Purchasing a new car is a big commitment. If you’ve landed on this blog page, you’re probably already aware of that fact. We know you’re likely looking for all the help you can get with how to formulate your budget and everything that you need to take into account, so we thought we’d try to help as much as we can by giving you the rundown on a few things you need to consider when budgeting for a new car purchase. There are plenty of specific budget plans out there as well, like the 20/4/10 rule that we recently shared, so don’t hesitate to check those out as well.
[ READ MORE: What is the 20/4/10 rule for purchasing a car? ]
What is the vehicle’s total price?
There are a lot of “prices” involved with a new car, and many of them can slip through the cracks. You want to have a good idea of what your vehicle’s total price will be in the end. That means the actual sticker price, the sales tax, the fees for title and registration, any additional purchase expenses such as warranties and add-ons all make up the total price of the vehicle upfront. But the actual total price will also include things such as insurance, gas and regular maintenance. Keep these extra prices in mind as well when calculating monthly costs.
What is your income?
You’ll definitely want to have a good idea of your income, as any budget plans you follow have to do with percentages of that number. Don’t forget to take into account other major bills and payments you make each month when calculating your income percentages for these budget rules, either. Just because a rule says you should spend 10%, doesn’t mean you can afford 10%. Everyone’s circumstances are different!
What is your total debt?
This is one a lot of people overlook. According to Consumer Reports, the average American shouldn’t spend any more than 36% of their gross monthly income on debt. Purchasing a car – unless you’re choosing not to finance it – is the addition of new debt. Your monthly payment is considered paying off debt and thus would be part of this 36%. Be sure to calculate all of your debt before purchasing a car to see how much wiggle room you have in that percentage to make sure you’ll be able to afford it.
[ READ MORE: What is the 50/30/20 budget? ]
Hopefully, this information helps you come up with a plan and gets you prepared for making a budget. As always, don’t hesitate to give us a call if you have any questions.