Car Buying for New Attending Physicians

If you’re a physician who recently graduated, chances are you’ve been told repeatedly to “live like a resident even as an attending for a few more years.” But that does not change the urge to spend some of your new hard-earned salary. While many young professionals struggle to achieve the perfect balance of saving and also spending the appropriate amount of their income, physicians are faced with massive student debt to take into account as well. As a result, many young physicians find themselves overwhelmed when it comes to organizing a budget to start saving for retirement, repay their student loans, and account for their day-to-day expenses. 

While you may already have a good idea of your financial goals, creating a realistic timeline can help prioritize what is most important to you and stay motivated to save. And if what you’ve been saving for is a new car, here are a few things to consider before you head to the dealership. 

Utilize the 50/30/20 rule.

One way to start saving, either for a down payment or to pay for a new vehicle in cash, is the 50/30/20 rule. We recommend this as a guideline to budgeting your income into three categories:

• 50% of your income should be all of your living expenses such as food, housing, and transportation including your minimum required student loan obligations
• 30% of your income is for saving for retirement, investing, and overall financial goals
• 20% of your income is for spending on your “wants” such as entertainment, travel, shopping, and any supplemental debt repayment to pay it off sooner

So you can factor in the amount a new monthly payment for a car would be into the 50% category, use whatever surplus you may have to start saving up for a down payment or pay in cash. 

Take the cost of insurance into account. 

While the myth of red cars costing more to insure is widely known, the truth is the color of your car doesn’t determine your insurance rates. What does factor in is the make, model, and any extra expenses you may pour into your vehicle. So, if you splurge on a paint job or additional features, the insurance companies have to account for the increased cost of repairs. 

Here is a full list of what to keep in mind when it comes to insurance rates: 

• Type of car you drive
• Number of miles on your car
• Your driving record
• Where you live
• Your age
• Your gender
• Credit history
• Relationship status
• Coverage and deductibles
• Insurance claims history
• Previous insurance

Factor in any additional expenses.

Don’t forget to budget additional expenses that come with a car like gas, repairs, and maintenance. Building an emergency fund of about $10,000 can help you cover the cost of any unexpected repairs you may need. Keep your car payments around 10-15% of your monthly income (if you don’t pay for it outright) but expect to pay around 5% on additional car expenses. 

By using the 50/30/20 rule, you can calculate what type of monthly payment you can afford or if it’s a better option for you to buy a car outright instead. 

Avoid going into more debt.

It’s tempting to consider only the monthly expenses of a vehicle versus the total cost, but if you’re already in debt it may not be best to seek more, especially when offered a high interest rate. On the other hand, if you are able to secure a super low rate, talk with your financial advisor to determine if what you can earn on your investments warrants you taking on the car loan instead. While a monthly car payment may not break the bank it is one more monthly expense keeping you from becoming debt-free and investing more in your future.