Know These 3 Numbers Before Buying a Car, According to Humphrey Yang

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You can save for years or take out a loan to make your big purchase, but if you don't take the entire situation into account, you could still buy a car that's out of your budget.

Here are three numbers that he said are essential to know before making your big purchase to help hopeful car owners grasp the complexities of the costs.

You can begin this week.

The 35% Rule

In Q4 of 2024, the average monthly payment for a new vehicle reached an all-time high, with almost 19% of buyers paying $1,000 or more a month.

To ensure you don't overspend, take the 35% rule into consideration. This rule states that your car shouldn't exceed 35% of your annual income. For instance, if you're looking to buy a car costing $28,000, it's recommended that you earn at least $80,000 per year. For extra caution, Yang suggests scaling down to 25% or less.

The Cost To Own

Buying a car that costs about a third of your monthly salary is a good starting point, but it's only a part of the cost. Yang said that the actual cost of owning a car is much higher, and it involves various expenses beyond just your monthly payments, including taxes, gas, insurance, car repairs, and the depreciation of your car's value.

According to Consumer Affairs, the average car's annual repair and maintenance costs totaled $900 in 2024. Failing to consider these expenses can have a negative impact on your long-term financial well-being.

The Real Purchase Price

When visiting a car dealership, the salesperson may show you a seemingly affordable monthly payment to take your attention away from the vehicle's overall cost. According to Yang, this can be deceptive, and frequently falling for it can result in paying a lot more for your car than you should.

The person explained that if you buy a $35,000 car with a 5% interest loan, you'll pay around $600 per month for 60 months. However, reducing the monthly payments even more might make the purchase seem even more affordable, but it will lengthen the loan duration and increase the amount of interest paid.

• They avoid the kind of flashy spending seen in reality TV shows or new music videos. These shows and videos sometimes make it appear as if millionaires live lavishly. Excess and extravaganza are actually tactics of those who seek attention rather than long-term financial security, though they may work well in the short term. Long-term financially stable individuals choose monotonous stability over spontaneous big spendings.
• When you've reached financial success, your money should be generating passive income, such as through investments, dividend-paying stocks, or a side hustle. This means your earnings will continue to grow even when you're not actively working.
• 4 Unconventional Ways to Earn Extra Money That Actually Are Effective

Know These 3 Crucial Numbers Before Purchasing a Vehicle, as Advised by Humphrey Yang