What's up? Graham It's guys here. So have you ever wondered how much money you need to make to afford a car like this? Or this? Or even this? Well wander no longer because today we'll cover exactly how much money you need to make to afford the typical car and every price point based on dealership markups, interest rates, and lender guidelines. Because chances are, the car you want is a lot more expensive than you think, especially with the average car payment now nearing almost 800 a month. Which let's be real, the amount of money you actually need to be making to afford something like that is pretty absurd as I'm about to share with you.

Although before we go into how much car you could buy throughout every income bracket including the true cost of ownership on something like this, do me a quick favor and hit the like button. Your like really does make a huge difference. Thank you so much! And now let's begin. Alright, so to start.

Just Like Home Ownership It's really important to understand as soon as possible that your monthly car payment is never going to be the true cost of owning a car. And if you're curious what I mean by that, here's the reality. First, on the most basic level, like we just discussed, you're going to have the cost of financing. Overall, it was found that 85 of new vehicles and 55 of used car purchases are bought with debt, and 25 to 50 percent of those loans are given to people who might not be able to afford them on terms as long as 72 months.

This means with a typical interest rate between six and a half and eleven percent, you're gonna have to budget for a monthly payment that's going to last at least a few years. In addition to that two, we also have gas mileage. Look, a large portion of that cost is going to be dictated by whether or not you're driving a fuel-efficient Prius or a Hummer H1. But with the average car getting 25 and a half miles a gallon at an average commute to 41 miles a day, you're looking at an extra 150 a month in fuel costs.

in addition to everything else. Like three insurance, this cost is going to depend entirely on your age, driving history, car location, mileage driven education, and a million other factors that car insurance companies use to jack up your rates. But overall, the average insurance cost is another hundred and seventy dollars a month with a chance of going even higher if you're under the age of 25.. Before you also have car registration every year, your State's going to charge you a fixed amount based off the MSRP or purchase price of the car.

It usually ranges a few hundred dollars a year five. You then have the dreaded maintenance and repairs. Now, this one's a little bit difficult to predict, but chances are if you're driving a Mercedes, BMW or Porsche, your cost is going to be a lot higher than someone driving a Toyota or a Honda, which is why your cost of ownership could be a lot higher than what you think. And finally, we have something that a lot of people don't talk about and that would be depreciation.

In my opinion, this is something that absolutely needs to be taken into consideration because as much as you don't want to hear it, a new car will depreciate 11 the moment you drive it off the lot. Within a year, it's lost 25 percent of its value. After three years, it's lost 46 percent and within five years, the average car is worth 63 percent less than it would cost New now, even though it'll cover some cars later in the video, that'll hold up really well or even increase in value for everything else. That's a cost that you're gonna have to pay for.

Which brings me me of course, to What's called the 23 8 Rule in terms of how much car you could afford based on your salary. This method goes out to the money guys who suggests that first, you should put 20 down. This means that you'll pay 20 of the car's value up front so that you could lower the amount that you'll need to finance. And this does two things: One, it means you'll pay less interest over the lifetime of the loan with usually better terms because you're putting more money down, and two, it decreases the chances that you'll be upside down on the loan the moment you drive it off the lot.

The second, you should also pay off the car in three years or 36 months. The goal is that a short-term loan usually carries less interest. More of your payment goes towards paying down the loan, and within three years, you're going to own the car outright, allowing you more money left over for other opportunities like saving and investing. This also works by discouraging people from taking on the typical 72-month loan on a car.

They'll only keep an average of 79 months, meaning as soon as they paid off the car, they basically just go and buy a brand new car and start the process over again, which is bad. Don't do that. And finally, third, you should spend no more than eight percent of your pre-tax income on Transportation costs. This means if you make fifty thousand dollars a year, your total transportation costs should not exceed four thousand dollars a year or three hundred and thirty three dollars a month.

This is meant to keep your transportation costs as low as possible since cars are depreciating asset, and by keeping it within this structure, you'll minimize the chances of spending more than you need to on something that's not going to give you long-term Financial Freedom As an example of what you could buy. With this method, let's take the typical person making forty five thousand dollars a year. This means that you would be able to afford a car worth about eight thousand dollars, because with sixteen hundred dollars down, your monthly payment will come into just under 200 a month and leave you with a hundred dollars a month left over for everything else like gasoline, insurance, and maintenance. Or if you have an income of seventy five thousand dollars a year, you'd be able to comfortably spend about five hundred dollars a month in transportation.

Which works out to a sixteen thousand dollar car like this. With thirty two hundred dollars down, with all the other remaining money going to the cost of running the car at an income of 110 25 000 a year, you'd be able to comfortably afford a car in the twenty six thousand dollar bracket, and did two hundred thousand dollars a year, you could pay for a forty thousand dollar car again, assuming twenty percent down, and a three year loan. Now, obviously, these numbers are meant for people who prioritize paying down the loan as soon as possible, living below their means, and ensuring they have as much money left over as possible to save and invest. However, I Also, understand that waiting until you make 200 000 a year to buy a forty thousand dollar car is somewhat unrealistic, especially with the average used car selling for twenty six thousand dollars.

So because of that, there's another similar rule that you could follow, known as the 2410 rule. Just like the previous example, this suggests that, you should put twenty percent down on a term of no more than four years, spending no more than ten percent of your gross income. And with this, you will be able to afford a lot more car. For example, on a fifty thousand dollar a year salary.

The 2410 rule would allow you to spend up to sixteen thousand dollars on a car, which would result in a 300 car payment than a hundred dollars on left over for everything else. At eighty thousand dollars a year, you'd be able to buy something around the Twenty Eight thousand dollar range. With a hundred and twenty Five thousand dollars a year, you could buy something between forty five and fifty thousand dollars at a two hundred thousand dollar income. That's a car in the seventy to seventy five thousand dollar range.

Now, the downside with this is that you're gonna end up spending more money on Transportation while extending out your loan term for a year. So yes, it is doable, but you will be burdened with even more payments, which is pretty much the exact opposite of the next approach. and that would be the Dave Ramsey method. For those unaware, Dave Ramsey is one of the most successful authorities in all things personal finance, saving money, and Building Wealth he wrote five New York Times bestsellers.

He owns the largest independently operated radio talk show in the country and is more than 600 million dollars worth of fully paid off real estate. So when it comes to cars, here's a few Choice words to say in a perfect world: He says: the car that you could afford is the car that you could buy outright in cash. That's right, no loan, no payment. Know nothing.

Just buy a car that you can afford and then drive it until it doesn't work anymore. His thinking is that the monthly cost of car ownership is very distracting towards other more rewarding opportunities. Cars are almost always a bad investment financially, and if your entire objective is just to get from point A to point B it doesn't really matter what kind of car you drive, as long as it gets you there safely without breaking the bank. In addition to that, he also practices the belief that the cost of your car should never exceed half of your take-home salary.

So if you make fifty thousand dollars a year, your total car's value should not exceed twenty five thousand dollars. If you make a hundred thousand dollars a year, that's fifty thousand dollars and so on. They also found that throughout a survey more than ten thousand millionaires, the average millionaire drives a four-year-old car with 41 000 miles on it. An 8 out of 10 millionaire car buyers drive it away debt three without carrying a car payment behind them and that all just helps them be the millionaire that they are today separate from that.

Another rule that I really enjoy comes from the financial blogger the Financial Samurai who recommends that you should spend no more than 10 percent of your gross income on a car that you intend to keep for at least 10 years. So with this, if you make a hundred thousand dollars a year, spend Ten thousand dollars on a car. If you make fifty thousand dollars, spend Five thousand dollars. You get the idea.

Now, even though this might not sound like a lot of money and it seems excessive, the truth is owning a cheap, reliable used car allows you so much more discretionary income to spend elsewhere. You won't have the financial stress of being burdened by high payments, and you'll be financially free to spend more money in other areas where you get more enjoyment. However, even though all of these car buying rules are usually centered around to being financially responsible and saving money, Dealerships on the other hand, will give you pretty much anything that you could qualify for. and this is where things get shocking.

Just like buying a house, car dealerships, look at what's called your debt to income ratio, which calculates how much money you have left over after expenses. In this case, most car dealerships will qualify you with the debt to income below 45 percent, which means no more than 45 percent of your gross income could be going towards your debt payments. For example, people, if you make five thousand dollars a month, A lender would allow you to spend up to twenty three hundred of that, which if all you have is an existing 500 student loan and 200 credit card payment, they'll gladly Finance the remaining fifteen hundred dollars a month which could buy you a lot more cars than you would expect. See, here's the thing, when you finance a car.

Lenders don't look at you and think, oh, that's too expensive for him, he shouldn't be doing that. That's a bad idea. Instead, lenders just care about the cost of the car every single month and because of that, they'll Finance pretty much whatever they could give you if the terms are right. For instance, let's just say you make six thousand dollars a month and your expenses include twelve hundred dollars in rent, 200 in student loans, and a hundred dollars is a credit card payment.

In this case, your debt to income ratio is 25 which leaves you with another 21 or 1200 a month to finance a car. If that's the case, let's just say you want to use this towards financing a Mercedes C63 convertible. Well, on a three-year loan with no money down, that comes to almost two thousand dollars a month which you can't afford and they won't qualify you for flat out you'll get denied, but some lenders only care about the monthly payment. If you instead head opt for a 72-month loan.

All of a sudden, your monthly payment. drops to about eleven hundred dollars a month. and congratulations Now you could buy the car! I Guess Just look at it this way: if your monthly budget is 500, you could buy a standard sixteen thousand dollar car over 36 months, or you could buy a thirty thousand dollar car over 72 months. Other places even offer terms of up to 96 months which could extend your purchase price all the way up to thirty seven thousand dollars again, all with the exact same 500 a month budget.

The truth is, lenders are able to do this because as long as you make the first few payments in your loan, they could then go and resell your loan to third parties for a profit, giving them a quick rate of return and then allowing them more money left over to issue the loan to somebody else. Needless to say, dealerships do not have your best interest at heart, which is why it's so important to come up with a budget ahead of time and then stick with it. The personally though, as a car, Enthusiast I do get the appeal of wanting to spend more money in a car and as much as I Enjoy! Dave Ramsey's advice or the 20 38 rule. there are ways to own a car without spending any money or even making money like here's a few examples.

The first car that I ever bought was a 2005 Toyota Prius in 2008 and I bought this car for 8 500 with about 70 000 miles on the clock I drove that car for four years I put on another 50 000 Miles By the time I moved on from it, it was worth about fifty five hundred dollars which meant that I only lost about 62 dollars a month in depreciation, which isn't bad at the same time. I also bought a 2006 Lotus Elise for thirty thousand dollars I drove it for two years and then I sold it for thirty thousand dollars. I then bought a 2008 Lotus Exige s240 for fifty thousand dollars and then I drove it for two years and sold it for fifty thousand dollars. It was also my 2005 Ford GT which is worth about 25 more than what I paid for it or my Tesla Model 3 which is still worth more than what I paid in 2019 after rebates.

Generally, the cars that I buy and drive barely lose any value or they actually end up making money because I'm a car fanatic and anything that I drive I just want to make sure it's not going to plummet in value in terms of which cars could work for something like this. In my personal opinion, I tend to believe that might include something like the Honda S2000 and older Mazda Miata mid-2000s Corvettes mid-2000s BMW M3s early 2000s Porsche Boxster's a used Subaru Impreza the Toyota FJ Cruiser late 2000s Audi R8s And of course, a used Mercedes G-Wagon Or if you've got a lot of money, there's also the BMW Z8 any manual Ferrari F430 your Lamborghini a Mercedes SLS AMG or almost any Dodge Viper Yes, I Get those are very specific specialty cars, but there's a market for them and because of that, the values tend to climb beyond that. though, you could also buy a more commuter-friendly car. This would typically be a five to seven year old vehicle with anywhere between 30 to 50 000 miles on the clock that you could drive without any major issues for another 5 to 15 years.

All of that is to say that if you just need a car for community shooting, buy something that is used reliable, good on gas that you could afford to pay for with less than 10 percent of your overall salary over three years. If you don't buy it outright in cash for everything else though, preferably keep your payments to a minimum, keep good insurance on the car at all times, Find a good, honest, local mechanic that you trust, and then just drive it until the wheels fall off figuratively speaking. when it comes to Transportation, most of the time cars are just a money pit that detract from things that really matter the most like subscribing if you haven't done that already. But seriously, if you find this video helpful Please Subscribe it would make my day.

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