Use This Method To Figure Out if You Really Can Afford That Car You Are Looking At

You all know about depreciation. Thanks to it, regular people get to be able to afford premium cars after they have been used for a bit (or a bit longer). It applies to volume cars, as well, and even to luxury cars and exotics. But there's always a point where you should stop and think before you buy a vehicle that used to be expensive when it was new, but you can now afford it.
Person counting cash money on desk, next to notebook and mechanical pencil 40 photos
Photo: Photo by Karolina Grabowska from Pexels
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I think we have all been there, especially with a category of cars, premium flagship sedans, luxury coupés, or whatever you could not buy new at the time for various reasons. They all have something in common, though.

I am referring to the fact that their price had gone down significantly from when it was new, and it now sits at something between less than 50% of what it was new if we are talking about recently manufactured vehicles (less than five years old), or those that are a fraction of what they were new.

You see these ads often if you are like us and have a habit of just looking at cars for sale online. I have been doing so for over 20 years, and before that, I have been looking at cars for sale in magazines and newspapers. It is like window-shopping, but without going out to see vehicles. Full disclosure - I do sometimes go with friends so they can look at cars that are for sale.

So, in case you find yourself looking at a used BMW 7 Series, or an S-Class, or just a 3 Series, for that matter, but you are not sure if you could afford one, I have figured out a simple system to help you decide. You might not like the result, but it will help you steer clear of heartache, headache, and financial aches if you know what I mean.

SNL sketch takes aim at Lexus Christmas ads, points out how ridiculous they are
Photo: YouTube / Saturday Night Live
I have devised this method as a way to help friends and acquaintances make decisions when buying cars, and it works for just about any vehicle. It may be too hyped up at this point, but it works. Bear with me on this one.

You will need a pen or pencil, and a piece of paper is enough. First, write the price of the vehicle, and subtract from it what you have already saved up if you plan to make a cash acquisition. If you still have money left over when compared to your savings, you might think you are in the clear, but keep following this.

Now, if you want to borrow money to buy a used car or even lease a new one, which can still be considered borrowing money here, write down the monthly payment and subtract what you make each month from your current job.

If the monthly payment is more than 30 to 35 percent of what you make each month, that is a red flag. But idealists do not stop at a single red flag, do they?

Triple\-check the papers before signing them, and do not pay money in advance
At this point, you should have a sum of money in front of you. If it represents what is left of your savings, please go online, and look for a new set of tires. If you do not have enough money saved up for a car you plan to buy with cash, you know what to do - save more money.

Can you afford four new tires from a premium brand? Great. Now, imagine you just had a flat two days after you got them, and one tire is just ruined. Can you afford it?

I thought about this test after a friend bought a set of new tires for his (new to him) car but had a flat tire a week after the purchase. He struggled that month, and he was lucky to have a car with small wheels, thus relatively affordable tires.

The price of a new premium tire was just 1.6 percent of what he paid for the car, but he had already run out of savings after he bought four new tires, so the last one meant a rough month.

Pirelli P Zero and Mclaren 765LT
Photo: Pirelli & C. S.p.A.
If you plan to finance a vehicle, check if you can afford to buy a set of four tires out of what is left of your salary after paying the installments for the vehicle, your housing expenses, food, and all your monthly necessities. Or let's say you save up to two months to buy a set of four, but you can afford to buy a new one each month, even if you will not have to IRL. Your bank will not be happy about you driving their car on a flat tire, or crashing it in the winter while driving on summer tires. Yes, people have done this, it never ends well for those who do.

How big of a problem is it? If you need to borrow money to buy tires for that vehicle, you cannot genuinely afford it, even if the bank or financing institution says you can afford to buy the vehicle. It is that easy. Affording the purchase is not the same as affording to own the vehicle.

Alternatively, if you would have to buy just one tire the first month you start paying for the vehicle, can you afford that? If not, a used X5 with 22-inch wheels is not the car for you.

"But the vehicle has perfect tires. I do not need new ones for years," you might be thinking. Yes, that may be so, but tires are a cost that will reflect a bit of what the car is like to own. And a flat tire can happen, and you might not get away with the flat tire kit on-board. Then what do you do?

Pirelli P Zero and Mclaren 765LT
Photo: Pirelli & C. S.p.A.
Big wheels will involve expensive tires, and if getting an expensive tire for a certain vehicle is the end of the world for you, that vehicle is not yet within your reach. Driving an European or Japanese hot hatch on cheap tires will ruin the experience, and will make you more likely to crash. Nobody can stop you from buying it, but you might have a tough time, financially speaking, from a total-cost-of-ownership perspective.

Sure, you can also calculate your insurance quote for a vehicle, but that may be difficult to get online without a VIN or without providing personal information and getting a call from a representative in the next couple of days. That is why the method described above works faster. It is like a reality check, but you have to be honest with yourself.

That is because you can look for tires online right away, without paying anything just to look. Insurance and tax are also two good ways to figure out if you can afford a vehicle.

If you find insurance to be the most expensive thing you get for a vehicle, or if taxes for it make it a burden on you each month, then you might consider you cannot afford that vehicle. It does not matter if it is an exotic, a luxury car, a premium model, or even an econobox. While you might be able to eventually buy a tire in case things go wrong, it will be bad for you, financiall speaking, to have to do so - because otherwise you could have afforded to buy a tire any other month.

Tesla Model 3\: TRUE Cost after 3 years & 45K Miles
Photo: Cleanerwatt on YouTube
If you cannot afford four new tires for it at all, you are going to have a tough time owning that vehicle – at least from a financial standpoint. I have been there when I was younger, and it is not a nice place to be in.

Another way to check, but from a running costs perspective, would be to have a good idea of how many miles you drive each month. Use a real fuel consumption figure from a review of that vehicle, not what its owner claims it uses, and calculate your monthly fuel costs.

If you drive that vehicle for a full year, how many of your paychecks would you have to leave at the gas station register? More than one or two?

Well, you are either driving too much, have selected a gas-guzzling car, or you do not earn enough money to genuinely afford to drive that version of the vehicle. Yes, it's that simple.
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Editor's note:

This article does not represent financial or investment advice, it is just a different view of calculating if you might be able to afford owning a vehicle, but we cannot guarantee you will be able to afford one if it just passes all these calculations with flying colors.

Please refer to a professional financial advisor for tips regarding personal finance.

For illustration purposes, the photo gallery shows images of people looking at cars, driving cars, or inspecting cars.

About the author: Sebastian Toma
Sebastian Toma profile photo

Sebastian's love for cars began at a young age. Little did he know that a career would emerge from this passion (and that it would not, sadly, involve being a professional racecar driver). In over fourteen years, he got behind the wheel of several hundred vehicles and in the offices of the most important car publications in his homeland.
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