Transportation is something most people need to live a quality life. Mass transit systems are helpful but not available everywhere. A vehicle is the easiest way to get around.
Cars, especially new ones, can be expensive. Whether buying or leasing, it is important to set an affordable budget that allows you to get the vehicle you need without straining your finances.
When deciding how much you can afford to spend, there are several factors to consider.
Total Price of the Car
When you start looking at vehicles, for example, a new CDJR for sale, the first thing to consider is the total cost of the purchase. This goes beyond just the sticker price. You also have to factor in fees for the title, registration, and sales tax. Think about the cost of an extended warranty as well.
Additionally, you will have ongoing expenses for insurance, maintenance, repairs, and fuel. There are numerous costs associated with owning a car and they all affect your budget.
Down Payment
Most purchases are made with a down payment and that is an important factor in your budget. It’s best not to borrow for the down payment but to save for it. You may have a trade-in instead or can find a deal with no money down.
Monthly Payments
If you finance or lease a car, you will have monthly payments to make for several years. These payments must be factored into your overall budget. Make sure you can afford them along with your rent or mortgage payment, utilities, food, and other essentials costs.
The 10% Rule
A good rule for thrifty people is to keep the cost of your car purchase at 10% of your income. For example, if you earn $4,000 per month, you would limit your monthly payment to $400. Following this rule lets you buy a car without straining your budget.
Your Current Total Debt
You may already have other debt, such as credit cards, college loans, or a mortgage. You need to carefully consider this when deciding what you can spend on a car. A good rule to follow is the 36% rule. To do this, calculate the total monthly payments of your other loans and debt and subtract them from 36% of your monthly gross income. This is the car payment you can comfortably make. If you have $1,000 in monthly debt payments and your gross income is $5,000 per month, $5,000 times .36 is $1,800. Subtract your $1,000 in debt and you can afford a car payment of $800.
Use an Affordability Calculator
Determining what you can afford can be complex and everyone’s situation is different. Using an online search, you can find one of the many free affordability calculators. Just enter the information required and you will get a range of what you can afford.
Set Your Budget
Having a car makes getting around much easier. Buying and maintaining a car is expensive. Before going car shopping, carefully calculate what you can comfortably afford.
