Tips for Smart Car Budgeting

Getting a fun, new shiny car is exciting but the debt that can come along with it…not so much.
It can feel overwhelming to have a hefty monthly car payment and can put a big strain on expenses and the monthly budget. Let’s have a real talk about how to avoid this financial headache.

It’s always best to buy a used car. Cars depreciate in value so unfortunately when you spend $30,000 on a new car that value continues to go down and this can lead to you owing more money than your car is worth. Even a car that is one or two years old is a better choice and better value for the money. And even older is best!

If you decide to go to a dealership to buy your car (instead of an individual) it’s always best to set a max payment that you can afford and don’t sway from this amount no matter what. Take the time to get a preapproval from your bank or credit union beforehand. Salespeople can put a lot of pressure on you, and the lender at the dealership will approve you for much more than you can afford and more than you’re comfortable with. Stick with your amount. You’re the one that has to make that payment every month and it could mean you may not be able to pay the electric bill or have money for that special event you want to do. It’s just not worth it over the long run.

Saving money for a down payment is best! It can be a good test for what payment is comfortable for you also. Start putting away your payment goal in a savings account.  For example, if you feel like $300 is the comfortable amount for you, add that to savings each month as if it were a payment.  It will add up and will give you confidence that you can make that monthly payment as well as give you a down payment when you go to purchase your car!

There is a rule of thumb to keep in mind. Keep your auto expenses around 10-15% of your monthly take home pay. The auto expenses include car insurance, maintenance, gas and the car payment. This is the ideal amount to keep your car payment at. 

Keeping these tips in mind and sticking with a payment that you can truly afford will feel freeing and help you keep your finances under control!

All the best to you on your financial journey,
CK