Almost everyone wants to have a car.
Not only because it is more comfortable than commuting but it is also a status symbol saying that “I have arrived”.
But when is the best time to buy a car?
Last week, Mr. Jason Tulio of FHM Magazine interviewed me regarding what I call the financial pit stops when it comes to buying your first car. It is entitled “The Saving Habit You Need To Master Before You Buy Your First Car” (you can read the article by also clicking the picture below).
Money is a TOOL and not an End in Itself
We work hard NOT for money but for our dreams and our loved ones. What is the point of having lots of cash in the bank without any satisfaction, happiness, and love? But this doesn’t mean that we will live a carefree life and will not plan for the future.
So what are the Financial Pit Stops that one should drive through before buying that first car?
PIT STOP 1: Have a Budget
There is a saying that, “what gets measured, gets done.”
The basic concept is INCOME – SAVINGS = EXPENSES.
And your income should be higher than your expenses.
If your expenses are higher than your income, then you are in debt. Don’t buy anything especially a car. Pay your debts first. (For more info, read Breaking the Shackles of Debt).
PIT STOP 2: Have an Emergency Fund
An Emergency Fund is worth 3-6 months of monthly expenses. This will make sure that in times of emergency such as loss of job in an economic downturn, you can live with dignity and afford your current lifestyle. You don’t want your car to be repossessed, do you? (For more info read, Emergency! Emergency! Emergency!).
PIT STOP 3: Have a Retirement Plan
A car’s value doesn’t go up. The moment you drive it out from the dealer, you can no longer sell it at the same price as you bought it. It already depreciated by at least 20%.
So before buying a car, make sure you have a plan that will take care of your future. A plan that will make your money increase in value so when you can no longer work, your money can take care of you. (For more info, read Retirement Is Not As Far As It Seems).
PIT STOP 4: Have a Protection Plan (Life Insurance, Disability, & Critical Illness)
Your car dealer will not sell you a car unless you buy a Comprehensive Car Insurance with it. Actually, it is illegal to drive a car without any car insurance (at least a TPL is required).
But come to think of it, is your car more important than your life? If you get into an accident, your car will be fixed but if you don’t have enough funds to get recovered, what will happen to you and your car? You will be in a financial, emotional, and physical distress and, most likely, your car will be repossessed.
If you are single and no one is dependent on you, you don’t need life insurance but you need disability and critical illness insurance.
PIT STOP 5: Take in to Account the Increase in Lifestyle
Once you already have a car, like what I have said in the article, your additional cost does not stop in your monthly car payments. Take into account the cost of maintenance, repair, insurance, fuel, parking, and the increase in lifestyle such as going out on weekends especially on long weekends.
You should also increase your Emergency Fund when necessary.
FINISH LINE: Enjoy your Money and Buy that Car!
When your budget, emergency fund, retirement plan, and protection plan are in placed, enjoy your money, enjoy your life, and buy that car!
Your Millennial Wealth Planner,
Harold Q. Gardon, CWP, CEPP
How do you find the article? Do you have any questions? Please feel free to message me if you want me to discuss a particular topic or if you are seeking financial advice.
Subscribe to my mailing list and get a FREE copy of my e-book entitled “Millennial: A New Definition of Wealth”
We can also keep in touch through my FB Page.