How to Budget for a New Car
New car budget: how to save for the car of your dreams
There are four signs you need to buy a new car this year. If that sounds like you, you can take a step closer to your dream ride and learn how to budget for a new car.
Categorize your expenses
I’m a big fan of the 50/20/30 guideline, which I read about on a financial advice site called Learnvest.
There are three spending categories: fixed costs (50%), financial goals (20%), and flexible spending (30%). I’ll break down what they mean with examples below.
Fixed costs are predictable
You know exactly how much your rent or mortgage costs. Water and electric bills fluctuate, but you could probably estimate their cost pretty well.
Car loans fit this category. You should have 50% of your paycheck left over after adding a new loan payment to your fixed costs. If that’s not the case, you have two options:
- Cut costs. You could trade your smartphone for a dumb phone. You could trade cable for Netflix. You could cancel a gym membership or magazine subscription.
- Lower expectations. Who doesn’t want to own the best car on the lot? For some folks, it isn’t responsible. Make a budget before you get attached to any vehicle.
Financial goals create stability
You might want to save $1,000,000 before you retire. You might want to pay off your student loan by age 30. These are excellent goals.
If you can’t afford a new car right now, you could save money for that specific purpose. Here’s a bonus tip: print out a picture of the car you want and put it in your wallet. The next time you want to spend on impulse, look at that picture. I bet you’ll be less tempted.
Related: Can the Progressive Snapshot Driving Monitor Lower Your Car Insurance Rates?
Flexible spending is a fun budget
It includes movies, eating out, yoga classes, or whatever you like to do. This is where most people really go overboard. I blame YOLO.
My recommendation: Learn how to have a good time without spending money. I bet you could mix the same drinks you buy at the club for half the cost. Go on. Prove me wrong.
According to the 50/20/30 guideline, you may spend 30% of your income in this area but the lower you can get that number, the faster you’ll be able to afford a new car. Treat it like a game show. You want to be the lucky winner, don’t you? Yes!
Go forth and budget like a pro
Make a budget before you look at new cars. Otherwise, you might get excited about a car you cannot afford. Why would you do that to yourself? There’s not a good reason. One more thing: don’t forget to factor in the cost of insurance, repairs, and maintenance.
If you know anybody who’s looking to buy a new car, go ahead and share this information.
By Audra Fordin, owner of Great Bear Auto Repair in Queens, New York, and founder of Women Auto Know.
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