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Ask Dave

How to Manage a Car Allowance

Dave gives Bob three things to look for in choosing a car with the $500 monthly car allowance from his employer.

QUESTION: Bob is going to get a monthly car allowance of $500 from his new employer and is going to have to buy a car.  He doesn’t think he has enough to pay cash for a car. What should he do?

ANSWER:  What most people do is take on a car payment equal to their car allowance.  You’re going to be putting a lot of miles on this car and the value is going to drop significantly.  What you need to do is limit the overhead because whether you buy a $50,000 car or a $5,000 car, it’s not going to be worth anything by the time you’re done with it. 

You need to buy the least amount of car to get the job done.  That means:
  1. It has a reasonable level of credibility.  You can’t drive up to sales appointments in a beater.
  2. It has a reasonable level of comfort.  You can’t drive a $1,000 car and spend the rest of your time in the chiropractor’s office.
  3. It has a reasonable level of reliability. 
You should start with a 1998 Ford Taurus, or something like that, and run the wheels off of it.  Then bank the car allowance and sell the car for a little money when you’re done.