• Budgeting to Buy Your Car

    What Kind of Car Can You Afford?

    Whether you're shopping for a new or used vehicle, you won't be motoring for long if you're not prepared to cover the substantial expenses that are a normal part of auto ownership. As experienced car owners know, buying the car is just the beginning. Operating and maintaining it is where the real financial challenge lies.

    So, when it comes to fitting a car into your budget, your best bet is to avoid any surprises. 

    The Costs of Car Ownership

    Automotive expenses fall into three main categories: one-time costs, ongoing costs and emergency costs. One-time costs include the actual purchase price, any applicable state sales taxes (which, depending on where you live, could easily run you $2,000 on a $25,000 car), and registration or title fees.

    Ongoing costs include insurance, annual registration, gas, routine maintenance, and depreciation. Insurance premiums vary according to many factors but can, on expensive cars or for owners with a less-than-stellar driving record, be as high as several thousand dollars a year. Gas and maintenance costs are related to the number of miles you drive and can vary widely depending on a car's fuel economy and service requirements. Depreciation is one of the hidden costs of buying a car. It's a hard fact to swallow but with every mile you drive, your car loses value. New cars depreciate significantly within the first year of ownership -- sometimes by more than 30 percent!

    Emergency costs, which include repairs, towing and insurance deductibles (if you have an accident or your car is damaged or stolen), can be tougher to predict. Most repairs on a new or leased vehicle should be covered by a warranty, but if you're planning to keep a new car for many years or if you're purchasing a used car, emergency costs should be factored in. You can minimize some emergency costs, such as towing, by joining an auto club that provides roadside assistance. 

    How Much Can You Afford?

    Once you understand the true cost of ownership and want to start shopping, you need to determine how much you can afford. No point in test-driving a Porsche if you're on a Toyota budget.

    Remember, only you know what you can comfortably manage.Remember, only you know what you can comfortably manage. Neither lenders nor dealers nor online calculators take into account anything but basic and routine expenses when calculating what you can afford. For instance, unless you made a point of divulging the information, nobody would know that you spend $400 a month on entertainment, help support your mother, are hoping to buy a home in the next year, or are being laid off in a few months. Yet each of these circumstances would make it more difficult for you to cover the costs of owning a car.

    The best way to get a handle on how much you can afford is to actually write down your income and expenses. It's amazing how many forgotten expenses you'll remember when the numbers go from your head to a piece of paper. If you'd like a little more structure for this exercise, various Web sites offer budgeting worksheets and tips for designing a spending plan.

    Keep in mind that your choice of vehicle will affect your insurance rates, fuel costs and repair bills. So, if your first choice doesn't fit into the budget, don't give up on car ownership entirely, just consider a less expensive model.

    Being realistic about your budget before you buy will not only keep you out of financial trouble, it'll allow you to enjoy your new vehicle despite the expense.

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