Buying a Car - Important Considerations

Types of Cars

• Truck: For farm or heavy-duty use.
• Small Car: Ideal for city driving.
• Considerations:
  • Gas mileage importance.
  • Desired color.

Financial Planning for Car Purchase

Budgeting

• On average, 14% to 16% of annual income before taxes is spent on transportation.
• Example:
  • Annual Income: $42,000
  • Transportation Budget: 16%
  • Calculation: 16% of $42,000 = $6,720/year or $560/month

Costs of a New Car

• Example Car: Basic subcompact sedan with sticker price of $16,450
• Additional Fees:
  • Documentation fees, destination charges, and registration fees.
  • Some fees may be negotiable.
• Total After Fees and Taxes: $16,750

Financing

• Loan: 6-year loan at 3.5% interest
• Monthly Payment: $260
• Total Interest Over Loan: $1,845
• Alternatives:
  • Pay outright if cash is available.
  • Making a down payment can reduce monthly payments and interest.

Monthly Expenses Calculation

Gas

• Mileage: 32 miles/gallon
• Monthly Driving: 1,250 miles
• Monthly Gas Cost: $156 (39 gallons at $4/gallon)

Insurance

• Costs vary based on location, driving record, car type, job.
• Estimated Monthly Rate: $100

Total Monthly Cost So Far

• Car Payment + Gas + Insurance = $516

Additional Periodic Expenses

Maintenance

• Recommended every 7,500 miles.
• Approximate Cost: $80 per maintenance session.
• Yearly Maintenance Cost: $160

Registration and Inspection

• Varies by state.
• Example Cost: $200 every two years, $100/year

Total Additional Monthly Expenses

• Maintenance + Registration = $260/year or $22/month

Grand Total Monthly Expense

• Total Monthly Costs: $538

Budget Considerations

• Remaining monthly budget: $22
• Importance of having buffer for unexpected costs like gas hikes or car repairs.

Conclusion

• With careful budgeting, the car fits within the budget.
• Consideration of used cars for budget constraints.
• Always plan for unexpected expenses to avoid financial strain.