Growing up I was so naive about money. It’s embarrassing how naive I was! I remember when I bought my first car in high school and I thought, “Why doesn’t everyone get a new car? The payments aren’t that much a month!” Little did I know that I had no need to buy that car, or the next one after that.
I now have a COMPLETELY different mindset when it comes to money and buying anything, especially cars. After I got married I made the decision to sell my car and just keep my husband’s since his was already paid off. He had a work vehicle and it wasn’t necessary for us to have three cars. This is something that was tremendously helpful when we were first starting our marriage because we didn’t have to worry about any car payments.
Sometimes it’s hard to know what to cut from your budget. But, have you ever considered that your car is the expense that’s making you go OVER your budget? One thing I see all too often are people buying cars they can’t afford. Of course I would love to have a new Jeep, trust me I would do it in a heartbeat! But, there’s no need for it and why buy a brand new car just because you want other people to see what you got.
How to know if your Car fits in your Budget
The basis of a budget is to take control of your money. It’s a guide to help you understand what your expenses are compared to the income that’s coming in. If you find that you are spending more a month than you’re bringing in there are certain actions you need to take to reduce your expenses, and ultimately stay out of debt. Looking at your car payment can be a vital expense to consider. Ask yourself questions like:
- How much do I still owe on it?
- How much longer will it take me to pay it off?
- Can I reduce my other expenses enough to start saving money?
- Is my car the expense that is making me go over my budget?
A good rule of thumb is that your car should not exceed 10% of your monthly income. So, if you are making $4,ooo a month annually then you shouldn’t be spending more than $400 a month on your vehicles.
This includes expenses for your car, principal and interest, plus your car insurance.
What to do Next
If you do find that you are over this 10% there are a few steps you can take:
1. Trade your car for something that can easily fit into your budget
Most people won’t even consider this because they care too much about what others think. Trust me, I’m that person. And my husband makes fun of me for it all the time. I also can’t help that I just like nice stuff, it happens! I do promise, though, that not having the newest and coolest vehicle won’t make or break you in your social circle. Would you rather have peace at night knowing you can easily pay your bills – or, would you rather not sleep at night because there’s no way you can make your car payment this month. It’s really an easy choice, it’s the going through with it part that’s hard.
2. Take an inventory check
Like I mentioned above, my husband already had a car paid off when we got married AND he had a work vehicle. Adding in my car for a grand total of three vehicles was completely unnecessary. There was no way we would drive all of those at the same time. Yeah, it may be nice to have an extra but think to yourself if it’s really needed. Chances are, it’s probably not. It’s just another nice thing to have. Get rid of one (typically the most expensive one) and free up some garage/driveway space. Oh yeah, it will also free up some money in your budget. There’s two benefits right there!
3. Produce extra income to supplement your outrageous car payment
At this point, I almost feel bad that you’re so attached to your car. You must really like making payments or else you would have got rid of it by now and not still be reading! Totally just kidding – in some circumstances (none that I can think of currently, and I still think you should lower your payment) you have to make some extra income just to pay your car payment. Whether that be getting a part-time job, doing some online work or making crafts it’s up to you. Don’t just wait for money to magically appear. I’m shocked at how many people still do that. If it does appear for you, let me know. Chances are you’re going to be waiting a looooooooong time. And if you’re reading this then you DEFINITELY have time to pick up some extra work.
4. Stop keeping up with the Jones’s
Honestly, just stop it. The Jones’s are those broke people who can’t ever retire. You don’t want to be like that, you want to be able to have an enjoyable retirement. I know, you always want nice stuff. Did you know that stuff is going to still be there if you wait a few extra years to save up the cash for the car? It’s hard to believe, I know, but it will wait for you. Unlike your retirement. It won’t wait for you – it’ll show up even when you’re not ready for it.
All too often we think we have to keep up with the Jones’s. I know, it’s tough to consider. But, when it comes down to providing for your family financially or putting you more in debt, wouldn’t you gladly give up your brand new car?
A new car is almost like a right of passage into adulthood. It’s also one of the absolute worst purchases you’ll ever make in your life. There’s not too many things that can depreciate by $10,000 in the first year. Don’t ruin your financial future – I know that you’re smarter than that. You know what’s right, now it’s time for you to take action. Here’s the steps you SHOULD be taking when thinking about purchasing a car.
Steps you should be taking:
Figure out what kind of vehicle you want and why. Don’t just think of what the outside looks like, you’re the one who has to be inside it. Figure out how many seats you need depending on if you’re going to be growing your family any more or not.
Consider what the vehicle will be used for – is it just a family vehicle, are you wanting to haul stuff in it, do you need just a putter car to get to work in? Depending on what it will be used for will help you choose a price range.
Don’t forget to think about gas mileage and maintenance. I have always, always loved Volkswagens. I had a Jetta my senior year in high school and LOVED it! It had a few problems and I ended up needed to replace the engine which was way more than what the car was worth. I then got a Passat a few years later. I again had problems with it (no wonder VW’s have had so many recalls …) There were quite a few issues including the gas leaking which was pretty pricey to get parts for. Just be aware of what kind of reviews and problems the vehicle you’ve been looking at has. Do you really have room in your budget to take your car to the mechanic every other month?
Find your price range
Figure out a price range that you’re comfortable with. Don’t go too extreme because you’re going to want to pay for the car with cash. Before you roll your eyes at me and tell me that that can never happen – I’m going to tell you that it CAN happen. And smart people know how important it is to pay with cash (or at least 90% – more about this below).
Whatever you do, buying a car brand spanking new is dumb. Remember how I mentioned the depreciation that goes down by the 10’s of thousands once you drive it off the lot? There are plenty of vehicles that you can get that are like-new with low miles. All WITHOUT the high price tag. If you want to be the sucker that paid way more on his car than he should, then be my guest.
Pay with cash
You keep doubting that anyone can pay for a vehicle with cash. When in fact, people have done that and you should totally do it. We talked above about having such a high car payment that you can’t pay your bills – do you really want to fall into that trap again (or to begin with)?
Start making payments to yourself every month in a savings fund for your car. You can put in as little or as much as you want. This will help you get a better idea of what you can actually handle payments wise. Plus, you’ll have all that money saved up to A – either purchase the vehicle completely with cash; or, B – pay for at least 90% of the vehicle with cash. I know that sometimes it takes a little bit of time to save up that much money. But, like I’ve said multiple times it CAN be done. Having 90% paid off will guarantee low payments and a fast pay off. Remember, you’re trying to avoid having to pay interest as much as possible. Paying extra towards your payments isn’t going to hurt you. It will save you a few hundred but I think you can live with that.
Having a car is a luxury. Having debt is NOT a necessity. Think about your financial future when considering a car purchase, or when you can’t make the payments on the car you have. Stop worrying about what everyone else thinks (trust me, I’m trying to convince myself this too). Just think of how much better off you are than them when you don’t have a car payment. And then you can tell them all about how you’re debt free and convince them to do the same. (I won’t even be mad if you refer them over here to my blog.)
Look at you helping people better their lives! Let me know below what kind of car you have 🙂