An expensive purchase like a new car requires careful consideration to help keep costs within reach. But it doesn’t have to be out of reach if planned carefully. Budgeting for a new car involves taking into account all costs related to ownership – from purchase price, financing fees and maintenance fees, insurance premiums, and fuel. By considering all these aspects, you can make an informed decision on what car will best meet your needs.
1. Know What You Can Afford
An automobile purchase can be an enormous financial undertaking, so you must understand how much of an expenditure your budget allows for. One approach is using a car affordability calculator, while another option involves subtracting expenses like rent, bills, food, savings, and discretionary spending from your net income and deducting them to find out your monthly car payment amount. Be sure to factor in additional costs like insurance maintenance and fuel.
2. Set a Price Range
Shopping for a car requires having a clear understanding of your finances. Begin by subtracting other monthly expenses from your take-home pay and then adding it all back up again. Financial experts suggest spending no more than 10% of your income on car-related expenses, such as loan payments and fuel. Be wary of dealer add-ons such as tire protection plans, anti-theft features, and infotainment upgrades as these extras may significantly drive up the purchase price. Also, keep registration fees and taxes in mind as well as costs related to insurance and maintenance when planning for vehicle ownership.
3. Compare Cars
When choosing between cars, several key considerations must be kept in mind, including safety, fuel economy, and maintenance costs. Otherwise, over time these costs could wreak havoc with your budget. Decide whether you prefer new or used cars when making this decision, each with its benefits and drawbacks. A new car comes with warranties and the latest features; whereas used cars tend to be more affordable but may need additional maintenance costs in the form of repairs and upkeep. You could even go the cash route, giving immediate ownership but requiring significant savings upfront.
4. Make a Down Payment
An early and substantial down payment can help lower monthly payments while qualifying for better interest rates. To determine how much of your income you can devote towards buying a car, start by looking at your monthly take-home pay and subtracting all expenses, such as gas and maintenance costs. Save for a down payment by cutting back on expenses or taking on side hustles; or increase your credit score so you can secure a better interest rate.
5. Pay Attention to Additional Expenses
Purchase of a car can be a significant financial commitment; when creating your budget for ownership of one it’s essential to include expenses related to insurance, fuel consumption, maintenance, and registration costs as part of this expense. Additionally, consider setting aside funds in case of unexpected repairs or car insurance premium increases that you know will occur, helping keep transportation costs within 20% of your take-home pay and avoid going over budget. GreenPath Financial Counselors can assist in creating a personalized car budget plan.
6. Stick to a Monthly Budget
Cars are essential, yet can be costly to purchase. A careful budget can help you save for the vehicle of your dreams without straining finances. Calculate your net monthly income; this figure represents what remains after taxes and payroll deductions have been deducted. Next, create a list of fixed expenses. These might include rent/mortgage payments, utility bills, student loan repayments, and car payments. Don’t forget about other recurring costs like child care or entertainment as these tend to be areas where you have greater control.
7. Do Your Research
Researching cars and prices can save you money over the long haul. Pricing guides such as Kelley Blue Book and Edmunds make it simple to filter through all the noise and quickly find what a car will cost, while manufacturer incentives or rebates could lower costs further. Pre-approving for a loan can help provide an idea of what your budget and possible interest rates might look like – particularly helpful when purchasing new vehicles.
8. Avoid Overspending
The purchase of a new car can be exciting, yet also represents a major financial decision that needs to be carefully thought through. By planning for budget constraints, you can avoid overspending and make smart choices that meet your financial goals. Experts advise limiting auto expenses to 15% of your monthly take-home pay, which covers vehicle purchase, insurance, gas, and maintenance expenses. Be wary of high-pressure sales tactics and impulse buys to prevent overspending; follow these money-saving tips instead to help save for your dream car!
9. Make a Plan for Maintenance
Car maintenance should be an ongoing expense included in your budget. Otherwise, you risk postponing necessary repairs – which could end up costing you more in the end. Maintenance expenses such as oil changes are easy to account for in your monthly budget, while unexpected repair costs can come out of nowhere and be extremely disruptive. To protect yourself against such costs, it’s wise to set aside money each month in a high-yield savings account so you have some wiggle room when the time comes for more costly repairs.
