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How’s it going today guys so today we’re going to be talking about whether or not you can afford either the car you’re currently driving or a car that you may be looking at because i know that you or i’m guessing that you if you’re a young person watching this video you have a dream car in mind and i’m sure there’s someone out there who will extend you a line of
Credit and allow you to buy that car but is that a good decision in most cases absolutely not now i went through this myself i bought a car that was not super expensive but i ended up losing about ten thousand dollars on a car in the course of one year due to depreciation and i made the wonderful decision of driving two cars at once because why have one car when
You can have two that was my whole mindset it was a huge financial mistake cost me about ten thousand dollars so i kind of want to give you guys an idea of what kind of car payment you can afford based on your income all right and there’s a very practical model i want to teach you and it’s not one that i created myself it came from interest.com i’ll link them up in
The description as a source that way you guys can check that out but they have something called the 2410 rule of buying a car and we’re going to talk more about that and how that would work in your situation and how you can crunch the numbers on this but so we’re gonna kind of figure out what you could afford for a car and we’re gonna look at the average numbers
Out there and get an idea of can the average person afford the average car payment so the average car payment out there i believe it’s 503 dollars last time i checked but we’re gonna use 500 dollars a month as easy numbers sake that’s the average car payment $500 per month now the average salary on the other hand is forty-four thousand one hundred forty-eight
Dollars per year all right so could the average person earning the average salary of forty four thousand one hundred forty-eight afford a $500 a month car payment so in order to answer this question we’re gonna look at this 2410 rule and i’m gonna explain it to you guys right now i highly recommend you guys go to that site and bookmark this or possibly write this
Down somewhere else for reference that way you guys can look back to this if number one you’re looking to buy a car or a number two maybe a friend of yours is looking to buy a car and he asked you for your advice point them towards the 2410 rule of buying a car number one the 20 stands for a min of a 20% down payment on the car itself so if you can’t afford 20%
Down in that car then you can’t afford that car number 2 4 is a maximum of a 4-year term on that loan now you can go out there you can get a 5-year term you can get a six-year term on your loan but your best bet is to stick to 4 years because if you can’t pay it off in 4 years then you probably are buying more car than you can afford now that 10 stands for 10%
So the total vehicle cost and i’m not just talking about the monthly payment i’m also talking about the insurance on that car and maybe you’re gonna get all let’s say a car wash membership because i have a car wash membership it’s like 30 bucks a month any of those expenses that are relevant or related to your car that’s what counts as your total vehicle cost so
That $500 a month is just for the car payment you have to add on the insurance cost for that car and maybe you’re somebody who has a car wash membership that all factors in to your total vehicle cost and that should be less than or equal to 10 percent of your gross monthly income now that means your pre-tax monthly income so just to refresh guys 20% down minimum four
Year term maximum on that loan and no more than ten percent of your gross monthly income is the 2410 rule of car buying and i highly recommend that you guys follow this rule yourself to avoid buying a car that you just can’t afford and being stuck with a car payment and ending up with no money because you’re dumping all of your money into a depreciating asset known
As a vehicle all right so let’s go ahead and go over an example of this just to give you guys an idea let’s say you have a thirty thousand dollar car so first of all we know we need to put 20% down minimum let’s say we’re gonna do that we put six thousand dollars down which is our 20% and we’re gonna get a four year loan on this car because four year is the maximum
Term for a loan on a car following this rule so $24,000 at three percent interest for four years gives you a car payment of 531 per month that would be your payment on that car and that’s probably higher than what you guys are used to looking at because most people factor in a five or six year term loan so how much money would you need to be making to afford this
Car so first of all the 531 is just payment we also have to factor in car insurance and i’m gonna say 100 dollars a month is your insurance and that may be low so you probably know what the insurance is on the car you’re driving now so if you guys are doing the numbers yourself just use your own number but understand that the more expensive a car is in most cases
It’s going to be more expensive to insure that car so let’s say it’s a hundred dollars a month to insure it and this person doesn’t have anything extra like a carwash membership or something like that their total vehicle cost is 631 a month all right now following the 2410 rule that your total vehicle cost can be no more than 10% of your gross monthly income so if
We multiply that by 10 that means you need six thousand three hundred ten dollars a month of gross income or pre-tax income in order to afford that twenty four thousand dollar car so it’s at well $30,000 car with six thousand down so a twenty four thousand dollar loan so what does i equal out to per year that is seventy five thousand seven hundred twenty dollars is
Would need to be your salary in order to afford this car payment all right so let’s think about this for a minute okay we just set up here that the average car payment is five hundred dollars a month while the average salary is only forty four thousand one hundred forty eight dollars per year this is not much more expensive especially when you think about the fact
That when you add on a hundred dollars for insurance the average vehicle cost is probably around six hundred dollars or more depending on your insurance and we know that the average salaries forty four thousand one hundred forty eight and that is a far cry from seventy five thousand seven hundred twenty which is the amount you would need to realistically afford that
Car payment all right so what that tells us is most people out there are buying much more car than they can reasonably afford and as a result they’re dumping all kinds of money into this car and it becomes a money pit and they have no money left over at the end of the month because they’re putting five or six bills into their car now i want to go through a chart
That i made just to give you guys a reference all right so over here it would be your salary or what you make per year and that is your car payments so if you guys are looking at a car and this is your total vehicle expenses remember so you have to include both your insurance and your car payment and any other expenses which would factor in to your total vehicle
Cost so if your total vehicle cost was $200 per month you would need to make $24,000 a year to afford that for $300 a month you would need 36,000 for $400 a month you would need $48,000 of salary okay so we said right here the average salary is about 44,000 148 dollars a year that means the average person out there could realistically afford a car payment between
300 and $400 a month of your total vehicle expenses so insurance plus the car payment actually all right so this is the problem we have of people spending way too much money on a car going forward let’s say you want a $500 total vehicle cost you need to make 60,000 for $600 you need to make seventy two thousand four seven hundred dollars you need eighty four thousand
Dollars of gross income per year for $800 you would need 96 thousand for $900 you need 108 thousand and if you wanted a one thousand dollar total vehicle cost you would need to have a salary of $120,000 a year to realistically afford that car anyways guys that is all i got for this video if you know someone who’s about to buy a car please send them this video so
They can have their eyes open to this and hopefully not buy too much car if you enjoyed this video please drop a like if you’re new to my channel please consider subscribing to be notified of any future uploads and as always i thank you for taking the time to watch this video
Transcribed from video
CAN YOU AFFORD IT? (Car Edition!) By Ryan Scribner
