When it comes to personal finance, cars are a polarizing topic. If you speak to a dozen financial gurus, investment advisors, and successful people, you’ll hear an array of opinions about how much car to buy, how much is too much, and when it’s okay to take out a car loan (if ever). At the end of the day, most of them will leave you feeling like you need to drive around a clunker in order to make smart, fiscally-sound decisions. But this isn’t necessarily true.
While you can obviously save a bunch of money by purchasing an old beater of a vehicle, this isn’t any kind of way to live. Assuming you have a job with a decent income, you deserve a nice car. The key is to buy a nice car that you can actually afford.
Without spending too much time discussing how much one person should reasonably spend – we’ll let you be your own personal judge – here are some tips and strategies designed to help you buy a nice car that you can actually afford:
1. Increase Your Income
The first and most obvious way to afford a nicer vehicle is to increase your income. For every additional dollar that you earn, you can potentially spend another dollar on a car.
For example, let’s say that you currently spend $300 per month on a car. If you were somehow able to bring home an extra $500 per month after taxes, you could easily move up in car and spend $700 per month without negatively affecting your lifestyle in other areas. (You wouldn’t want to spend the entire increase on your vehicle, as you’ll also face increases in your car insurance premium and other minor related expenses.)
Thankfully, it’s easier than ever to increase your income with freelance work, odd jobs, and side hustles. Whether it’s selling your professional skills on an online marketplace, driving for Uber, or turning a spare bedroom into an Airbnb listing, you should be able to grow your income without significantly inconveniencing your life.
2. Develop a Budget
If you don’t already have a budget, now’s the time to organize your finances. While the term “budgeting” gets a bad rap, it’s actually super easy and practical to do. You simply take your monthly income and subtract all of your monthly expenses (including debt payments). What’s left over is known as a surplus. If you’re left with a negative tally, this is called a deficit.
In order to afford a nicer car, you’ll need a surplus in your budget. This may require you to trim back expenses in other areas. (As you’ll quickly find, you have lots of wasted spending in different areas. From eating out to online shopping, we all have our weaknesses.)
3. Refinance Your Existing Debt
Many people find that they’re unable to buy a nice car because they’re house poor. In other words, too large of a percentage of their monthly income is going toward paying down the mortgage. While you could sell your house and opt for something less expensive, you also have the opportunity to refinance your home loan.
“By refinancing your mortgage to a term that’s longer than what you currently have left on your existing loan, you’ll naturally end up reducing your monthly payments,” Green Residential points out. “Depending on how much equity you have in the home and how the new rate compares to the existing rate, this could save you hundreds of dollars per month and free up a chunk of your budget for other expenses.”
4. Buy a Used Vehicle
Did you know that a new car loses roughly 10 percent of its value during the first month after you drive it off the dealer’s lot? It’ll lose as much as 20 percent within the first year.
For new car owners, this is bad news. For the rest of us, it represents an awesome opportunity. If you can convince yourself that you don’t need a brand new vehicle, you can essentially purchase a lightly used vehicle with a few thousand miles on it at a discount of 20 percent or more. This is the best-kept secret to buying a nicer vehicle!
Drive the Guilt Away
You don’t have to feel guilty buying a nice car. Some people like really nice houses, other people like really nice watches. Some people take fancy vacations, while other people buy expensive season tickets to watch their favorite NFL team play football each Sunday. You just happen to like spending your money on vehicles. That’s totally fine! But by being smart about what you buy, you can purchase a nicer car than you ever thought possible (without overspending)!