Page 61 - Book6E

(Source: Bureau of Labor Statistics, Census Bureau. Average transpor- tation expenses include vehicle purchases, finance charges, insurance, fuel, maintenance and repairs, public transportation and other out-of- pocket expenses but not vehicle depreciation.)
Steps We Can Take to Turn Things Around
Weston says for every dumb decision we make when it comes to cars, we can counter with smarter ones. Consider the following:
• Own your cars longer . This one move can save you literally hundreds of thousands of dollars over your lifetime. Keep your cars for at least a year or two, if not longer, after you’ve paid them off. Set up an automatic savings plan so that the money that once went to payments goes instead into a high-rate savings account. Use the money to help pay for your next car. The longer you save, the less you’ll have to finance.
• If you must borrow, stick to loans of 48 months or less . If the only way you can afford a car is with a longer loan—or worse yet, by leasing—then you really can’t afford the car at all. A loan of four years or less will help keep you from overspending and allow you to build equity in the vehicle faster.
Figure out what you can actually afford. As a guideline, total car costs—including car payments, fuel, insurance, and maintenance— shouldn’t total more than 20% of your after-tax income. If you don’t have other large expenses, you might get away with higher car costs. If you’ve got a big mortgage or child-care bills to pay, you might need to spend less. You might not be anywhere close to these guidelines, but they’re something to shoot for as you get your finances in order. In the meantime, you can simply double your projected car payment and see how well that fits into your budget. If it doesn’t, look for a cheaper car.
Wait Until You Can Pay Cash For That Car 53