It’s easy to find financial advisors, bloggers, and financial “influencers” posting videos and articles about car purchases and how much you can, or should, afford. They’ll tell you it’s as easy as staying below “X” percent of your income or take-home pay. Some might tell you to only pay cash!!! Or that you should be able to put a certain percent down, borrow only a certain percent, and borrow that amount over only 4 or 6 years. And while it's nearly impossible to tell you if these advisors are right or wrong without hearing exactly what they’re saying, I’ve compiled a list of considerations that almost none of them bring up. This list isn’t comprehensive, but it’s some of the least talked about topics in car buying (#4 is my favorite):
The very first thing you should calculate before you even begin to carshop or show up to a dealer is the entire cost of the car. Most states have a sales tax of at least 5% which can easily add $2,000 onto a vehicle’s price. Title and registration will often run you a few more hundred dollars per year, and dealerships have increased their “destination” fees from $500 to as much as a few thousand dollars. Are you in Virginia? Because your state adds a yearly personal property tax. Some states are even adding “fees'' for people who own EVs because of lost gas tax revenues for states. In addition, car insurance has skyrocketed in the last two years. Ours has gone from $90/month to almost $150 (I’ll get into this in another blog post later). You should even take into consideration if your new car would be gas, electric, or both and how often are you going to be driving it? For example: if you buy a Honda Odyssey or a GMC Yukon and you drive it 12,000 miles a year then you’ll spend over $1,000 more per year in gas compared to a Toyota Sienna. That’s not total, that’s PER YEAR.
What else could you be doing with this money? Let’s say you’ve done step 1, and you have landed on an SUV that will have a car payment of $600. What would you do with that money INSTEAD of buying the new car? Do you have credit card debt with 18% interest sucking away your hard-earned money? Maybe you’re also saving for a house or trying to fund a 529 account for your children’s future.
Where are you in life and does this car fit your future. It’s impossible to predict the future but you (and your partner where applicable) should be discussing your life and timeline prior to even getting close to buying a car. Do you want kids? Will you be moving anytime soon? What are each of your jobs like and are they stable? How’s your emergency fund looking? Couples should take each other’s vehicles into consideration, too. My personal preference is to never have two car payments at once.
What. Make. And. Model. Are. You. Buying!?!? I have NEVER heard a financial influencer talk about this, but if you have, please send me the link so I can ‘like’ it… Not every car is made the same. Car manufacturers have different reputations and so do car models. Take Ford for example: some of their vehicles don’t get great ratings but their F150 does. Hyundais and KIAs were awful cars when I was young, but their brands had been completely rebuilt in the last decade UNTIL.... the last few years we've learned that certain years/models that have become the easiest cars to steal. Buying a 2024 KIA that looks nothing like their 2019s isn’t a problem, especially if you park in a safe area. But buying a used 2017 that looks a lot like the ones that can be stolen and you street park your car every night? Not such a great idea even if it only results in having your window busted. Most years you’ll see a lot of Hondas, Toyotas, and Subarus on best seller lists, and that’s no coincidence. They're well made, reputable, and hold their value really well. They're not well known to have costly problems. You should take all of this into consideration. Are your financials in a strong position to buy a possibly riskier brand or model? This is where influencers steer clear, and don’t give fully transparent advice.
So why don’t other advisors bring these topics up? Some might not because they haven’t even thought this much into the topic. Others are just making quick videos; they’re not actually advisors, they’re content creators. Some might be afraid to lose followers by pissing people off. This is where I’m different. I’m an actual CFP professional, a fiduciary who is required to have your best interests at heart. I’ll actually go through not just your budget, but also your historical spending to realistically determine what I believe you should afford. I’ll always give you every option out there and help guide you so that YOU can make your decision. Schedule a free 30-minute call with me, and let’s see if working together makes sense for you!
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