So you’ve just graduated from college and are looking to buy your first car. How exciting! The journey might fill you with anxiety but at the same time your newfound responsibility might be empowering. What are the first steps to getting the keys to your new car? There’s a handful of things that you should consider. As with most things in life, having a plan is half the battle. Affording things after graduation requires coordination between your income, ability to save, and living within your means. Here’s some things you’ll want to consider before you head to the dealership.
Saving the money
This might seem the most obvious but having some money set aside is the best way to afford a car. Do some budgeting and figure out what your monthly expenses are. This includes food, rent, fun, basically anything that you spend money on should be included. Find out how much money you have left over. From that amount you can see how much you can put aside each month towards your new car. Maybe you save a smaller amount for several months or take larger chunks out of your paycheck for only a few months. Regardless you need to take inventory based off of your income and find out what you can afford. Auto loans are always an option and may even be preferable to saving the money on your own if the interest rates are reasonable. With a loan you will pay more but it’s important to look at a loan as a way of exchanging money for time. Some would say that this is invaluable.
If you decide to lease a car this works the same way. Instead of paying upfront for the vehicle you’re just turning these monthly savings into payments. Either way you’re taking some amount out of your paycheck in order to pay for your car. Again these payments might be larger than your savings would be but the interest you’re paying is for the “time” that the bank is giving you for the loan.
Choosing the car itself
Find a car that fits your specific needs. A fancy sports car might feel nice but the costly payments and poor gas mileage can certainly be deal-breakers for some people (especially recent college grads). At the same time it’s ok to buy a car that you enjoy if it’s within your means. The average American spends around 50 minutes a day in their car. You owe it to yourself to be somewhat comfortable (again, as far as you can afford it).
Sometimes people become fixated on certain aspects of cars which actually prevents them from making the best all around decision. This tends to happen with the miles per gallon of a car. A hybrid might have the best MPG by far than any other cars that you are looking at. However maybe you often go camping and need a little more space, or a car that offers 4 wheel drive. Dragging your hybrid out of the mud via tow truck might be inconvenient to do every weekend.
The same idea goes for a certain brand of car. Maybe they have a reputation for being reliable or their commercials always mention a certain warranty. Do your homework on which vehicle and brand fits your needs. Does this specific kind of car have issues in a certain area? Can you afford repairs on this specific car? These are all the questions that you need to be asking yourself. It’s the hidden costs of a car that cost people the most money.
In this same vein, used cars might seem like a perfect opportunity for college graduates. This isn’t always true. Often used cars have hidden costs associated with them. You can always get an inspection of a used car but you won’t have the same security of purchasing a new car. Even if they don’t have any problems that are immediately apparent, a used car has already been driven around in. An engine failure or tail light going out can be right around the corner. However a new car loses something like half its value when you drive it off the lot for the first time. It can be seen as a gamble. Again, you’ll have to do your homework and weigh all the possibilities when deciding new or used.
Hopefully you’ve narrowed down your options. Regardless if you rent or own the car the most important aspect is that you can afford it. Figure out how much you can spend before you even begin looking. This can help prevent you from getting your hopes up. It also helps you narrow your focus. The exercise as a whole can help you with your finances and goal setting in general. Once you become aware of how much you are spending each month you can begin to make changes to improve your situation. Maybe you’re spending too much money in one area and you should be spending it on something else or not at all. Maybe this is motivation to work harder and ask for a raise. Budgeting in general allows you get an inventory for your current situation. From there you can make changes or celebrate how far you’ve come!