For many of us, cars are pretty important. Depending on where you live, a car may well be the only way to get to work, or anywhere else for that matter. For those of you who’d like—or really need—a car, what can you afford?
The conventional rule of thumb has always been that you should limit your all-in car expense (payments, insurance, maintenance, gas, parking) to 20% of your monthly income. Sounds fine if you don’t really think about it for yourself, right?
Well, kind of, but you know what I’m going to say here: this is why you need to think about it for yourself.
Let’s look at it together: spend 35% on housing and 20% on a car and you’re at 55% for the Essentials, and you haven’t paid a single utility bill, not to mention your health insurance premium. Remember, Essentials are supposed to make up only up to 70% of your overall monthly budget…so you’re cutting it pretty close. I say, take that traditional rule of thumb and put it on the high end of the range (you thought I was going to say “and shove it,” right??). Keep transportation costs from 10% to no more than 20% of your income. And when I say “no more,” I’m not joking. (Remember, we are trying to budget fun in here, people!)
Where does that car spending go? Well, I’m really hoping it goes to purchasing a used car, not leasing, and here’s why. Of course, in those very specific occasions that you must lease, you can at least be smart about it and negotiate for the best deal possible.
Lucky enough to live in a place with public transportation? Not having car payments on your watch can save you major moolah in the long run, but only if you’re savvy about that morning commute. Here’s how to make it your commute your you-know-what so you’re not spending more hard-earned dollars getting to work than you have to.