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Rule 1: The 35% Rule

If you just want a basic car that takes you from point A to point B safely and efficiently, then I would recommend the 25% rule or even the 20% rule. The 25% rule is much more of a sweet spot. With this rule, you don’t just get basic beaters, you can get good cars with lots of features and amenities. But you avoid wasting money on useless bells and whistles that you don’t even need. As long as you stay within this guideline, then your car should be affordable. And if you take away anything from this video, just remember the 25% rule, not the 35% rule.

Rule 2 : The 20/4/10 Rule

The first part of this rule is that you should make a 20 percent down payment on your car. So, if your car costs thirty thousand dollars out of the lot, then based on this rule, you should make at least a six thousand dollar down payment when you buy the car. The reason why experts suggest twenty percent down is that it'll be a lot easier to handle the loan over time when it comes to your payments. Having twenty percent on hand ensures that you are in a financially responsible position to actually buy this car. If you finance 100% of a car, you could get into some trouble. When it comes to brand new cars, you’re just throwing money away into a depreciating asset. My personal recommendation for most people is to just buy a used car that is three to five years old, where most of the depreciation has been chipped away over time already. Then, just maintain it well and drive it for as long as you can. A new Japanese car could easily last over 15 years as long as you take care of oil changes and other basic maintenance.

The four refers to the fact that you should not finance a car for more than four years. Four years is the suggested amount of time because it's going to keep your monthly payments pretty manageable, as well as prioritize paying off the car before it depreciates too much. 

The 10 refers to the fact that you should aim to keep your monthly car payments, including insurance and maintenance, to be less than 10 percent of your gross monthly income.

BUYING VS LEASING

Which is better, buying a car or leasing a car?

Leasing usually makes sense if you want a new car every three or four years, or if you just want an overall lower monthly payment. Some other pros of leasing a car include a very low down payment, usually zero, warranty coverage, and, if you are a small business owner, you could potentially write off some of the lease payments. However, there are cons to consider. There are mileage limits, so if you go over, you have to pay extra.

Buying a Car: Cash vs. Financing

If you're someone who values not having a car payment or maybe you can get a discount for paying all in cash, then this option might be for you. This especially applies if you're not an investor and have cash sitting in a bank account not earning any interest. If you already invest your money, financing usually makes more sense due to the opportunity cost of cash. 

BEST CARS YOU CAN AFFORD

$40,000 per year

The most you should spend on a car at this salary is $10,000.You should consider buying a used Honda Civic or Toyota Camry. These Japanese cars are known for being incredibly reliable and low maintenance. You can get a 7-8 year old used Civic or Camry for under $10,000 that comes with lots of modern technology and features as well.

$80,000 per year

Same cars as at $40,000 but maybe a little newer.

$150,000 per year

Up to $37,500 on a car. You can get a 2024 Honda Accord , a 2023 Toyota Prius Prime and if you’re feeling a little German, a 2023 Audi A3.

TOP MONEY SAVING TIPS

1. Insurance Rates

Call around and ask for different insurance rates. Insurance companies compete with each other, and switching providers can save you between $100 to $200 extra per month.

2. Buy Used

Opt for a used car, especially one that's around three years old. This is the sweet spot since it's still relatively new and has already undergone most of its depreciation.

3. Maintenance Costs

I would recommend using the "true cost to own" calculator on edmunds.com. Sometimes luxury cars might have a lower price tag, but cost more in the long run due to maintenance, insurance, and repairs.

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