When it comes to big financial purchases like a new car, it is best to do your research beforehand so you don’t find yourself well over your head on the burden of high-interest payments. Before you even step onto a lot to purchase a new car, you should determine what you can afford month to month. This starts with looking at how much money you are bringing in and how much is currently going out.
Budgeting for Big Purchases
No one likes the word “budget,” because most people think this puts a limitation on what you can do with your money. In an away it does, but keep in mind you are the one in control of your budget. And if you are in need of a new car, then think of it as a way to get you behind that fresh steering wheel without the worry of not being able to afford it.
First, you should see how much you currently make every month. Then take a look at how much is devoted to bills, including the everyday expenses like rent and utilities, monthly payments for credit cards or student loans, and how much you set aside for savings and retirement. Also look at how much you spend on leisure activities and any money you are allocating towards a vacation trip.
For many, doing this for the first time is a reality check. It allows you to see clearly where your money is going and how you can cut back in certain areas so that you can use that cash for something else. Once you have put in the number crunching work, you can then start taking a look at financing.
Shopping for the Right Car
When it comes to purchasing a car, you need to look beyond the window sticker of the vehicle. There are a lot of other expense you have to worry about. Here is a list of some of the other costs that go into a car purchase according to “How Much Car Can You Afford? Understanding the Numbers:”
- Sales tax, registration fees, and documentation fees.
- Dealer-installed options on the vehicle
- Warranties and Protection Plans
- Gas, Maintenance, and Depreciation
All of these fees, the latter of which catch you later down the road, can increase the price of the car significantly. Make sure that you go in ready to deal with the charming car salesman, for they will try to upsell you and get you to purchase warranties that you can probably do without.
When it comes down to it, the traditional rule of thumb for purchasing a car is 20 percent. This means that you should not be spending over 20 percent of your monthly income on a car payment. Naturally, this may seem quite restrictive. However, this is indeed just a rule of thumb, and it can be adjusted. It just might mean you will need to cut some fat elsewhere in your budget to make up for the difference. When it is all said and done, you will be glad that you took the time to determine exactly what you can handle, and what car purchase makes the most sense for your budget.