Episode 010: New Car or Net Worth? | How to Buy a Car

In this episode we discussed all things cars. How to buy them,

what percentage of your budget they should be, used versus new, and if you should buy them or lease them.

Websites mentioned during the podcast:

Average new vehicle prices up 2% year over year in July 2020 according to KBB 

Average cost of a new car in 2020 is 20,000

Figure out how much you can spend per month on a car.

Cars as a percentage of your budget:

We believe that cars should not break your budget on a monthly basis.

A car is something that is a depreciating asset- meaning that every single month

the value goes down and should be depreciated on your net worth statement.

Spend no more than 10% of your monthly budget on a car.

This means if your household income is 120,000 per year

you bring home 10,000/month - don’t spend more than $1,000 per month on your car.

This is not a hard and fast rule.  Some of you may want to spend

even less on a care and increase your savings.

That’s OK and we encourage that!  This is just a rule of thumb that we live by.

How to buy a car:

Figure out how much you can spend per month on a car.  Make a monthly budget and feel good about it. - Use a calculator

Edmunds calculator is great for calculating how much to spend on a car.

Equate that to a sticker price.  By using the calculator

Secure financing at a credit union or bank (shop for the best possible rate between banks)

Narrow down your search to 3-4 brands you like in the class vehicle you like that you can afford.  Test drive the cars.

Check consumer reports for reliability - finalize your choice of car.

Search online for the best deal - negotiate the price of the car FROM HOME.  Make the dealer include all fees - out the door price

Once you finalize a price- get the car checked out by an independent mechanic

Finalize the sale - have everything already agreed to before you go to the dealer to purchase.

Why you should not take out more than a 36 month loan:

Cars are depreciating assets

You could get into a situation where you owe more than the car is worth.

In this situation you would need gap insurance to cover the total loss of a car.

Leasing Cars:

Advantages to leasing a car

You have a new or newer car - all the time.  Every 3 years you turn it in and get a new one.

Less maintenance issues to deal with

Can “afford” a nicer car as you’re essentially just

paying for depreciation rather than interest and principle.

Disadvantages to leasing a car:

Leasing contracts do not change - even after an accident.

So if you get in an accident and the insurance company gives you less than what you owe to the dealership, you’re out that money.

Caps on time and distance.  Only a certain amount of miles and can only keep the car for a set period of time.

No ownership of the car - but still responsible for repairs/always have a car payment

Higher Insurance Rates