🚗Stop Letting Your Car Wreck Your Finances – Here’s How⬇️

Car payments have become high ranking amongst the wealth killers in many households. People buy cars knowing they can make the payment. The problem: Making the payment doesn’t mean you can afford it.

Let’s look at 3 rules to use when buying a car to let you know if you can actually afford it.

#1 - 25%-35% Rule

This guideline says the price of the car shouldn’t cost more than 25% to 35% of your gross income. Your lifestyle and desire to drive something on the nicer side is going to decide which end of this spectrum you’ll end up.

#2 - The 20/4/10 Rule

This rule suggest a 20% down payment, a loan term of 4 years or less (48 months), and monthly car-related expenses not more than 10% of your income. Car-related expenses include the car note, fuel, car insurance, parking, tolls, and maintenance. Following this rule should equal you not being overextended by your monthly car expenses.
Tip: Be proactive. Get an insurance quote on the vehicle before you purchase, allowing you to estimate your ability to stay below the 10% threshold.

#3 - Total Debt Ratio < 36%

This rule suggest that your total debt should be less than 36% of your income. Total debt includes your mortgage or rent payment, car note, student loans, and any other recurring debts such as credit cards. Staying below 36% of your income should leave enough room to have the savings and discretionary spending amounts they need to live financially stress fee.

Remember, these are simply benchmarks, not rules that must be followed for financial freedom. Use these rules to measure your current financial position to identify areas where you can improve your financial status.

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