One of the things that makes iQuantifi unique from other personal finance sites is that it will let you know how much car you can get and still be on track with your other goals. If you are planning on financing a portion of your car purchase, our software will let you know how much is too much for a car payment based on your income.
So how much is too much? The short answer is over 5% of your gross income. If you have other goals–such as saving for retirement, building up your emergency fund, saving for your child’s college, and have debts that you are paying off such as a credit card or a student loan–it is critical to have parameters on how much of your income should be allocated to a car payment. If not, the likelihood of achieving those other goals will decrease dramatically.
5%?! That’s not realistic! I hear that all the time. I would argue that it is more realistic than having to pay cash for the purchase of a car. Certainly, financing the purchase of a depreciating asset such as a car is not the best method, but the principle of paying cash for every purchase is not realistic for most families with multiple financial goals. As ideal as it sounds to pay cash to buy a car, sometimes it’s more urgent to purchase that car knowing it is necessary for getting to and from work and school.
The idea that you have to be making $82,560 a year to be able to afford a Honda Accord is ludicrous for most people (see infographic). This is exactly one of the reasons why people are not able to accomplish their other goals. iQuantifi’s value is in helping people figure out how to buy a car while addressing their other goals at the same time.
If, on the other hand, your heart is really set on that Corvette Stingray, even though you have other goals and your income is less than $224,000 per year, you still have options. You can either increase the down payment to lower the amount you finance (which lowers your monthly payments), or delay the date that you buy the car to give you more time to save a larger down payment.
Sometimes it’s not just about making good choices, it’s about avoiding bad ones. How much more will you pay for that fancy car? Is it worth missing out on opportunities to reach other goals or achieve something sooner than you thought you could? Life is all about the give and take. iQuantifi will tell you exactly how it is. Then you can make the choice.