How Much Should You Spend On
An Important Investment
Buying a car is the second-biggest buying decision after a home. While it’s ok to invest in a quality vehicle, over-stretching your budget can cause more harm than good, financially.
The Thumb Rule
The thumb rule when it comes to purchasing a car is this: don’t spend more than half your annual household salary on your car.
Cars are depreciating assets, and over 5 years, its value drops to less than half (45%) of the buying price.
Car Loans: 20 / 4 / 10
If you’re taking out a loan for your car, follow the 20/4/10 rule. Make a down payment of 20% of the car price.
Take a loan of not more than 4 years.
Keep your car payment to 10% of your salary, including EMIs and insurance.
Buy A Used Car
Inadequate public transport is one of the reasons people buy cars in the first place. If you’re on a tight budget, consider buying a second-hand car - it will be 30%-40% cheaper than a new one.
Ensure you set aside more than your car EMIs (at least 10% of your income), in the form of savings. If not, consider delaying your car purchase till your financial situation improves.
Make Sure You Have Savings
Spend only what is necessary and make sure it is not more than 6 months of your salary. Stretching your budget means you incur a significant opportunity cost.
Mutual Fund investments are subject to market risks, read all scheme related documents carefully.