One of the mistakes most people make when purchasing a car is focusing on the monthly payment. Here’s how to avoid that trap:
- Focus on the total amount of the car purchase including taxes and fees.
- A general rule of thumb is 25% of your annual salary.
- For example, if you make $100,00 per year, the cost of your car should probably be no more than about $25,000.
No rule of thumb is hard and fast but it serves as a good figure to start from. Then adjust that figure for your unique circumstances such as trade-in values, down payments, etc.
Consider this fact: Many people, over their lifetime, will purchase and spend more on their cars than they will on their home.