Income + Expenses
The first thing in creating a car buying budget should be to get a income + expense report down to the last dollar.
The only way to truly see how much you should be spending monthly on a car purchase is to determine your monthly and annual net salary as well as everything that is going out towards expenses.
After you have figured out what is coming in, going out and what is left over after savings, retirement etc. you can get to the number that is right for your goals and you current lifestyle.
Vehicle Price / Monthly Payment
I suggest more conservative numbers when analyzing a car purchase and this is because I have seen too many people get themselves in trouble.
So for the suggested vehicle purchase price it should be 20%-30% of your annual income. The monthly payment should be 10%-15% of your monthly income with all vehicle expenses included.
You may be surprised on what you should be spending because I’m sure it is a lot lower than you would figure. Which means most people are driving around in cars that are taking away from the money they could be putting into much more important and fun activities.
These numbers will depend on your financial goals and priorities and it won’t be for everyone.
Monthly Vehicle Costs
Your monthly transportation costs consist of gas, tolls, insurance, washes, maintenance and reserve repair savings. To be sure you are staying on your monthly budget, add all of these costs into your monthly payment and don’t exceed your budgeted amount.
That is how you keep your monthly payment in check and everything accounted for.
Loan Length
You should not have to extend your loan longer than 4 years. The longer you are dragging out the loan the more the car is going to cost you and possibly turn into a negative equity situation. Which means you will owe more on the car than it’s worth. Stick to 4 years and adjust the vehicle year, make, model, miles to get it within budget.
Down Payment
Please put 20% down or have a decent amount on a trade-in to compensate for your down payment or both. This gives you a head start and should get you equity in the vehicle sooner if not right away. If you can’t afford this then you should consider waiting until you have saved enough to put down.
Staying on budget is a difficult task, especially when things are becoming easier and easier to buy with the click of a button.
Look out for yourself and your future with goals and guidelines to keep you in check!
Only you can decide what your money is worth spending on so stay strong on the path to your destination.
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Lori
CEO & Founder
TitleKeyCash.com & Girls Guide to Car Buying
Become A Confident Car Buyer!