What Percentage of Your Annual Salary Should You Put Towards a Vehicle Purchase?

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When planning on purchasing a vehicle, you should always set aside a certain percentage of your annual salary for just such an occasion. Find out what percentage of your annual salary you should set aside for a vehicle purchase with help from a certified financial planner TM professional with over a decade of experience in wealth management in this free video clip.

Part of the Video Series: Financial Planning
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Video Transcript

Hi, my name is Samantha Fraelich and I'm a Certified Financial Planner Professional. I'm here today to talk to you about what percentage of your annual salary should you put aside for vehicle purchase. We're all very familiar with that rule about a mortgage and the fact that you shouldn't spend more than 25 or maybe even maybe 30 percent of your annual salary on your mortgage expenses. But, I wish I could tell you that an annual vehicle purchase is the same, it's really not. What you need to do when you're determining what type of vehicle you should purchase is you need to add up all of your other expenses. Look at what it costs you to live every month, how much does it cost you to live in your home pay your mortgage, pay your rent, pay the utilities, put groceries in the refrigerator, talk on your cellphone. Add up all those other expenses and be sure to add an expense for savings. Many of us figure out a budget and what we need to live every month, but we don't necessarily include an amount for savings. And we should always be saving for our retirement or for an emergency fund if we don't have that yet. Once you have all those expenses and you know what amount is left over each month, then you can help figure out what you need for a car. Once you have all of your expenses totaled and you know how much you have leftover, that will help determine what kind of car you can actually afford. When you're determining what kind of car you can afford, don't just look at the sticker price or what you think you can talk to salesmen down to. There are other expenses related to a car. Automobile insurance is a big one. Once you know what type of car you want, the make and model and the year, call an insurance company and get a quote. You also need to consider if it's an older or a newer car, what kind of annual maintenance is going to be required. There's going to be oil changes, new tires or other maintenance that you'll have to spend on the car. You also want to consider if you live in a state that has a property tax. You also want to consider that if you live in a state that has a personal property tax, the value of the car will determine how much you have to pay in property tax. So, if you buy a more expensive car, your personal property tax every year is going to be higher. So, again, when you're deciding on what type of car you can afford, make sure you figure what other expenses you have every month, what money you'll have leftover to spend on the car and also consider other automobile related expenses before you determine whether you can buy that dream car. Again, I'm Samantha Fraelich, and I hope you found this helpful.


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