How Much Car Can You Really Afford? (By Salary)
Humphrey Yang
12 min, 39 sec
The video explains how to determine the affordability of a car based on one's income, offering guidelines, tips on car payments, financing, leasing, and ways to save money.
Summary
- The video discusses the growing trend of high car payments, with examples of monthly payments reaching over $1,600.
- Three salary ranges ($40K, $80K, and $150K per year) are used to explain how much one should spend on a car according to the 35% rule, which is considered aggressive, and the more reasonable 25% rule.
- The 20/4/10 rule for car buying is explained, which suggests a 20% down payment, financing for no more than 4 years, and keeping payments below 10% of gross monthly income.
- Leasing vs. buying a car is discussed, with leasing being suitable for those wanting a new car frequently, and buying being better for long-term ownership.
- Tips on saving money when buying a car include shopping for insurance rates, buying a used car, and considering maintenance costs.
Chapter 1
The video begins with a discussion on the new normal of high car payments, showcasing examples of payments over $1,600 and the virality of this topic on social media.
- Headlines now consider thousand-dollar car payments as the new normal.
- More than 15% of new vehicle buyers have four-figure monthly payments.
- Examples of high car payments are going viral on social media.
Chapter 2
The video explains how much of a car one can afford based on different salary ranges using the 35% rule and suggests alternative, more conservative percentages.
- Three salary ranges ($40K, $80K, $150K) are discussed to demonstrate car affordability.
- The 35% rule is introduced, but the video suggests using the 20% or 25% rule for a more reasonable approach.
- The rules are based on gross annual income and aim for a balance between car enthusiasm and financial responsibility.
Chapter 3
The video introduces the 20/4/10 rule for car buying, discussing down payments, loan terms, and how monthly payments should relate to income.
- A 20% down payment is suggested to handle the loan and build equity in the car.
- Financing should not exceed 4 years to avoid excessive interest and depreciation.
- Monthly payments, including insurance and maintenance, should be less than 10% of gross monthly income.
Chapter 4
The video compares leasing and buying a car, discussing the pros and cons of leasing and offering insight on whether to finance or pay in cash when buying.
- Leasing is good for those wanting a new car every few years or for a lower payment, but has cons like mileage limits and lack of ownership.
- Buying a car is financially sensible for long-term ownership, and financing is often preferred due to the opportunity cost of cash.
Chapter 5
The video closes with three tips to save money when buying a car, including advice on insurance, purchasing used cars, and considering maintenance costs.
- Call around for competitive insurance rates to save on monthly expenses.
- Buying a used car can mitigate depreciation costs.
- Choosing a car with lower maintenance costs can save money over time.