The True Way of Determining How Much Car You Can Afford
Investing in a car and spending money on a car is not the same thing, and the old way of determining your ability to afford a car based on a car payment are long gone. When seeking out your next luxury or exotic car, you may want to rethink buying a car and instead focus on investing in a car. The idea of an investment is that you get your money back versus spending your money in the typical sense of car buying.
Conventionally, you should look at your monthly payment cost and factor in what percentage of your income is tied into your car. In most cases, a reasonable car buyer would allocate about 10-15% of their income into a car note, but would hardly have any fun doing it. Those with better taste typically would go from 20-30%, and those crazy enthusiasts would be willing to spend 50%.
None of these, no matter how crazy, were considered a good investment by any means, and instead were a complete loss as we, as a society, have always acknowledged that cars are a huge depreciating asset. That is until the introduction of Exotic Car Hacks, where we understand how to turn these same liabilities into assets.
Using our new strategy of investing instead of spending, the rules change quite a bit as we no longer use the same monthly methodology. Instead, we focus on the real loss rather than the perceived affordability based on a payment. While the conventional car buying strategy of putting money down and using a bank loan can apply and monthly payments may come into the equation, the true cost of ownership divided into the months of ownership will determine the real monthly affordability.
If I buy a car that costs $150K and get a loan that costs me $2,000 a month, then in 10 months I have spent $20,000 of my actual money on the car. In this case, what if the car I bought at $150K is sold 2 years later for $145K? Then my real loss over 24 months is $5,000.
Now, if we divide that same $5,000 into the 24 months, then my real cost of ownership is $208 a month for a $150K car. This is the essence of Exotic Car Hacks; it teaches you where to find such cars, how to buy them, and how to sell them when you are bored to recoup your money.
While in this case we are paying $2,000 a month, only about $200 of that is going to interest while the rest is going to the car’s principle loan balance. So at the time of sale you are only getting back your own money, which is why we consider this an investment rather than a liability.
While your car payment still matters as you have to be able to afford the payment itself for a set duration of time, there is no longer a need to consider the payment as a factor in which you decide if you can indeed afford the right car or not. It now becomes, as it should have always been, a matter of calculating the true cost of ownership and then dividing it in to the months of ownership.
But keep in mind that this also gives you a significant opportunity to not be stuck for more than 2 years in the same car; allowing you to buy more cars, spend less, and play more.