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What percentage of your savings account should you spend on a car?

Personal Finance
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February 2016

That’s not really a great measure. Consider what percentage of your spendable income you can reasonably spend on a car. Start by getting an idea of all your expenses, list the goals for which you want to save (retirement, etc), and after putting aside what you need for those goals and other necessary spending - what’s left may - may - be available to use for paying for a car. This applies whether you finance the car (and thus figure out what level of payment you can make) — or you pay cash for the car (in which case, you need to then start a new program of saving towards the next one — so you still should be thinking in terms of how much, on a monthly basis, you can afford to put towards the car).

If you are paying for it out of cash savings, make sure you leave enough in your savings for your day-to-day spending needs (we usually recommend 1-2 months total cost of living in one’s everyday checking account) — plus enough cash to keep your emergency fund adequate (usually in a regular FDIC insured savings account, and typically anywhere from 3 to 12 months total cost of living depending on a variety of criteria (one earner vs. two earner, regular employment vs. self-employment, general job stability, etc)).

February 2016
March 2016