There's no sense getting all worked up about a car you can't afford. So save yourself some disappointment and figure out a payment amount you can handle before you start looking.
Break out your budget
Start with your budget. (You do have a budget don't you? If not click here for budgeting information.) How much room is there in your budget? Could you, for example, fit an extra $200 a month in your budget without strapping yourself too much or eliminating your savings? If so, can you fit an extra $300 a month in your budget? No? How about $250? Continue that process until you have a general idea of how much you extra room you have in your budget. That's how much you can afford to pay for a car every month.
Details, details, details
Before you get too excited about how much you can afford and start looking at the fanciest sports cars or most luxurious sedans, remember that your expenses will include not only your car payment, but also your insurance, gas, maintenance and other miscellaneous costs associated with operating a vehicle. As a general rule, the more expensive the car, the more it costs to insure and maintain it.
Operating expenses can be as much as one third to one half of the monthly cost of a new car. So take the amount that fits in your budget and multiply it by .66. That is the most you should consider spending on monthly payments for the vehicle to be able to afford operating expenses as well.
Last but definitely not least
This is going to hurt so let's just get it out of the way - you're going to need a big chunk of change for a down payment. How much? The bigger the better.
A dealership isn't going to give you a car with only a signature as a promise you'll pay for it later. But cash is a great symbol of your commitment to make all the payments. That's the basic idea of a down payment.
To get a loan for a car, and often for a lease, you'll probably need to make a down payment of around 10% of the total price of the vehicle. The larger your down payment, the smaller your monthly payment will be and the less you will pay in total for the car in the long run. But make sure you don't cripple yourself or deplete your savings account with too large a down payment. Find a comfortable balance.
We'll discuss exactly how a down payment affects your financing and monthly payments later on. But for now it's important that you know you will need a large sum of cash when you buy a car. If you can, delay purchasing a car so that you have some time to save up a decent down payment.
Now that you know how large a monthly payment you can afford, you can start looking to find out how much car that will get you.
Wednesday, March 19, 2008
Buying a Car
Monday, March 17, 2008
ISU Financial Counseling
Iowa State University
Financial Counseling Clinic : FINANCIAL TIP OF THE WEEK
Broke from the Break?!
Spring break is just around the corner. No doubt, you’ve worked hard this semester and for this, you deserve a break. And so does your budget, right? Absolutely NOT!
Spring break is notorious for being a budget-breaker. Many students deem it a time to veer from the normal day-to-day rigors of academic life. And a change in activities usually means a change in expenses. It’s inevitable. Sticking to your budget and sulking in regret, however, doesn’t have to be.
It is reported that spring-breakers who overspend, and oh, so regret it, could have avoided doing so in many ways. Here are a few:
Don’t be a procrastination bird.
Earlier planning means catching the least-expensive worm. But, if for some reason you must wait to make your travel plans, search for deals that are tailored just for last-minute-scramblers. Visit bargain travel websites to learn how you can travel without paying the highest price tag usually attached to last-minute planning. (Remember, though, that many of the bargains are contingent on your willingness to be flexible.)
Don’t plant the seed of temptation.
Ideally, when spring break vacation has ended, so, too, should the spring break spending. Toting credit cards along with you may prove too much a temptation and ultimately a big-budget-breaker. Leave them at home and commit to spending cash whenever possible. This method allows little room for accruing additional, unaccounted for expenses. Just remember: Cash not credit. After all, avoiding unnecessary interest and fees this spring break means being able to better afford the next one!
Don’t pay when free, or reduced, is available.
You may be able to cut costs during your vacation without much compromise to your fun. Sharing a room means sharing expenses and the day’s highlights with a buddy or two. There are other ways to gain additional budget-bonus-points:
Start your day the budget-friendly way. Eat the free continental breakfast!
Use your vacation city’s entertainment/travel coupon booklet to get half-off and 2 for 1 deals!
Don’t pay at the door!
Party during the club’s ‘no cover charge’ night.
Someone—this means you—has to pay more for today’s high gasoline costs. Avoid taxi-cabs if your hotel offers free shuttle service.
Tipping helps your server, but does nothing for your budget. Avoid dining out as much as possible. Purchase groceries instead.
Having fun during spring break but avoid a financial hangover. Resolve to make a budget and stick with it. In fact, challenge yourself. Do better than your budget. Discover ways you might spend even less than you’ve budgeted and find yourself still smiling long after spring break has ended!
You? Broke from the Break?! Absolutely Not!
To get more information about providing your story, or to schedule an appointment with a counselor at the Financial Counseling Clinic please go to www.hdfs.hs.iastate.edu/financial and click on the appointment tab.
If you have tip topics you would like addressed or a story you would like to share please contact the Financial Counseling Clinic.
Doug Borkowski – GSB Funded Financial Counselor (dbork@iastate.edu)
Dr. Maurice MacDonald - HDFS Department Chair (mmacdona@iastate.edu)
Jeanna Hennick - Graduate Assistant (jhennick@iastate.edu)
Mohamad Sabri - Graduate Assistant
Jennifer Perrin - Graduate Assistant
Phone - (515) 294-8644
Do you have friends who would like to receive the weekly financial tips? Subscribe at www.hdfs.hs.iastate.edu/financial. You may unsubscribe at any time by replying to this e-mail with “unsubscribe” in the subject line.
A primary objective of the Financial Counseling Clinic at Iowa State University is to provide sound, non-biased financial information. Financial products are not sold or promoted. Our professional service is free to ISU students. The Clinic is GSB (Government of the Student Body) funded and an inexpensive educational option for non-students. Visit the Clinic’s website (http://www.hdfs.hs.iastate.edu/financial) to learn more about the clinic and/or to schedule an appointment.
