A. I hear this one often when I tell people that car payment are a big drag on their finances. The normal argument is that you are paying the same amount in keeping your junker going than you would be in car payments for a new car.
Today, people own cars that are worth more than they make each year. That is just ridiculous. Honestly, I'm more of a simple man myself and just like my dad, I just want a car that will get me from point A to point B.
But not everyone is like me. I would say for the majority of people you should never spend more than $10,000 to $15,000 on the purchase of a car. You can buy a fantastic used car in this range and below.
I like the rule that you should never spend more than 10-20% of your gross annual income on the purchase of a car. So if you earn $50,000 before taxes, then you should not spend more than $5,000 - $10,000 on a car.
It might make you “feel” important, but throwing that much of your money towards a depreciating asset is not smart.
This goes against everything that you will see being driven on the road, but if you don't want to have a car payment for the rest of your life, then you need to learn how to DRIVE within your means.
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