Help a Reader – How Much to Spend on a Car?

by David Ning · 15 comments

Jane has a question that all of us have asked one time or another. How much car should we buy? Below is a brief introduction to her situation, and she needs your help.

My car [is] a Hyundai Elantra. I have had it for 11 years in August. I would like to buy a new car in about 5 years with cash.  Up until now I have not been in a position to save money for this. I’d like a fun car and I like to drive stick shift. Currently, I do not have a particular car in mind. I have been [contemplating on] a good amount to save [for it].

My question to you and everyone is, “How much would you spend on a car?”

What I Think

Jane’s question came at the perfect time, because I’ve been thinking about possibly getting a different car myself with baby Sara on the way (I drive an Acura RSX, and big car seats and two doors don’t mix that well).

First of all, I think it’s great that she decided to buy the car with cash, as the other financing options are more or less a quick way to throw money away. The other absolute must, which she’s already started, is to write down her wants and needs. Top on her list is a “fun car with a stick shift”, but what else? To make the decision even easier, I would be even more specific to narrow down the choices because let’s face it, there are way too many car options out there.

Once she has the list, then the question of how much she wants to save becomes much easier because she can literally just look at the marketplace and see what’s available to meet those needs. As to the list of wants, it boils down to a personal choice, and here’s what I mean.

A fun, stick shift car reminds me of that little European car in the first Bourne movie: The Bourne Identity. In it, Matt Damon was driving the little car everywhere around town to avoid the cops, throw sidewalks, in traffic and everything else. That car’s size and maneuverability makes it fun I’m sure, but it will cost less than $5,000. If that dollar amount does what she wants and needs, then every cent above that is just luxury. At the other spectrum, she can easily spend $250,000 on a Ferrari, which is also fun to drive. The question of how much to spend boils down to simple rules. Know your desires, know your limits, and more importantly, know when to stop adding to that dollar amount.

Some more ideas to lower the purchase price of a car:

  • Buy a Used Car – I know Jane mentioned that she wanted a new one, but when Emma and I bought our car, it was 2 years old and $10,000 less than what it would’ve cost new. The funny thing was that everyone thought it was brand new anyway because of the condition. Some used cars are crappy-looking, but there are deals out there as long as she takes the time to look. To save, she can read more here on how to buy a used car.
  • The Amazing Options – Every car has a billion options these days. They are all nice (in-car GPS anyone?), but they are also ultra expensive. If she has a really hard time saying no to those features, my suggestion would be to just think of whether she would rather replace her car more frequently or get the options every time she buys a car. The choice is hers, but for me, it’s easily to replace my car more often.
  • Invest the Time – It takes time to know how much a car is worth. It takes time to know how much the car she wants cost, and it takes time to know all the options of that car so the car salesmen doesn’t up-sell her on a ton of extras when she is prone to say yes because she is in the “buy mode”. Don’t rush into such a big decision. Buying a car is a big purchase.

I haven’t really given her the dollar figure she hoped to seek, but it’s on purpose. Other than a house, cars seem to be a product that people use to compare themselves to others with. (And, we all know the effects of keeping up with the jones.) Even 5 years from now, your 16 year old Electra is probably still drivable. In a way, you are still throwing out the good just to get a new car. Not because she really needs to, but because she wants to. How much should she spend? The question should really be: how willing is she to spend?

Once you figure that out, the other questions like savings etc will fall quickly into place.

Having said that, I want to say that it’s okay to splurge a little too. After all, we work hard for a good living. Just know that the car is a luxury purchase, and it has nothing to do with necessities.

How about You?

What are your thoughts? How much do you spend on your car, and are you happy with your decision? Jane, as would I, will be happy to hear about your experiences and thoughts.

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{ read the comments below or add one }

  • Annoymous says:

    Buying an expensive luxury car is the best investment one can make! Sure there is the depreciation factor; but that goes along with being the owner of the luxury car. Owning a spanking new luxury car puts you ahead in life and is apart of telling the world your lifestyle of who and what you are as a person. In other worlds; you are a somebody in this world as oppose to a nobody! That counts for a lot in my book!

    Go for the star is my motto! If you make like $20K a year; you can afford a luxury or high performance car in the $60K-$80K range. You just need to extend the terms out to 84 months or you can try and lease the car! The dealership will make it happen and it their worry to figure out how to do the deal. You are only in it for the “ride”. So don’t listen to those who are nobodies in life and listen to those who are drive their dream and living the lifestyle.

  • Jon says:

    As a car fanatic and a life long cheapskate, I have always struggled with how much to spend on a car. So, here is my take on the topic of how much to spend on a car – the car vs house calculator

    The general principle is that the annual cost of your car versus the annual cost of your house should be proportionate to the amount of time you spend in each.

    Take a look:
    http://www.befrugal.com/tools/how-much-to-spend-on-a-car/

  • Used cars are a far better option if you’re rather short on money. A very good place to find cheap used cars in excellent conditions are repossessed car auctions (I should know, I do it for a living). You can find vehicles for around a quarter of their real value, but you have to know what you’re doing ,particularly if you’re attending offline auctions.

  • Mike says:

    I bought my first car at the age of 19 for $9800 (out the door), a brand new 2000 Hyundai Accent.

    Fast forward to 2010 and I have zero complaints. It’s runs great, has 73K miles on it, yields about 42MPG (combined), and except for the wipers, tires (which I replaced 3K ago) and headlights I’ve had zero in repair costs. Naturally, I’ve had maintenance costs of about $50/year over the life of the vehicle but even that is pretty unheard of. A lot of it has to do with how I drive.

    The irony is that when I bought the car I told myself, “I’ll buy a in six months”, fortunately I never did, and now, ~10 years wiser, I never will :-0.

    I know there’s no ‘right’ answer for this but my recommendations are:

    Write down your, needs, wants, and would likes. Make sure you’re buying the car YOU want, not the car you feel you have to drive because of external pressure, e.g. family, friends, neighbors, opposite gender, marketing, etc, be mindful of pathos.
    Buy used (if you don’t feel comfortable buy ‘certified’)
    Negotiate (if you don’t excel in this attribute leverage someone who does, I was at the dealer for 3hrs when I bought my car, 2hrs for my mom’s)
    Consider a previous rental vehicle, I know, I know, the stigma is high but give it a chance. I helped a buddy buy a car from Hertz (2007 Hyundai accent, for $9,500 out the door, YES $300 less than mine.) and it’s been great. They even gave him two new replacement tires, a tank of gas and ‘cosmetic touch up paint’ because the car wasn’t ready when he went to pick it up. Also, Hertz seems to have a ‘no pressure’ attitude and ‘what you see on the window is what you pay’, zero haggling. BTW, keep an eye on AAA, they regularly have offers to discount the price by $500 if you’re a AAA member when you buy from Hertz.
    Be mindful of upkeep for the car you pick, there’s nothing like 240/45 low profile tires until you realize a set is $1000, and an oil filter is $50.
    Call your insurance company to simulate a re-rate, nothing is going dull that shiny new paint on your ‘new’ car like insurance going up 40% a month (not to mention registration.)

    All the best in your search.

    Disclaimer, I have ZERO affiliation with Hertz, I’m simply someone who was happy with their service/has a friend who owns a previous rental vehicle who is happy. 🙂

  • Stephen Touset says:

    I faced this exact same problem last July.

    My solution? I bought a bike. A nice (but used), hand-built bicycle with top-of-the-line parts set me back $1,000. Besides that, I had some extra upfront costs including a helmet, lights, a U-lock and cable lock, spare tubes, etc., and rain and winter gear. All told it set me back perhaps $2,000.

    Now I save at least $100-$125 a month on gas, $600/yr on auto insurance, and significantly more when you consider oil changes, tires, maintenance, and financing. Just the first year you more than break even. Every year after that is thousands of dollars in savings.

    And that doesn’t even consider the personal health benefits — I’ve lost 35 pounds, without changing a thing. A 7.5 mile commute each way 5 days a week will do that to you. I show up to work energized instead of tired, and I don’t get angry from the stresses of driving any more. It’s been one of the best decisions of my life.

  • Cd Phi says:

    Buying a car is a big deal but it has to happen sooner or later (especially when costs to maintain your current car is more than the car’s actual worth). I would consider many things when deciding what price range to shop in. Consider your emergency fund if anything were to go wrong, whether or not there may be some big life-changing events in the next couple of years, how many loans do you still need to pay off and debt, etc…Obviously, we can’t just wait and wait until we finish paying off everything but the degree of those aspects should affect how much you spend on a new/used car.

  • WR says:

    1. Get a copy of Consumer Reports and check out the reliability records of cars in the price range you are looking for. The good news is that many a “Fun car with a stick shift” is a small, inexpensive vehicle. You’ll find that (even with the recent Toyota Recall fiasco) The Japanese are best in this area. Look at a small Toyota or Honda. The Mazda Miata is a fun little car as well.

    2. Buy a used car but *Never* buy the first year of a new model. There are so many new items in the 1st year of a model that there is bound to be mechanical/ reliability problems. Optimally, the 3rd year(+) of a model run is the sweet spot. Wikipedia has good info on model years.

    3. I have noticed that people are more likely to take a lower offer once there loan is paid off. Most car loans are for 5 years. (Remember that model years start selling sometime the year before i.e 2011 cars will go on sale this year).

    Protips:
    1. Only buy from a private seller.
    2. when calling on an ad ask for “The vehicle for sale” not “The 2003 Corolla”. If they ask “which one?” hang up, you have reached a car dealer.
    3. Check the VIN on Carfax.
    4. ask to see the repair records, at 5 years there probably should have been a timing belt change.

  • Jane says:

    Thanks for all your input.

    I like new as it takes longer before the car repairs start and, like Marci, I like to keep cars for a long time. My prior car I had kept it until it started needing monthly repairs and was breaking down on the freeway.

    My current car cost $11,000. So, $20,000 is a HUGE number to me. I’ll aim for between $15,000 to $20,000. At $15,000 it will require saving $250 per month and at $20,000 it will require me to save saving $335 per month.

    Thanks again for the input.

    • MoneyNing says:

      In that case, then why not just stick to $15,000? If you put your $250 in a savings account, then whatever number you end up with after 5 years can be your budget for the car. I know $5,000 is a big difference in getting the car you want, but $85 a month is even bigger.

  • Robert says:

    Depends whether it’s new or used. You can get a really nice used car at a good rate. I usually try to buy a car with 30k or so miles on it–that way I keep my cost low and yet I get a car that will last a decade or so.

  • marci says:

    Spend what you are comfortable spending. And buy for the long haul – as you know you will be keeping it a long long time. When I no longer “feel” that my car is dependable, that’s when I trade in. It’s a personal safety issue for me.

    I luv my Subaru Forester – had it 10 years now and it has 115,000 miles on it – Obviously has a long long way to go 🙂 I paid $20,000 for it, new, with the thought that it was the LAST car I would probably ever own, or 250,000 miles, whichever comes first 🙂 People may question the “new” part, but that was my decision factoring everything into it. The cost between used and new was too small to be a factor. Actually – I think that now, 10 years later, I will probably make it available to my 7 and 9 year old grandchildren for school/sports, when the time comes.

    A year ago I donated my 35 year old Datsun pickup to my son’s dairy farm – still running, but rusting apart, and I needed a truck to haul firewood and a trailer with. So I bought a 2004 used Chev Silverado 4×4 for $12,000 with 54,000 miles on it. I plan on it being the last truck I ever buy also. I’m 55 now.

    I think new or used depends on your circumstances and the prices of the new versus the used. The Subaru differences were only $1000-$2000 different than new price. But the pickup difference was about $22,000 – a BIG difference 🙂

    Think about what you like, dependability, etc. My vote is for a Subaru of some sort 🙂

  • CD Rates Blog says:

    LOL. Before we had kids we I had Mazda MX6, stick shift. That was fun car. Traded that in for a Minivan. I new I had arrived at that point. :O)

    We have always bought used, but I have also always wanted to splurge and by my wife a new car. Currently because of our family size she drives a 15 Passenger Van. Not most people’s dream car. :O)

    She has a five year goal and that’s great to start putting away and looking ahead. When we do buy it will probably be used for the points that David mentioned. You’ll get a much nicer car and save a lot of money if you just look at one that is 2-years old or so.

    What you spend is somewhat tied to what you can afford and in this case what you save. There is no correct number because we all have different situations. What ever the number, you have to be happy with it. My number might be $25K, yours might be $250K.

    My biggest tips. Don’t be afraid to walk-away. If they think you won’t leave, they won’t give you the best deal, new or used. We recently bought a trailer. We drove about 2 1/2 hours to look at it. Although it was a good deal, they sort of knew we weren’t leaving without it. Thus the deal probably could have been better.

    Second do all of your homework with what is available on the market and what they likely paid for it if you are buying used from a dealer.

    cd :O)

    • MoneyNing says:

      A 15 passenger van is very useful, and don’t let anyone tell you otherwise 🙂 While the car itself may not be a dream car, the 15 person family outing is a dream in and of itself. Good job there 🙂

  • Vince Scordo says:

    Sorry don’t have access to the link but if the reader does a search on “Scordo wisebread car buying tips” shell seey tips on buying a car from a car industry expert.

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