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I save up for my car. I either pay cash, or finance at 0% and pull the monthly payment from my car account (keeping the rest to collect some interest).
I'm with Pitt Chick. I've never even thought of a car purchase in this way.
First of all, how can income not have anything to do with buying a car? Unless you're planning to buy the car in cash, you're going to have a monthly payment. So in order to figure out how much you can spend per month on a car, you first have to look at your other expenses. Taxes, 401k, rent/mortgage, child support, alimony, student loan, etc. Things like taxes or alimony are obviously out of your control. But how much you decide to spend on rent or a mortgage is up to you. Just like you would with a car, you'd come up with some maximum for housing. For example, a number I hear thrown out a lot is 28%, meaning don't spend more than 28% of your income on housing. Budgeting formulas aren't meant to be rigidly adhered to, but they are meant to give you a good starting point. So using the 28% figure, I'd go out apartment hunting and exclude everything that doesn't meet that criteria. It's the same with the car. Maybe I can afford to spend more than 14%. But that doesn't necessarily mean it would be a good idea.
If you've done a budget, then you know what you can spend on a car. Then it's just your choice on how much you think you want to save, or spend on other things. i don't see why you'd need to figure out what % of your income that ends up being ahead of time. personally, i'd hesitate at ever having a car payment much higher than $400-$500, and i wouldn't do financining unless it was what i considered "cheap".
Last summer, I was employed. My company had been bought out and I knew that my job would be coming to an end, though I didn't know when exactly. I started looking for a new job, but wasn't having much luck. I had also gone into savings mode, setting aside money in case I was going to be out of work for awhile. I made up my mind that if I found a job and felt reasonably confident that it would last, I would pay off my car loan. While I was also hoping to use that money for a down payment on a house and the interest rate on the car was very low, I still thought it would be great to not owe money on the car. Then my job ended. I couldn't find work and had to rely on my savings. Finding a job took longer than I had hoped, but I did find one. Only problem is that I ate up a lot of my savings. Now imagine if I had paid off the car back when I was working. I would've had a lot less money saved up to get me through the days I was unemployed. Each month, I hoped I would finally land something. But months would go by where I didn't even get interviews. Each month, I paid the monthly car payment. I was just so happy that I had that safety cushion. Sure, not having that car payment would've been nice, but I don't think I would've lasted as long as I did had I paid off the car. So the point is that you have to sometimes pick the option that isn't ideal because the future is so uncertain. If I had paid off the car, I bet I would be kicking myself later because I would've needed that money for things like food or rent.
in a situation like this, i'd lean towards a cheaper car.
This is simple really. Budget all your monthly payments out (including some savings for emergencies). See what you have left. Then determine how much of that you are comfortable with paying each month for a car payment. Then plug in your desired payment into an online calculator and you have what you can afford!
There's no sense in saying to spend 33 or whatever % of your income on a car if you have no money left each month as it is now.
Once again, a terrible way to think about it. What is important is how much of that income you actually have to spend on a car.
You misunderstood my point. I wasn't debating how much income nor how much savings.
I was trying to say there is a difference between percentage of savings and percentage of income.
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