Using a budget tracker is always a smart idea, but this useful habit becomes crucial if you’re planning on buying a new car. Between the down payment, monthly payments, fees, insurance, etc. it is simply impossible to figure out exactly how much money you can spend on a car so that you don’t find yourself broke a few months later. Cubux personal budget software helps you keep track of your finances, set savings goals and achieve them effortlessly, plus, you see exactly how much money you spend on what and how much you have left, which is the first step to answering the question “How much car can I afford?”.
What expenses go into buying and owning a car?
Base price: This is the price you normally see in commercials, this is the sticker price you will see at your dealership. Most people look at these prices and choose a car with a sticker price that matches their budget exactly. However, your budget planner should have a lot more car-related expenses to avoid surprises.
Trim, fees and taxes: In real life, the advertised sticker price of a car means that you can get a bare-bones base model in a weird color. Plan to pay at least a thousand dollars more for a good trim and options that greatly increase the driver and passenger experience. Another thing to keep in mind when you calculate the budget is fees and taxes – most states require you to pay a tax and registration fees when you buy a car, plus, dealerships have a whole list of fees. In general, expect the price to increase by about 10% as a result of fees and taxes.
Dealer-installed features: A common way dealers make you pay more for the car is by installing different options, such as alarms or fancy wheels, before putting a car on the floor. The buyer normally doesn’t find out about the additional cost of these features until it’s time to pay, so make sure you ask about that in advance. But keep in mind that these often unnecessary features can eat up a huge chunk of your family budget, so practice smart financial management and look for a vehicle that only has the features you absolutely need.
Protection and warranty: These additional costs are often seen by buyers as a wise investment that can help save money on maintenance in the long run, and sometimes they are, but before you increase the cost of your car by 20% when you buy a warranty, shop around, do your research about the common problems with your future car’s model and read the fine print to make sure the warranty is a good deal.
Cost of ownership of a car: This is how much your car will depreciate every year – some models lose a lot more in price than others, so do your homework when choosing a car.
Operational costs for a car: These costs include gas, insurance, maintenance and repairs. Putting these costs into your personal budget software and actually saving money for when your car needs repairs can save you from lots of problems down the road.
So how much should I spend on a car?
Your overall car costs should be no more than 20% of your monthly income after taxes, as calculated by your Cubux expense tracker. For instance, if you earn $4,000 a month, expect to spend no more than $800 on a car. Say, you’ve calculated that insurance, gas, repairs, etc. add up to $400 a month. This means that you can spend the other $400 on car payments. To calculate roughly how much your monthly payments will be, take the total cost of you car with all the fees described above, subtract your down payment and divide the result by the length of your loan. The resulting amount+interest is your monthly payment.
