Sure, a fancy car with all the upgrades sounds nice, but when you take into account the amount of money it will cost you, you might just second guess yourself. Buying a new car is an exciting time in a person’s life. However, you can’t go into the experience with a wishlist of must-haves and a budget that doesn’t match. Many buyers become blinded by the shiny trims, leather upholstery, and high-tech display screens that they begin to lose touch with their main priority: staying within budget. Maintaining a set budget is not easy, but if you keep your monthly car payment within those means, you’ll ultimately make the best deal.
How much should you spend on a car payment?
This answer will obviously differ for everyone, but a good rule of thumb is to keep it under 10% of your monthly income. Whatever you “take-home” each month is the amount you should be considering your car payment budget on. At first, you might be disheartened by this amount. It might seem more limiting than you were originally willing to sacrifice. But there are benefits to keeping costs low, and a car payment is an easy way to do so.
Besides, every driver should keep in mind the 50-30-20 rule when shopping for a new ride. You spend 50% of your take-home pay on living, transportation and food, 30% on travel, wants, and entertainment, and 20% should go directly into your savings. By following this basic rule, you’ll easily align your car payment into your monthly budget. Not to mention, you’ll avoid having to make sacrifices in other ways. For example, not being able to go on your next family vacation.
Don’t forget insurance expenses
The problem with budgeting for a car is there comes along a list of other expenses to consider. Just like a house, buying a car is a major investment. One that includes insurance requirements, repairs and regular maintenance, and gas costs that will add up over your time of ownership. You can’t cut corners on these expenses so it’s important to leave room for these items in your budget. Essentially, drivers should view the car payment and any associated expenses as one item to avoid frustration later on. For instance, when you splurge on a luxury car you’ll understand why the insurance costs will be a pretty penny as well.
Balance is key
You can shoot for the starts when it comes to buying a car, but this doesn’t mean you’ll end up on the right side of a deal. Although its not as fun as walking into a dealership and setting your sights on any vehicle you like, budgeting is an important way to save money both on your deal and in the future. We recommend keeping things realistic, especially during the early stages of car ownership. Once you find a car that meets your needs, you’ll reap the benefits of saving and staying within budget each month.
Who knows, maybe you’ll have more time to travel or take up a new hobby. Definitely better than overspending on an item that is already costing enough to your lifestyle.