How to Manage Budget While Buying a New Car: Investing in the Right Way
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There are lots of important decisions to make when buying a car: Do you need a truck for the farm or a small car for the city? How important is gas mileage to you? What colour do you want? Once you decide what car you want, figuring out what you can afford can seem a bit complicated.
Your monthly car payments might be affordable, but you also have to keep in mind other costs you like insurance payments, registration fees, and unpredictable expenses like a sudden hike in gas prices or the need for a significant repair. Also, you have to cope with the other formalities like exotic car insurance quote and other paperwork. So, before you begin to shop around for a car, you might want to take a look at some of these costs, so you are not caught off guard.
On average, people spend about fourteen to sixteen per cent of their annual income, before taxes, on their transportation budget. That is a figure that includes all the expenses of owning a car not just your car payments, but your gas, insurance, maintenance and repairs, and everything else as well. So for our example, let us use this as a guideline, and look at what this might be for an annual income of forty-two thousand dollars.
To figure out your budget, we will take sixteen per cent of forty-two thousand. That gives you six thousand seven hundred twenty dollars a year to spend on your car, or five hundred sixty dollars a month. So let us look at the costs involved in getting a new, basic subcompact sedan that has a sticker price of about sixteen thousand four hundred fifty dollars. Now for any car, there are plenty of extra things you can get, like satellite radio or a sunroof, which can drive up the price, but we are going to forego the bells and whistles and stick to a basic model. Moreover, when you buy a new car, keep in mind that there are often extra fees in addition to what you pay for the car itself.
Fees for Documentation
You might have fees for things like documentation, and destination charges for getting the vehicle from the manufacturer to the lot. Your registration fees may also be included, which can save you a trip to the DMV. Some of the expenses you will encounter, like registration, are non-negotiable because your state requires them, but some things, like documentation fees or the base price of the car, may be flexible and open to some negotiating depending on where you buy your car. So, let us say that after consulting the price of the vehicle and the fees, and adding on your local taxes, you are paying sixteen thousand seven hundred fifty dollars total.
So if you have the cash, you may consider buying the car outright. Alternatively, if you have a few thousand to spend on a down payment, you could lower your monthly payments and save in interest over time. However, for this example, let us say you don’t, and you have got a two hundred sixty dollar car payment.
Then there is gas. Let us say this car gets thirty-two miles to the gallon. Moreover, on average, you drive about one thousand two hundred fifty miles per month. Twelve fifty miles divided by thirty-two miles per gallon gives us about thirty-nine gallons of gas each month. If gas is around four dollars per gallon thirty-nine times four we are looking at one hundred fifty-six dollars a month on gas.
Car Insurance Price
There is also your car insurance. Insurance prices are based on some factors including where you live your driving record the type of car you are driving even your job. If you are figuring this out for yourself, you might want to get a car insurance quote online as rates can vary dramatically.
Let us say you use an insurance calculator, put in your info, and see that you will get a rate of about one hundred dollars a month. So, adding our monthly car payment of two sixty and an estimated gas expense of one fifty-six plus the one hundred for insurance, we already have a total of about five hundred sixteen dollars per month.
Now let us look at some more periodic expenses you might have, like regular maintenance: generally speaking, every seventy-five hundred miles or so, it is recommended that you rotate your tires and change your oil.
If you are driving one thousand two hundred fifty miles per month, that is about fifteen thousand miles per year. Divide that by seventy five hundred miles, and it looks like you might need to do this about twice a year and let us say it costs you about eighty dollars or so each time for a total of one hundred sixty dollars per year, although some new cars come with a service agreement that covers some of these necessary maintenance costs for the first few years.
Now going to a shop for routine maintenance can be a hassle, and you may wonder it worth it? Well, skipping tire maintenance and oil changes can cost you in the long run. A set of tires might last you longer if cared for properly. Moreover, a new game might cost you around six hundred dollars. Not changing the oil will eventually wear out your engine which could cost thousands to replace.
So that one hundred sixty dollars a year may be worth it over time. For the first few years, with a new car, you probably won’t need to do much more maintenance than this if you do, your warranty might cover it.
You will also have to re-register your car and probably get it inspected from time to time. Depending on your state, this could be once a year or every few years and can cost forty-five dollars to three hundred dollars or more. Let us say your registration and inspection will require about two hundred dollars every two years, or another hundred dollars per year. So adding one hundred sixty for maintenance and another one hundred for registration and inspection, we get two hundred sixty dollars per year Divided by twelve months we have got, well, about twenty-two dollars per month. Moreover, if we take our previous monthly expenses which were five hundred sixteen dollars, adding twenty-two we have got 538. Then looking at our original budget of five hundred sixty dollars if we subtract five thirty-eight for our monthly expenses, that leaves us with twenty-two dollars.