Are you thinking about shopping for your next car?
If you answered yes, then don’t take any money out of your wallet before you finish reading
this article. It’s always best to purchase a used car in cash. However, there may be some instances where you might not have all the cash at once.
Regardless of your scenario make sure it fits your budget. This means that the car you decide to purchase won’t affect building your wealth. If it means ubering a few days a week, carpooling with friends, etc. I’d recommend that you do this until you save up enough money for a large enough downpayment.
Buying a used car in cash is ideal, but you might be able to finance for a few months. You’ll need $2,000-$8,000, and a little patience. Becoming wealthy doesn’t necessarily mean you need to drive a shitty car.
If it fits the right budget I think it’s fair game.
I’m not perfect, and throughout the years I’ve made terrible financial decisions because I wasn’t
as financially savvy as I am today. My most recent car purchase was about 6 months ago for $15,000, and based on what I know today I would have done it a lot differently.
I don’t regret this purchase, as well as my other bad car purchases because Smart Budget Life would have seized to exist.
So why haven’t I returned by bad purchase?
I’ll be losing approximately $5,000 if I return my car! Based on what I’ve paid and what my car is worth it doesn’t make sense. I can pay off the car sooner, but I’m currently focusing on other debt as well as building my wealth.
I’m hoping that my bad car purchase can help shed some light on the amount you’ll spend on your next purchase while budgeting appropriately.
Set a Max Amount
Everyone’s income, age, and scenario are unique.
Evaluate, what amount makes sense for you. If I could redo my car purchase, I’d probably choose a car around $3,000-$5,000. However, I’m 25 and have no kids currently.
After reading the “Millionaire’s Next Door” I learned that the majority of the wealthy don’t go above $20,000 in purchasing a used vehicle. This is something to keep in mind as you set your max budget.
Start by working backward.
I mentioned earlier that you’ll finance your car for a few months. At the max, this would be from 1-2 years. I’d also recommend that you stay within 30% of your down-payment.
For example, if you have $5,000 saved up then your max price should be $6,500.
Define Your Criteria
Next, you’ll have to define what car you’re searching for. To get the best value of your time I’d recommend that you stick with a 10-15-mile radius when searching for potential sellers.
A question you might get asked from the seller is the location you’re driving from.
The further you’re away from your residential location the easier it will be for the seller to persuade you of purchasing the vehicle. You also don’t want to waste your time and drive an hour to only find out the vehicle wasn’t what you’d hoped.
Many times cars don’t look as good as they do in the picture. It’s very easy to take the car in a car wash and apply filters to the picture to make the car look more attractive.
Whether you’re purchasing your vehicle through a dealership or private party always be prepared to ask for a lower price.
The worse that can happen is that they say no, and honestly I’d move on if it doesn’t make sense. The car would have to be in mint condition, and have low mileage for its year to pay their full asking price.
You don’t have to be a “low-baller” neither. Go to Kelly Blue Book to get the car’s value from the best of your knowledge. From there decide on the maximum price you’re willing to pay for this vehicle.
Put yourself in the seller’s shoes, and find out the reason they’re selling the car. Think win-win. The car purchase doesn’t have to mean that either you or the seller will loose on the deal.
After defining your maximum price, and screening the seller pick a price that will benefit both you and the seller. This will ensure that the transaction goes as smoothly as possible.
Don’t fall in love with the car
Similar to the stock market your money is best spent when you take emotions out of the equation.
Be prepared to walk away if the price isn’t right. You shouldn’t go over your budget, and you shouldn’t spend all your budget if you don’t need to.
Sit down and realize what this car purchase really is. It’s not an asset, but more like a tool that will help make your life easier. You also can always purchase a cheaper car with the money you’ve saved, so it’s not the end of the world if a deal can’t be made.
If the seller is only thinking about making the most profit from his car, then this deal isn’t right for you.
Putting It All Together
Purchasing a new vehicle is an exciting moment. However, you shouldn’t let your excitement cause you to make bad purchasing decisions.
Take a deep breath and start by deciding on the maximum amount you can spend. Remember this shouldn’t affect building your wealth, and you should be able to pay your car off in a shorter time than most people.
Personal finance isn’t always as clear as we would like to be. I wrote out these tips for someone that’s hoping to buy a new vehicle but doesn’t yet have all the money.
I’d always recommend paying the car in full, but sometimes having a used $1,500 car isn’t the most reliable option. Paying a little extra money for a reliable car that piece of minds is worth it. However, evaluate if you truly need to purchase a newer vehicle, and set a plan around your budget.
Learn from my mistakes and make your next car purchase on a smart budget.