How Much Car Can I Afford? Tim Gosnell's 4 Stages of Car Buying
There's something magical about driving off the lot in a new car—the gleaming paint, the pristine interior, that fresh, new-car smell, and the excitement of a fun drive ahead.
But all too often, the day that first payment is due, reality sets in. Hard.
Month after month, you watch hundreds of dollars leave your bank account, wondering whether the thrill was really worth it—and if it's quietly stealing from your dreams of a secure financial future.
You're being robbed
I’ve heard the story countless times: someone commits to a high car payment, but at the same time finds themselves struggling to save for retirement, build an emergency fund, or make any real financial progress.
The average monthly car payment is now hovering around $737 for new vehicles and $520 for used ones. That money could be going to paying down debt, building an emergency fund, or saving for retirement. But instead, it’s going toward something that lost 10% of it's value as soon as it drove off the lot.
This is how car payments are steeling from your future financial security. Each payment chips away at your income making it that much more difficult to build the life you’re trying to create for yourself—a life of fewer worries and more financial freedom.
But Tim, I need a car!
Yeah, you need a car. But needing a car doesn’t mean splurging on a brand‑new or top‑trim model full of bells and whistles. A well‑maintained, modestly priced used vehicle will still get you everywhere you need to go without gutting your budget.
Be honest: how many times have you heard (or said) “I’m paying extra because this model is safer” or “I need the reliability of something brand‑new”? Safety and reliability absolutely matter, but they’re also an easy excuses for overspending. Nearly every mainstream car built in the last decade earns solid crash‑test ratings and will run well past 150,000 miles with routine maintenance.
Don’t let clever marketing—or your own anxiety—convince you that an extra $200 a month is the only path to peace of mind. Buy what you can comfortably afford, invest the difference, and arrive just as safely.
What Is Affordable Anyway?
When you speak with talk with your bank or get pre-approved for a car loan, “affordable” usually means you have a certain minimum credit score and income to manage the monthly payment. Lenders focus on whether you can make those payments on time—not whether this will squeeze your monthly income and keep you from building your emergency savings or contributions to your 401k or Roth IRA. Their primary concern is your ability to repay the loan.
For me, “affordable” means being able to make your monthly payments AND be able to make progress on your financial goals—like paying off debt, building an emergency fund, or saving for retirement.
It’s not just about scraping by each month; it’s about safeguarding your ability to create financial future with freedom and flexibility, ensuring that a car payment doesn’t undermine your long-term stability.
In this post, we’ll break down my four stages of car buying that help you avoid these pitfalls, limit financial risk, and ensure the car you drive aligns with the future you want to build.
Stage 1: The Granny Car
A “granny car” is what your sweet grandma or grandpa might have used almost exclusively to go to the grocery store. It's been well maintain and hasn't been on long road trips or even used for daily commuting. Picture an old sedan with low mileage, a glove compartment stuffed with every service receipt, and maybe even a hand written log in old person script, with dates and details all the vehicles maintenance.
For this stage it’s all about reliability and gentle use rather than design or status. You want to spend as little as you can to get a dependable vehicle. It won't turn heads, but it also won’t break the bank—making it perfect for anyone who needs solid transportation at a great value.
You're in this stage when
This stage is for anyone still carrying high-interest debt (debt with interest of 10% or higher) or have a balance on your credit cards. Think of it as a no-frills, dependable vehicle that won’t drain your resources or distract you from paying off the most costly debt.
Focusing on a modest, essential ride ensures you’re covering your true needs—getting from point A to point B—without turning a car into a financial burden. Once you start eyeing newer, nicer vehicles, you’ve moved from meeting a need to chasing a want, which can slow your progress toward financial security.
Characteristics of The Granny Car
Well-maintained: Look for cars that have been cared for with regular maintenance logs, ideally from an older couple or family member.
Lower miles: These cars often have fewer miles because they haven’t been driven much.
Dependable: The focus here is on reliability over flashiness. You want a car that will serve its purpose for years to come.
Financing
My suggested guidelines for a car loan are straightforward:
Keep the payment below 10% of your take-home pay
Limit the length of the loan to three years (36 months) or less
Pro Tip: Some brands that tend to be a good balance of cost and dependability are Toyota, Honda, and Mazda. But granny cars can come in all makes and models. I just recommend checking out the reliability ratings for the specific make, model, and year you are looking at.
Stage 2: A Car You Like
Once you've paid off your high-interest debt, you’re ready for the car you like stage. At this point, you can start thinking about getting a vehicle that you actually enjoy driving, while still being mindful of your budget.
You have entered this stage when you’ve eliminated any high-interest debt and are building towards financial stability. You still may have other debts, like student loans or a mortgage, but you’re no longer burdened by the most costly and desctructive form of borrowing.
You've reached this stage when
This stage is for anyone who has paid off all of their high interest debt and credit cards and has a fully funded emergency fund, but may still have other lower interest debt (auto loans, student loans, mortgage, etc).
Characteristics of A Car You Like
At this stage, you can begin considering more specific makes and models with the exception of luxury brands don’t go overboard on luxury cars or new vehicles.
Vehicles to avoid at this stage:
Cars new than 5 years
Luxury branbds
Financing
My recomendations for the auto loan for this stage is the same as the last:
Keep the payment below 10% of your take-home pay
Limit the length of the loan to three years (36 months) or less
Stage 3: A Car You Love
The next advanced stage is when all of your debt is paid off except for your house, and you’re able to pay cash for a car. This is the car you love stage.
Characteristics of the Car You Love:
No debt: You’ve paid off all your consumer debt (credit cards, student loans, etc.).
Cash purchase: Instead of financing, you pay for the car in full with cash.
High-quality or brand-new car: At this stage, you’re financially secure enough to afford a newer or higher-end car, without sacrificing your future financial stability.
Why this Stage is Important:
At this point, your financial situation is strong. Without monthly car payments or high-interest debt, you have more freedom to save, invest, and build wealth. Paying cash for your car allows you to avoid the burden of loans and interest payments altogether.
Tip: Although it might feel like a dream, buying a car with cash is achievable. To get there, you need to work on paying down other debts and saving consistently for the vehicle you want.
Stage 4: The Dream Car
For some people, owning a truly exotic or high-end luxury vehicle might be a dream. This stage is about buying the car that you’ve always dreamed of — the kind that turns heads and makes a statement wherever you go.
For me it would be a fully restored 1960's era Ford Bronco, like one of these from Classic Ford Broncos that average well over $200,000: https://classicfordbroncos.com
Characteristics of the Dream Car:
Exotic or top-tier luxury brand: Think premium marques, sports cars, or fully-loaded SUVs that go above and beyond a typical “nice” car.
Substantial financial buffer: You have a strong emergency fund, solid retirement savings, and plenty of disposable income.
Minimal financial compromise: Purchasing or financing this vehicle does not derail your other financial goals.
When to Move to the Dream Car Stage:
Retirement savings are well-established: You’re consistently contributing enough to be on track for retirement.
No high-interest debt: You’ve eliminated all debts other than potentially a mortgage, which you can comfortably manage.
Large discretionary income: You have enough extra cash flow each month to absorb the substantial cost of a dream car without sacrificing your lifestyle or savings goals.
Long-term financial plans in place: Buying this car should not compromise long-term goals like children’s education, real estate investments, or other major financial milestones.
Conclusion: Creating Financial Margin with Smart Car Buying
When buying a car, it’s important to consider your financial future. By following these four stages — the granny car stage, the car you like stage, the car you love stage, and the dream car stage — you’ll create a step-by-step roadmap to guide your purchases responsibly. The key is to keep payments (if any) manageable, avoid unnecessary debt, and maintain focus on long-term financial health.
A reliable, affordable car will serve you well at the beginning of your financial journey, but if you progress wisely, you can eventually reach that dream ride. Throughout each stage, prioritize building an emergency fund, investing for retirement, and setting future savings goals.
By making smart car-buying decisions, you’ll create more flexibility in your financial life, reduce stress, and improve your chances of achieving financial freedom — all while setting yourself up for your dream car, when the time is right.
Start making better car-buying decisions today, and your future self will thank you!
