20/4/10 Rule of Buying A Car – How Much Car Can YOU Afford?

20/4/10 Rule of Buying A Car – How Much Car Can YOU Afford?


If you’ve seen my paid CASH for my dream car
video you know that I love paying cash for cars I think that is the best option
out there but if that option is not suitable for you if you are not able to
do it this is the option that I recommend – and I’ve gotten lots of
questions about what is the other ways to do it other than paying cash so if
you must finance a car a 2410 rule is the way to do it hey friends all going
to freedom in a budget today we’re going to talk about the 2410 rule of buying a
car I’m going to break it all down I’m gonna give you some tips and make sure
you stay to the end because I’m going to give you some car buying tips as well so
if you’re new to the channel welcome my name is Kelly and my channel is all
about living life well on a budget and a budget doesn’t be constricting no gives
you freedom freedom to buy cars and do a fun at things with your money so I’m
sure you can tell by the title the 2410 rule of buying a car is broken down into
three parts part number one is 20% down so much like buying a home you want to
be able to put 20% down for the car number 4 is only having a four year long
alone so making sure that your loan is only 48 months no longer than 48 months
and the ten part is only having 10% of your take-home pay being related to car
stuff so your car payment which is what we’re going to talk about near gas your
car insurance your car maintenance sinking fund all of that needs to be
within 10% of your take-home pay so we’re gonna run through some scenarios
we’re gonna run the numbers and I’m going to show you how this all works
we’re gonna run at two scenarios right now okay so we are ready to buy a car
our car is going to be twenty thousand dollars and the car is about two to
three years old so it is a not a brand new car but it’s not a fifteen year old
car so about twenty thousand dollars couple years old and we’re gonna run it
in two different scenarios and we’re going to compare the numbers see how it
this is going to be the better way to do it so the first one is going to be no
money we are not gonna put a down payment on
it our interest rate is gonna be four and a half percent and we’re gonna take
out the loan for 60 months so it’s gonna be a five-year loan for 60 months the
total monthly payment for this car including interest including everything
is going to be three hundred seventy three dollars and the total for the car
total after everything is paid and done it’s going to be twenty two thousand
three hundred seventy two dollars so if you remember we were paying the car
itself is twenty thousand dollars and we’re gonna end up being at $22,000 so
definitely it’s an increase two thousand three hundred seventy two dollars extra
they were paying because of this loan that we’re taking out the five years the
four and a half percent the zero percent down okay so that is scenario one now
we’re going to move over to scenario two so scenario two is the same twenty
thousand dollar car so for this one we’re gonna follow the twenty rule so
the first part of the twenty four ten twenty percent down which would equal
four thousand dollars so now our loan amount isn’t the twenty thousand dollars
it’s now going to be sixteen thousand dollars so we’re actually gonna take out
on the on the car we’re gonna have the same exact interest rate so everything
is going to stay the same a four and a half percent interest and then we’re
only gonna take it out for four years so we’re gonna do forty eight months and
worth versus the full sixty months like before so with this our payment is going
to be three hundred sixty-five dollars with the total payment of twenty one
thousand five hundred thirteen dollars and we’re new paying it off a full year
sooner which is awesome so comment down below what would you do with an extra
three hundred sixty five dollars a month for a full year would you invest it with
you go out for some fancy dinners would you go on some more vacations would you
upgrade something else and you’re like what would you do with an extra three
hundred and sixty-five dollars let me know next part is the ten so this
payment the three sixty five plus everything else your car maintenance
your gas your car insurance should all equal ten percent or less of your
take-home monthly pay so scenario let’s say that your income is five thousand
dollars take home a month so that means that you have five hundred dollars to
spend ten percent of five thousand five hundred dollars to spend on your car
so we just said that the car payments is gonna be three hundred sixty-five
dollars so that means that all of your other expenses gas insurance cart main
and sinking fund all has to be one hundred and thirty five dollars or under
so if that is a little tight for you depending on where you are in the
country and how much your car insurance is gonna be and what type of plan you
take out that may be too high for you three hundred sixty five dollars a month
maybe too high of a car payment so staying under that 10% of their
take-home pay that’s gonna be really important that’s gonna make sure that
you’re able to hit other financial goals and stay within your means and not
living outside of your meets that’s that’s gonna be huge next I’m going to
share some car buying tips so first is make sure that you’re buying a car
that’s gonna hold value I just bought a jeep a Jeep Cherokee I love jeeps and
they are cars that really hold their value Honda’s also really hold their
value Toyota’s also really hold their value so making sure that you’re buying
a car that isn’t gonna like just go way down in value also make sure that you’re
buying a used car guys guys guys I cannot stress this enough Jamie it has
always been a new car type of person his family’s always bought new cars and
that’s just the thought process he has but when we broke down the numbers when
we really looked at it and really would we bought my Jeep because we bought a
2016 in 2018 hey have you got a car okay we did 9:30 at night a lot we got my
heart so we’d say deep overland a Cherokee nope okay cache cache and
really wood we bought my Jeep because we bought a 2016 in 2018 and so it’s two
years old and my car still I’ve had it for a year now so now it’s three years
old it still feels like a brand-new car you still get in and there’s one tiny
little thing on the door that someone hit in Walmart last Christmas but with
like the door when they opened their door too hard but besides that tangling
it feels like a brand new car and so when he saw that that you could still
get a car those couple years old and it still feel like a brand new car he was
like ok I see this did you guys know that one month after buying a new car
and taking it off the lot one month it depreciates 10% 10% guys I am just blown
away by that stuff if you have a twenty five thousand dollar car one month after
you purchase it it’s now down to two thousand five hundred dollars what would
you do with an extra $2,500 in a year what would what would you do with that
that is huge guys twenty five hundred dollars just for driving an awful lot
and driving it for a month it is crazy to me absolutely crazy so buy a car
that’s older buy one that someone else is playing the depreciation and not you
all right this is really fun now I’m going to show you how to pay cash for a
car so I get asked lots of questions how you pay cash this is how we are paying
cash for Jamie’s car because we just bought my Jeep and now his car is
getting getting a little old and he is turning a complaint so we are saving
cash for his next car he wants a Tesla I don’t know if it’s gonna happen or not
but this is the process that we’re using so say you buy a $5,000 car year one now
this may be a little bit of a beater car if that’s okay and it is going to get
you from point A to point B it’s doesn’t mean a safe car you can find some really
great safe affordable cars for $5,000 so we are paying cash for this we’re not
doing interest we’re not have down payments cuz we’re paying everything in
cash for this car now you’re – we’re gonna save that same
car payment that we talked about before that $365 month car
Peyman and we’re gonna save that for a full year but instead of paying interest
on it like we used to with our car payments now we’re gonna be gaining our
own interest so it’s not gonna be the high four-and-a-half percent but with
Capital One 360 with their new performance savings account you can get
a really good interest rate of 1.9 percent
so now we’re going to be making like 80 something dollars on this so now after
that first year we’re gonna have four thousand four hundred sixty three
dollars in the bank for that first year all right now we’re going to take it a
step further you’re three we’re gonna do the same thing so after another year so
now we’ve been saving for two years we’re gonna have a total of thirteen
thousand three hundred eighty nine dollars that is crazy all right we’re
gonna keep on going year four we’re still driving the five thousand dollar
car year four we’re gonna have a total of twenty six thousand seven hundred and
seventy nine dollars in the bank twenty six thousand dollars so just four years
later of saving yourself getting your own interest because the Capital One
you’re now able to buy a nicer car than you had before your previous car for the
three hundred sixty five dollar car payment was only twenty thousand dollars
now you’re getting a twenty six thousand dollar car in cash which is amazing guys
this is how it’s so easy to pay for a car in cash to make that change to put
that same amount in the bank you’re already having the mentality of I’ll
always have a car payment that is something that I hear all the time is
I’ll always have a car payment it’s just something that I’ll always have okay so
take that car payment and put it in the bank
and buy your own car and cash in the next video we’re gonna talk about five
habits that are keeping you poor maybe a little tough love but guys it’s gonna be
a game changer five halves that are keeping you poor I’ll see you in that
video

13 comments

  1. Love the video… 6 months of BS2 left for car payment and so afraid if a car purchase putting me back into debt one day. As a former new car only person I am trying to wrap my mind around the idea of used. We keep our cars 20 years so I see value in new but also can see how a 3 year old car is still "new" especially if your keeping it till the wheels fall off!

  2. Resources and videos mentioned:

    🔥I PAID CASH FOR MY DREAM CAR!: https://youtu.be/emTPshfQXAE

    🔥Sign up for a Capital One 360 Checking or Savings account. If you use this link you will receive a $25 bonus!

    https://capital.one/2mbkriq

    🔥BUDGET FOR A $2,000 MONTHLY INCOM: https://youtu.be/zIq9cH8ke2g

  3. One more recommendation, if possible finance through a credit union instead of dealer. Just financed a used car for husband at 3.09% apr. I just finished paid off my car a year early so will be funneling that money to the other car loan to pay it off early. When that's paid we will save some of the freed up money for a car sinking fund to hopefully pay in cash or follow that 20/4/10 rule.

  4. Is the Capital One bank acct FDIC insured and as safe as any other bank to plop money into? Ironically that's my last debt is Capital One car payment.

  5. This was a great video! I bought a new 2013 Honda Accord on Jan 1st, 2013 with a 6 year agreement but I paid it off in 5 years. It is about to be 7 years old in a month and besides some dings on the outside (for me with card this is sort of unavoidable) the car to me seems very new. I absolutely love not having a car payment. However, I think I should be thinking long term for the next car. Maybe in another 3 to 4 years, I may want to buy another car so I should start saving now. Thanks for getting this idea in my head now! We bought my husband’s car 2 years used right after starting the baby steps and that felt great! The only thing is that we are still in baby step 2. Is it okay to start saving for our next car now???

  6. Hubby just bought a new Toyota in September. Paid cash for except for the amount that the dealer let us put an his credit card.
    Bought new because the difference between used and new was $1,500 dollars and 10,000 miles. We would have also had to drive 600 miles to pick the vehicle up.
    Hubby called the deal said he would pay a certain amount. Dealer made the price less than he asked for. He also paid a lot less than Kelly blue book.
    He sold his 13 year old Jeep for above Kelly blue book and within an hour of posting it on craigslist.

  7. Growing up my parents had beater cars that would break down leaving us stranded and as a child that scarred me. When I was able I bought brand new just out of fear. I eventually got out of that new car cycle and bought a 2 year old Corolla. That was in 2008 and it’s still going strong! I gave that to my hubby and I got a 2010 Sienna with 150k miles. It still drives amazing to this day and I’m almost to 200k. 😀

  8. I was raised to buy the most expensive car you can pay cash for, and drive it until the wheels fall off, rinse, repeat.

    I would take that extra money each month and pay off other debts.

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