Buying Your First Car
How Much Car Can You Afford?
Create your own personal auto budget! Too many people start shopping for a car without knowing how much they can really afford to spend. Follow these steps to create a budget that will make sure you have enough money to pay for your car—while leaving enough for the other fun things in your life.
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Many adults make the mistake of only thinking about the monthly loan payment. In fact, there are two big things to consider when creating your auto budget. You need a plan to deal with the loan payment and the added expenses of gas, maintenance, repairs and insurance.
Determine your regular monthly income and non-regular monthly income.
- Regular monthly income is money you can count on earning/receiving every single month.
- Non-regular income is money that you receive or earn occasionally.
Here are some sources of regular and non-regular income that you may have.
Exactly how much do you bring home each month from a steady job? If your hours are consistent, count it as regular monthly income. If your hours change from month to month, record the amount you expect to receive most often.
Important tip! If your income varies, be sure to set aside some of the funds you earn in the higher-income months. This will give you a cushion to meet your car expenses in months that you earn less than usual.
If your allowance will continue for the long term (as long as your car payment — say 2 - 4 years), record it as regular monthly income. If you only receive an allowance sporadically, record it as non-regular income.
Your Odd Jobs
Do you take on occasional odd jobs like babysitting or mowing lawns? These jobs typically come from neighbors and friends — not employers. Unless you can rely on receiving a specific amount every single month, these jobs usually produce non-regular income.
Holidays and Birthdays
Holidays and birthdays don’t happen every day and are considered non-regular income.
Take a look at your current personal spending habits. Do be honest with yourself and list what you spend now. You’ll have an opportunity in a moment to think about ways to cut spending.
How much do you spend each month for the following items?
- Meals Out – (Breakfast or lunch on school days? Weekly dinner with friends? Also include trips to coffee and ice cream shops, etc.)
- Transportation (Current expenses you expect to have even after your car purchase. Do not estimate future car expenses here.)
Important tip! You may have a regular expense that does not occur every single month. For example: You go clothes shopping with a friend every other month and spend $100. You would record your monthly clothing expense as $50.
If you’re like most of us, you’re probably spending more than you thought! Now take a few minutes to consider ways to cut back current spending. Don’t be too hard on yourself. It’s not realistic to deprive yourself of all life’s little pleasures.
Example: If you currently spend $5, five days a week for lunch, you could save $100 per month by bringing a lunch from home. That could go a long way toward your auto expenses!
Estimate your monthly auto expenses for: gas, insurance, maintenance and repairs
Estimate the number of miles you plan to drive each month and the average gas mileage for the type of car you want.
Example: You plan to drive 10 miles per day to work, school and recreational activities. That’s about 300 miles per month (10 miles X 30 days).
If your car gets 20 miles per gallon you’ll need about 15 gallons of gas per month.
If gas is $3.00 per gallon, you’ll need around $45 per month for gas. (15 gallons used X $3.00 = $45)
Insurance for teen drivers is often very expensive, but it’s illegal to drive without it. Cost will vary widely depending on your parents’ policy. Many insurance companies give discounts to students who maintain good grades.
Important tip! Consult your insurance agent before making a final buying decision. Everyone assumes the red sports car will cost more, but sometimes the most popular cars cost just as much. Once you’ve bought it you’ll have to insure it—no matter how much it costs.
Maintenance and Repairs
- Plan on allotting at least $20 per month for maintenance and repairs.
- Your car will need an oil change every 3000 miles as well as other fluids replenished periodically. It will also need washes, tune-ups, tires and other repairs.
- For months in which you don’t use the $20 (or more), put the money in savings. You will need it in the future.
A down payment is an amount that you apply toward your purchase when financing a car. If you’ve been saving for a car, you’re several steps ahead of most people. While a down payment is not always required, it sure is smart. The more money you can pay up front, the less you’ll have to borrow.
For example: the car you are buying will cost $5000. You have saved $1000 towards your purchase. You give the car dealer $1000 and get a loan for the rest ($4000). The $1000 is your down payment.