Don’t you wish they taught kids how to budget for a car and other major life expenses? Sadly, most kids don’t learn anything about money in school. They end up learning the hard way when they grow up. Sound familiar? Trust me, I know the feeling! Follow these simple steps to make your car budget (no stress required!).
Use the 50/20/30 rule.
Most budgeting tips aren’t helpful, because they don’t consider the reader’s situation.
A single person will have more disposable income than a mom or dad. New Yorkers spend most of their paycheck on rent. Small town folks only spend 25% of their money on rent. Everything depends on context.
That’s where the 50/20/30 rule comes in. This strategy was first discussed by Laura Shin at Learnvest.com. Instead of messing around with a big list of categories, you can break everything down into three distinct parts:
-Fixed costs (50%): Costs that remain constant. This includes rent/mortgage, utilities, car payments, gym memberships, magazine subscriptions, etc.
-Financial goals (20%): Money that will help you create a better future. This can go to paying off debt, investing in a 401K, or establishing an emergency savings account.
-Flexible spending (30%): Costs that fluctuate from month to month. This includes food, dates, clothes, movies, yoga classes, trips to the swimming pool, or whatever you like to do.
Create a separate account for each of these spending categories. Get a debit card that isn’t attached to anything but your flexible spending account. You won’t be as tempted to buy a massage with money that’s meant to be saved for an unexpected emergency!
Be willing to cut unnecessary costs.
If you find it hard to budget for a car, that means you need to cut some expenses. Start with your fixed costs. A lot of people keep magazine subscriptions out of habit. If you don’t read it, cancel it.
There’s no good reason to pay for cable unless you’re a big sports fan (or you could just invite yourself to a friend’s house!). Switch to Netflix. It’s only $8/month! Think you’ll miss the news? I doubt it, but you can read that online if you really want to.
You could make some deep cuts in your flexible spending, too. Buy name brand groceries? Switch to generic. Go to a restaurant at lunch? Pack your lunch. Are you an impulse shopper? Stay away from sales. There are tons of ways to cut costs. Be creative!
Factor repair, maintenance, and insurance into the cost of ownership.
Don’t assume you can afford a car based on the ticket price. You also need to consider how much it will cost to keep that car in good condition. According to AAA, it costs roughly $9,122 per year to insure and maintain an average-sized Sedan. Don’t make any decisions until you find out the total cost of ownership.
Please share this post with your friends so they can discover how to budget for a car (no stress required) like you. If you’d like to learn more about the car purchase process, check out the blogs below.
You must be logged in to post a comment.