The most important part of buying a car is determining your budget. How much can you afford? Will you be able to pay in cash? Can you put a down payment? Do you have a stable stream of income to continue paying off what you owe in financing throughout the life of the loan?
Determining how much your car payment should be is a main concern that warrants serious thought. So how do you determine your car payment? Ask yourself these important questions:
Is it commensurate with my current financing setup?
Balancing your debts with your income is vital in determining how much you should allocate for car payment. Don’t get a car that is worth more than you can afford. Consider the upfront fees and the cost of maintenance in addition to the payments you have to dole out every month.
Make a strategic plan of how you divide your income into your needs and your debts. Financial experts say you should at least cap a 50 percent allocation for your basic needs which include housing, food, and transportation. Wants can take 30 percent of your income share, while savings should have at least a 20 percent part.
Does it override my needs?
As has been categorized, your car payment falls into the transportation category under the basic needs umbrella. Owning a car is more than just paying a monthly amount; it means paying for fuel or towing when it breaks down in the middle of nowhere. Consider the total cost of car ownership and factor it in when you do your calculation.
Does it violate the 20 percent rule?
Experts say you should not spend more than 20 percent of your monthly income on car-related expenses. This includes insurance, maintenance, gas, and repairs, among others. Twenty percent is already sufficient to realistically cover the costs of monthly car expenses on average. In fact, you may still have some left in this budget. You can use this remainder as a contingency for future vehicular expenses such as towing or new accessories or part replacements.
Does it cost me too much sacrifice?
Don’t let your debts steal your life. You don’t have to give up your wants for a vehicle, though it never hurts to cut down some costs on entertainment or other expensive hobbies. If you’re used to having fancy dinners twice a week, you can make that twice a month. You can tweak your budget and there are indeed strategic ways to do that. Just remember to keep within your means.
To determine your most viable budget, you must determine:
a) your gross monthly income
b) its 20 percent share
c) your car ownership cost
Do the math and count in the necessary adjustments, then you should be able to arrive at a number that is a feasible representative of a sane and practical car budget.