How a Financial Planner Buys A Car

By John Owens, CFP®, EA, ECA, CPWA®

For the first time in nearly 5 years, I recently found myself in the market for a new car. Last spring (the day before tax day nonetheless), I was rear-ended on my way to the beach - and my 2017 Toyota Corolla was totaled. Thankfully I walked away with not much more than a sore arm and a decision to make - what was I going to buy next?

My car shopping hunt took a bit of a hiatus as I spent the last few months in Brooklyn - one the most hellish places on earth to own a car, but as my city days were winding down, it was time to start car shopping again. Aside from a house or a significant renovation, a car can be one of the most substantial tangible purchases we make - so I thought I’d share my experience and thought process. 

First, a little bit of context. This is probably the first time in my life that I have some flexibility in what I buy. I’ve had 3 cars so far. All sedans. I started out in high school and college with a 2001 Saturn L100 (they don’t even make Saturn’s anymore!). I then moved on to a 2008 Corolla that got me through some internships and the first few years of my working career until an unfortunate collision with a deer. Finally, I bought my first, non-hand-me-down car in Spring 2017 - the Corolla that met its maker in 2021. That Corolla was great, but at the time I purchased it, it was just about all I could afford - a car was a necessity and a tool, and I just needed one that could shuttle me around Ann Arbor, and save me some money on gas when I visited family in Pennsylvania.

Now, thankfully, I’m at a point in my career where I don’t actually have to purchase the lowest-cost compact sedan - which I’m quite thankful for, but it also means I have some decisions to make. Let’s talk about how I made them! 

How much car can I afford?

Monthly Payment

The first thing I needed to figure out - before I made my list of cars and began my research, was what my budget was. While I have more flexibility than I had just out of college, you also won’t find me ordering a Tesla or a new, custom Ford Bronco anytime soon. 

Since I’m buying this car in conjunction with another move, I had to re-do my entire budget to figure this out. For some context, I try to follow a budget methodology of ⅓, ⅓, ⅓. It goes something like this - ⅓ of my gross income goes to taxes, ⅓ goes to savings, and ⅓ gets spent. It doesn’t always work out exactly, but I’ve been pretty successful with it. 

Long story short, I ran the numbers and concluded that I wanted to keep my car loan payment under $450/mo. And I budgeted reasonably for some insurance and gas costs on top of that. 

Financing

Once I knew what I could afford to spend each month, I went and looked at financing options. Whether I financed through the dealer, one of the credit unions I bank with, or somewhere else doesn’t matter just yet. I’m only looking to figure out what rates and terms look like.

I do most of my banking through two credit unions in Pennsylvania where I grew up - they offer pretty competitive rates and the best deal I could find was 2.9% on a 72-month loan. My last car was financed for 5-years, but interest rates are pretty low and cash flow is important to me, so I’m comfortable with the 6-year term. 

When I’m shopping for cars, I now know a few key items - my monthly payment max, my loan term, and my likely interest rate. 

Down Payment

Finally, I had to consider how much I was willing to put down. Last time I bought a car, cash flow was a bit tighter, so I had to put quite a bit down to get the payment in a reasonable spot. Now, I’m more concerned about optimizing for interest rates and am going to aim to put up to $2,000 down - but the less, the better. (Note: remember that cars depreciate when you drive them off the lot, so if you’re going to take this approach, you likely want to get Gap Insurance. Gap insurance helps pay off your car if it’s totaled and you owe more than its worth. Some dealers sell this, but it’s often cheaper to buy through your car insurance company).

The Calculation!

With this information in hand, I broke out my calculator. I knew that I could borrow at 2.9% for 72 months, pay up to $450/mo, and put upto $2,000 down. I’ll spare you the rest of the math but it basically works out that I could borrow up to $29,700, plus my $2,000 down payment, meaning the most I could pay to stay in budget was $31,700 out the door (MSRP, tax, title, tags, mark-up, all of it). Armed with this info - let’s talk cars!

Car Time!

I now had the quantitative information I was looking for to help make this decision. I knew my upper price limit and thankfully, that gave a ton of flexibility in what I could choose - or at least I thought it did. Then I realized I was car shopping during a supply chain crisis, a chip shortage, and after many folks bought a car during the pandemic to escape the city (like our clients!). 

So, the first thing I did was assess my needs and wants for the next car.

Needs were pretty basic - 4-wheels, a roof, decent gas mileage. 

Wants: a little more space, better driving in the snow, more convenience for my bike and kayak, ideally hybrid or electric - if feasible, AWD. 

I quickly could rule out a Ford F-250 quad cab (plus, how the hell do they park those things!) along with a Vespa scooter. I just as quickly ruled in the Corolla - I totaled two of them and thankfully walked away from both - that was enough validation for me.

I built a spreadsheet to track my pick and have shared a sample below. I looked at everything from the Ford Maverick to the Toyota Camry to the Hyundai Tuscan. It matters less what I looked at, and more so how I evaluated the options. 

Consumer Reports has been my go to for many years for all things tires, cars, and other major purchases, so I leaned on them and their reviews in this search as well. I used conditional formatting in my sheet to look at ratings, gas mileage, and monthly payment. And I felt that I narrowed it down to several good options. 

The data will only take you so far, and there’s definitely a divide between theory and practice. For example, the Ford Maverick seems economical in theory, but they were very difficult to find and had large dealer mark-ups. This, combined with the lack of a Consumer Reports rating and it being a brand new model was the kiss of death - ELIMINATED. 

Ditto for the plug-in hybrid Hyundai Tuscan. It was appealing, had a tax credit of $6,500, and could basically do all my in-town driving on its electric motor. But mark-ups, limited availability, and the requirement to finance it through Hyundai made it impractical. 

Now I shop!

Now that I had a list of models I was interested in, I started searching a variety of dealers’ inventory. This was the most frustrating part of the search, nobody would email me back with a quote, I’d get 17 voicemail messages a day, and I still couldn’t get the out-the-door price. I was at my wits end. And when you get to your wits end, it’s sometimes time to go home.

So, after shopping dealers in a 3-state area, I zeroed in on dealers close to family - where I’d be spending the holidays and reached out to them. Two vehicles from my list were arriving soon - a 2022 Hyundai Elentra, and a 2022 Subaru Forester. Both rated well from Consumer Reports, had features I wanted, and appeared to be in my budget at first glance. 

I reached out to both dealers for an out the door quote - tax, tags, title, fees, etc. I needed to see if I could really afford it. Both came back within my budget - with the Elentra being about $5,000 cheaper than the Forester. And both prices, according to Consumer Reports, rated good or great compared to other buyers - I thankfully wasn’t getting hoodwinked - or at least no more than the average person. 

The Decision

I was torn, I could have a low monthly payment and maintain my sedan lifestyle with the Elentra - it also came with one of the longest warranties out there and some maintenance included for the first few years. Or I could graduate from a compact car to a Compact SUV. The Elentra was sportier looking, but the Forester was more practical. I’m at a fun stage in life where I don’t have to think about car seats, a bunch of pets, or even commuting to work. My car will be a tool and spend many days sitting in my parking lot. 

I agonized over the choice for a little bit but then went back to my methodology. Both options were well within my budget - I could even get away with skipping the downpayment, and could satisfy the needs I outlined above. But when I thought about the wants - the Forester won out - I could equip it with a kayak and bike rack, forget the fear that comes from snowy, icy days, and take advantage of the added cargo space. I called up the dealer and made a small deposit to hold the car, which will be arriving in a few weeks. 

When it comes to financing, I’ll go with the best deal - my credit union or the dealer, but I’ll also consider which one has fewer hoops to jump through. For insurance, I’ll shop around and look to bundle it with my renter’s policy - I always check with at least 3 carriers to compare. 

Final Thoughts

So while I may have landed here after much deliberation, I, like AJ and Shane, also settled on buying a green Subaru as well (they have an Outback). The lesson here is not to walk into your local Subaru dealer and say “I’ll take a green one”, but rather to set your budget, assess your needs, shop around, and find a car you can afford. And that’s how a Financial Planner buys a car.