If you have your own car, you know very well that you have a lot of freedom, especially in the US where cars are indeed necessary if you want to get from one place to another in the fastest way. But along with this freedom comes a hefty price, as we all know as well. Even the cheapest model can have a prohibitive price, and this is why most of us go for car financing. But while cars are a necessity, it doesn’t mean that you are obligated to buy one that you can’t afford. You can still purchase a reasonably good model without digging too deeply into your pocket, but you first have to know how much you can realistically afford. The big question now is how much you should spend on your car. Here, then, is your best guide to spending on your new car.

The rule of thumb

There is a particular rule of thumb for car purchases, and it is this: spend about 35% of your income per year on your car. This is a reasonable rule because it allows you to cover all your expenses plus the cost of buying a vehicle (and running it). So, hypothetically speaking, if you earn about $20,000 annually, you have a budget of $7000 for a car. It isn't much, but it can still give you a good used model which you can run for more than a few years.

On the other hand, if you earn about $150,000 per year, you can spend around $52000 buying your new car. This will already give you a whole selection to choose from, and it includes luxury vehicles. At the end of the day, the rule is 35%, but it’s really up to you to decide based on your financial responsibilities and situation, whether or not you will go for financing or pay in cash, or how important your vehicle is to you, particularly when compared to your other expenditures.

Your options

But here's the thing: as mentioned, the value of your car and what you spend on it will essentially depend on what you prefer, as car specialists like the Young Automotive Group will confirm. If you analyze your financial situation as carefully as possible and would really like to have that dream car (and you think you can afford it), then go for it.

If you are a frugal person and are only buying a car to get you from one place to another, you can settle on about 10 to 15% of your annual income for your car budget. So, if you have earnings of about $25000 per year, you only have a budget of $2500 to 3000 for a used car – one with high mileage, at that. If you have earnings of $80000 annually, then your budget for a car would be from $10000 to 12000.

If you are not that frugal yet would still like to benefit from a good used car that doesn't take up 35% of your yearly income, then you can compromise and settle for spending about 20% of your yearly income on your car. This can give you a reliable model which is around two to three years old and which has about 20000 miles. Of course, this will depend on the make and model, but if you're going for a standard one, this is a good starting point.

Author's Bio: 

Marina Pal is a renowned author and social media enthusiast.