they want.
• 🔢 Two key formulas discussed are the 204010 Rule and the 50/30/20 Rule, which help in calculating the affordability of a car based on income and financial allocation.
• 🏦 The 204010 Rule suggests that if you finance a car for 4 years or less with a 20% down payment, the total monthly car cost should be less than 10% of your monthly income.
• 💹 The 50/30/20 Rule recommends allocating 50% of income to needs, 30% to wants, and 20% to savings, with transportation being a part of the needs category.
• 🚘 The video suggests that buying a car that is 2 to 3 years old can be a smart strategy as the depreciation curve has usually leveled off by then.
• 📉 Luxury cars may depreciate faster due to higher maintenance costs, making them less desirable from a cost perspective compared to reliable brands like Toyota or Honda.
• 📋 It's important to calculate the total cost of car ownership, which includes more than just the monthly payment, such as insurance, maintenance, and other associated costs.
• 💡 The video emphasizes that the decision on how much to spend on a car is personal and should be based on individual circumstances and financial responsibility.

Q & A

What is the main topic of the video?

The main topic of the video is how to determine how much car one can afford based on their income and financial situation.

Why should viewers listen to the advice given in the video?

Viewers should listen because the speaker owns multiple cars, has experience with different financing options, and is knowledgeable about the financial aspects of car ownership.

What is the problem with the question 'What do you want your monthly payment to be?' when asked by a car salesman?

The problem is that it can lead to a scam, as it may push buyers towards more expensive cars and longer financing options that they might not actually afford.

What are the two main formulas discussed in the video for determining car affordability?

The two main formulas discussed are the 204010 Rule and the 50/30/20 Rule.

What does the 204010 Rule suggest about car affordability?

The 204010 Rule suggests that if you put down 20% on a car, finance it for 4 years or less, then the total monthly cost of your car should be less than 10% of your monthly income.

What is the 50/30/20 Rule and how does it relate to car affordability?

The 50/30/20 Rule recommends allocating 50% of your income towards needs, 30% towards wants, and 20% towards savings. For car affordability, it suggests that only 10% of the 'needs' portion should be spent on transportation.

Why is it important to consider the total cost of car ownership and not just the monthly payment?

It's important because the total cost includes insurance, maintenance, fuel, and other expenses that can significantly increase the overall cost of owning a car.

What is the recommendation for buying a used car in terms of depreciation?

The recommendation is to buy a car that is about 2 to 3 years old, as the depreciation curve has typically leveled off by this time.

Why is it advised to be cautious about buying luxury cars that have depreciated a lot?

It's advised because the high depreciation is often due to high maintenance costs, which can make the overall cost of ownership much higher than initially expected.

What is the general advice for determining how much to spend on a car based on annual income?

The general advice is not to spend over 30% of your yearly income on a car.

Why might the formulas discussed in the video not work for everyone?

The formulas might not work for everyone because personal financial situations vary greatly, and what is affordable for one person might not be for another.