Here's a quick point for you ponder as you think through your savings and managing your finances. If you are financing your car, you can't afford it.
This is a real shocker for many Americans because 80-90 percent of new vehicles are financed these days. There are a ton of Americans out there loading up on debt to purchase an asset that depreciates about a third in the first two years after purchase. Car credit is just dumb.
I could throw a bunch of 9th Grade Math at you showing the consequences of buying a new car on credit. I'm not going to bother. Instead, I'm going to give you another image to ponder.
Car Credit - Don't Be The Battery Powering Someone Else's Life
Have you seen the original Matrix? I loved that movie for its creativity and disturbing storyline. Two images stood out in my mind from that movie, one positive, and one negative. The positive image was of Neo Dodging Bullets. Wouldn't that be nice? That's you once you become a financial guru--financially independent, but still hustling and working towards whatever you are most passionate about. But that's not the image I want to focus on in this post. The second was of humans serving as batteries that powered a system in which they were unconsciously exploited.
When you finance a car you can't afford and watch its value plummet while you pay interest to some stranger for years and years and years, you are serving as the financial battery that powers someone else's lifestyle, likely a very wealthy person somewhere. If you take on consumer credit with credit cards, you are serving as this battery even more so. It's sad and pathetic, and a lot of people don't know better or can't discipline themselves enough to get out of this horrendous situation.
Get Hungry And Build Your Financial Buffer ASAP
(Note: there is an exception to the above. If you need to take a loan to buy a used car so that you can get to your place of employment, it goes without saying you have to do this. But most of us can build up the reserves pretty quickly such that this is no longer an issue.)
(Also, see the comment on this post from Credit Cage. There are scenarios where you could choose to finance your car at a super low rate and invest the balance. But this is not for the feint of heart.)