10% of your annual salary: the price you should never exceed when buying a car
In 2020, the average cost of a new car in the US is $38,900, and this price is estimated to have increased by 5% in 2021. from USA Today and Statista)
One of the most important elements you should consider when considering buying a car is its functionality and durability, not its appearance or newness. If you are not a car collector, this rule will help you make a much more informed choice that can bring you significant financial benefits in the long run.
In this sense, we can tell you that there are 4 basic rules (proposed by Money Under 30) that, when applied, can help you have more money in your bank account while enjoying a vehicle that allows you to have complete autonomy. These standards are:
1- Universal rule: 35% of your annual salary
Keeping track of your finances is usually something onerous but strictly necessary, in this case we recommend that you calculate between 30 and 35% of your annual salary towards the total car payment. For example, if your annual salary is US$75,000 - 26,000, we recommend investing in a car that costs no more than US$.
This rule may vary depending on the degree of need and use you give your vehicle. If this is your main source of income because you are a delivery man or a taxi driver, then it may be wise to expand the above budget.
On the other hand, it's important to note that researching the value of a used car before purchasing a new one can also save you a couple of thousand dollars.
2- Most effective rule: 10% of your annual salary
By investing just 10% of your annual income in the vehicle you drive, you can free up a lot more space for other related expenses. On the other hand, this particular datum is mostly used by students who place utility above any other factor.
If you apply this rule along with search, then in the long run in your financial life.
3- Average score: 20% of your annual salary.
Depending on your case and needs in particular, it could be that investing a little more in financing a new car was cheaper than buying a high mileage used car, which could be more money to invest in the future.
In this case, this way you can find the best offer at the best price.
We hope these tips have been helpful in improving your daily life and making more money in your bank account.
It is important to note that all convertible vehicle costs described in this text are in US dollars.
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