For most families, only housing costs exceed transportation costs. Unlike most homes, however, brand new automobiles don't appreciate, they depreciate -- as you use 'em up, their value drops. Expect it to cost at least $6,000 per year to drive a new car, according to Wisconsin-based consulting firm Runzheimer International (this figure includes insurance, depreciation expense, maintenance and other typical costs over the first four years or 60,000 miles).
If you are well on your way to a secure financial future, go ahead and splurge on a new car. But if you would use a credit card to make the down payment, as would nearly half of those polled recently by Autoweb.com, you may want to click here to find out about a tried-and-true way to save $2,000 per year on car costs.
Lenders like to see no more than 28 percent of your gross income go toward housing. And they want you to limit total debt payments (credit cards, mortgage, student loans, car payments, etc.) to around 36 percent of gross income. Keep in mind that mortgage interest is tax-deductible, which effectively lowers your housing costs. So if you earn $50,000 and you're paying $1,000 per month on a mortgage, that leaves about $500 per month for all other debts -- including car payments.
Remember that even if lenders think you can afford a new car, that doesn't mean you can buy that new car and put money away to secure your future. Lenders look to get paid back -- they don't particularly care whether you are saving for retirement.
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