Personal finance can be a scary aspect of life. Landing your first job can be exciting, but being sure you can support your current lifestyle is also imperative. Tons of questions may come to mind and knowing what the most cost-effective approach can be a daunting task to figure out on your own.
Everyone wants more money. Everyone also wants all the fancy things and a great home to live in. No doubt about it.
Two of the first things that will be on your radar early in your financial life will be your transportation and living situation. Everyone wants to get out of their parent’s homes, get a car, and start their lives.
However, being more educated about car payments, rent payments, and monthly payments, in general, will help you avoid the pitfall many young adults fall into early in life.
Should I Buy a Car or Rent an Apartment?
Depending on how much money you have on hand and how much you bring in monthly from your first job, you are likely at the point where you are considering two major purchases.
Both a new vehicle and a new apartment are exciting to think about.
Who doesn’t want a new car? However, what many young adults fail to realize is to consider all options.
Young adults tend to rush things a bit and get too excited to see the entire picture and the impact it may have later after the purchase.
It is a common mistake with individuals purchasing a car; a mistake that could be tying themselves to payments for 48, 60, 72, or even 84 months.
That is a long time to stay as excited as you were the day you took the vehicle home and off the lot.
It is a common mistake with most first-time apartment renters.
A used car could be more beneficial for your finances or even public transportation, depending on where you live.
You will reach points in life where the financial decisions get more exciting, but also begin carrying more risks, such as first-time home buyers.
This is your chance to start a financial path with a good and informed decision right out of the gates.
With the power of the internet in today’s world and the vast amount of information at your fingertips, excuses do not exist for not considering all options with your finances.
Our goal in this discussion is not to sway you in one direction or the other. The goal is to illustrate some factors you may not have considered.
This can help you make the decision that will make the most sense not only now, but a few years into the future.
Let’s dive into it!
Choosing Whether a Car or Apartment Makes the Most Sense for You
The first thing that should be considered is your current cash flow situation.
It is as simple as asking yourself questions such as the following:
- Are you going to pay cash for the car?
- Are you going to purchase used or new?
- Is your credit strong enough to gain financing for a car for the portion of money not paid?
- How much cash do you have?
Do you see where this is going?
Most young adults get tunnel vision the first job they land, paying 50, 60, or even $70,000.00 per year.
Considering All Costs and Having Enough Money
Both apartments and cars come with costs that we often overlook. Especially at the younger ages in life.
With cars, you have financing charges if you use credit instead of cash. You will also have sales tax on the vehicle itself, need to pay for stickers and registration, and deal with high gas prices.
This may make some individuals lean towards a car that gets better gas mileage.
On the flip side, apartments also have additional costs.
Shopping and finding an apartment where the costs are as limited as possible is a great approach.
The Forgotten Costs of Renting Your First Apartment
Depending on the location, an apartment can either be a relatively sound and financially savvy move or could be financially damaging. Especially if other costs add up past what allows you to retain free cash flow each month after payments.
Our first piece of advice is to find an apartment that provides maintenance. One of the best parts about renting as opposed to purchasing your first home is having everyday normal wear and tear items taken care of by property management teams. This should be one of the first things you search for.
You also need to understand that moving into an apartment costs money outside the monthly rent.
Moving is expensive by itself. Our guide about expenses when moving into an apartment here will help you understand this.
You also have other considerations and potential expenses, such as renters’ insurance. While this may be optional in some circumstances, most decide it is the best course of action to add a layer of financial protection. Learn if everyone in an apartment needs renter’s insurance here.
Lastly, have you thought about how you will furnish your apartment?
Clearly, the excitement of a new home may be enough for you.
Not for long though. Eventually, you will want your new apartment to feel like home.
Whether you plan to live alone or with someone else may also need to be considered. It may change if you are looking into a big 1–bedroom apartment or 2-bedroom apartment rentals, and if the rent will be capable of splitting into two.
This leads us to our next discussion, the difference in monthly payment you can expect between a car and renting an apartment.
The Difference in Monthly Payments Between Cars and Apartments
Clearly, the car you buy or the apartment you rent is what will ultimately impact your monthly costs.
Outside of rent, all utilities for an apartment are the next most significant monthly expense.
For a car, fuel and insurance are your next two most significant expenses, outside of the vehicle payment.
This may be why it makes the most sense to consider purchasing a used vehicle where insurance may be cheaper, and even look for a vehicle with good gas mileage.
If you are renting, looking for an apartment that may cover a few of your utilities, such as water and garbage pickup, is a good idea; leaving you with only electric and potentially gas bills to pay monthly. Learn how to keep utility bills low in an apartment here.
These can help keep the cost as low as possible, freeing up money for a rainy-day fund, investing, or just living the lifestyle you prefer.
Alternative Options to Consider, Why Not Get Both?
Some of you may be in a situation where you can rent an apartment and get a vehicle, but just don’t realize it.
Maybe you have not looked at the scenario deep enough yet to consider this as a viable approach. Maybe, you need to downgrade a bit on one or the other.
Considering a secondhand car or a car that will ‘get the job done’ and give you your dream apartment is one approach.
If you have enough cash to get a reliable car for a couple thousand dollars and can pay the requirements for your apartment, maybe you could remain with only one monthly bill and get the necessary transportation you want and desire.
On the flip side, maybe you should consider an apartment near somewhere with cheap and reliable public transportation. Most areas or cities have this available. If it is easy or doable, maybe you don’t need a car to worry about. No tires to rotate, no costly repairs, and no additional monthly bills.
While we are not saying this is the approach you should take, we are stating that you should be considering options like this.
It is also important to realize that 99/100 vehicles will be an asset that depreciates in value.
Again, it is easy to understand the fun factor involved with purchasing a car after getting a series of your first real paychecks at your first real job. It is an exciting time for everyone in that position. However, if 2020-2022 has taught us anything as a consumer, the countries and workforce’s financial situation can change in the blink of an eye.
While you should not try to avoid some of the most traditional exciting purchases in most young adults’ lives, it is essential in this era to be financially savvy, prepared, and invested in your future.
We did not want this discussion geared towards flashing monthly averages for car purchasing or apartment renting. Averages are just averages; some higher and some below. That does not mean it applies to you.
Everyone is different and has unique circumstances and desires that will differ from the person sitting next to you. Some of you may be fully tunnel visioned on a vehicle, and others may be fully engaged in your first apartment search.
Instead, we wanted to present simple ideas that could potentially impact your decision on purchasing a car or renting an apartment with your available funds in a positive way.