How Much Should You Spend on a Car Based on Your Salary?

Cars are useful assets. Unfortunately, they’re depreciating assets. Their decrease in value kicks in the moment you drive them off the dealership, and in three to five years, they are likely to be worth half of what you paid for them. With that in mind, you need to make sure that every peso you put into buying a car is worth spending.

The true cost of a car purchase

If you’re like most people, then buying a car is one of the biggest single expense you’ll ever pay for in your whole life. And as anything in this world, quality doesn’t come cheap in a car, so you’re probably going to have to pay a pretty penny if you want a good vehicle that provides you with reliable comfort and can serve you well for years to come.

With that in mind, know that when you buy a car, you're not just paying for the vehicle alone. The price tag comes with a lot of extras, including service fees (documentation fee, processing fee, license and registration fee etc.) taxes, and insurance, among many others. And that's not all the car spending you have to worry about. Once the car is in your name, you'll also have to pay for fuel, maintenance, parking fees, and more. So while owning a car offers a whole world of convenience, it also comes with a lot of financial burden, both now and in the future. You need to factor in all these extended expenditures when you're thinking of buying a car.

So how much should you actually pay?

The exact amount that you should spend on a car depends on a lot of factors, but none are as important as how much you earn in a month. Generally speaking though, the best answer to how much you should pay for a car is: as little as you can manage.

The good news is that there's a one-size-fits-all rule when it comes to car buying--never let your car spend exceed 35 percent of your annual income. If you're a PHP300,000 annual earner, this gives you a budget of P105,000. That’s not a lot, but it’s definitely enough to fetch you a decently serviceable used car.

On the other hand, someone who takes home more than a million a year has PHP350,000 to spend on the car annually. Spread that amount to a five-year loan, then theoretically speaking, that person can afford a mid-luxury car around the PHP1.75 million ballpark. Keep in mind that this number does not yet account for the additional expenses discussed above.

How to buy a car without breaking your budget

If you're planning to buy a car, know that you can make it happen even if your finances are not that ideal. If you browse through the Carmudi website before visiting a dealership, you'll have a good idea of what certain car brands of particular models and years will cost. From there, you can set a car buying goal and find ways to curb your spending habits and save as much money as you can.

Once you find a car that fits your needs and budget, you can save money further by waiting for discount and promos, or by negotiating with the salesperson (or owner, if you're buying a pre-loved car). Other ways to reduce your cash out is to reject or challenge certain additions to your purchase that you might not really need, such as window tinting, car alarm, or whatnot. It's also in your best interest to visit at least three dealerships/sellers and shop around and to see which one is offering the best deal and value for the car you're looking at.