Whether you know the horsepower of the engine in your car or you use one solely to get from point A to point B, cars have been an integral element of growing up - and affording one an even larger element.
The F1 racer in you is often discouraged by the price tag that comes with buying a car these days, yet Rupeeting wants to shine a green light on your plans!
Strap in and let's create a way for you to sustainably afford your dream car unless it's an Omni - we can’t help you there.
Presenting, Build-A-Fund - Auto Edition, 5 steps into buying yourself a car without going broke.
Step 1: Which Car to Buy? New or Used?
Oftentimes, a secondhand car may do the same work for much less money than a brand-new one would. Automobiles suffer from this problem because their value rapidly depreciates after purchase. Among "wasting assets," they are the worst.
For starters, you should never consider your personal use car an “investment” but rather an expense.
The value of a car drops by 5% the instant it leaves the showroom!
Considering costs, a pre-owned card could seem like a decent idea. However, there are
Used cars will already have lost a lot of value, so they'll be much cheaper. In just a year, nearly 15-30% will be lopped off the price of an automobile
For user cars, there is always a possibility that the upkeep will be higher and the resale value lower
New drivers who are still unsure of their driving habits shouldn't rush out to get a fresh new car
If you decide to finance a used vehicle, you should be aware that the interest rates are typically higher
This decision solely depends on you, but it is important to consider all of the relevant information before making a final decision.
Step 2: What’s My Budget?
Now that you’ve picked your car, here are some not-so-fun aspects to think about:
The on-road price of the car should be factored into any financial plan for the car. Spend no more than half of your annual income on a car as a rule of thumb
If you earn Rs. 24 lakh per annum, you shouldn't be spending more than Rs. 12 lakh on a car
Financing If you decide to take out a loan, keep the 20/4/10 rule in mind
There must be a minimum 20% down payment; loan terms should ideally not exceed 4 years; not more than 10% of monthly income should go towards car loan repayments
Going back to the Rs. 24 lakh per annum income, ideally, you shouldn't be spending more than Rs. 20,000 on EMIs
In short, you would be able to afford a loan of Rs. 8 lakh (assuming 8% interest and a 4 year tenure). If you pay 20% upfront, we’re talking about a budget of Rs. 10 lakh (pretty consistent with the example in point 1)
Step 3: How Do I Plan My Purchase?
Set a Goal: Pick out the vehicle you wish to buy and do the math to see how much you need to save (do this bit right off the bat)
Evaluate Financing Options: Consider whether you will need a longer period to save or you will opt for a loan, as paying in full may take more time, but it's more cost-effective in the long run
Set Up a Separate Account: Having a dedicated savings account or investment fund for your automobile purchases will help you resist the need to use the money for other things
Make it Automatic: Prepare for the purchase of a car by having a set amount of money automatically deducted from your salary and deposited into a fund by your bank or into an investment fund
Boond Boond Se Sagar: Put whatever extra cash you come into, such as birthday presents or work bonus, tax refund, or inheritance money, into your car savings account
Step 4: Where do I Invest?
Now that you have your fuel, we will point you towards the right investment “vehicles” to manifest that car into existence. Your ideal allocation should depend on how far out your goal is. Here is a sample allocation.
Within the next 3 years: 80% liquid or debt, 20% equity
In the next 3-5 years: 50% liquid or debt, 50% equity
After 5 years: 20% liquid or debt, 80% equity
What do we mean by liquid, debt and equity?
Liquid: Bank account, Flexi-fixed deposits, liquid mutual funds
Debt: Debt mutual funds
Equity: Direct stock investing, equity mutual funds, stock baskets (smallcase or WealthDesk)
Step 5: How Much do I Invest?
This largely depends on:
How much money do you need other than what you already have
Minus what you’re picking up from a bank as a loan
How far your goal is
But we’ve got a ready sheet for you to use. Just download, input your requirements and find out how much you need to save! We call dibs on the first ride in your car (just kidding, that's weird).