# What Kind of Car Can You Afford? [Calculator Steps]

Car dealerships have a reputation for making the process of buying a car extremely complicated. You'll see what I mean when trying to figure out how much a car actually costs. Then there's the advertised sticker price of a vehicle at a car dealership. The manufacturer's suggested retail price (MSRP) can then be compared from there. You might be able to work something down to the dealer's bottom line if you negotiate well. Unfortunately, the journey from sticker price to lowest price is sometimes cloaked in secrecy. And if you're not attentive, you can end up paying more for a car than it's really worth - or more than you can afford. Car dealerships may wreak havoc on your money in more ways than one. They not only make discussing pricing a strange and uncomfortable affair, but they're also great at persuading you that their new automobiles are worth ridiculous amounts of money. Keep in mind that the average new auto loan was well over \$30,000 in the first quarter of this year. And the average monthly payment for a new car was \$499 — for a period of 68 months! These figures are ridiculous when you realize that the median household income in 2017 was only \$59,039. If you already know what you want, use our Car Affordability Calculator to figure out how much you should pay and how much you should spend. PLUS, we'll tell you how this will affect your retirement!

## Four Steps to a Budget-Friendly Monthly Payment

Whether you like it or not, determining how much you can afford to spend on a car is your responsibility. Whatever you do, don't let your salesman determine how much money you can borrow. Why? Because your credit and salary may qualify you to buy just about anything on the lot, according to their numbers. Lenders and major banks do not determine true "affordability." After all, only you know how much money you have to spend on transportation and other expenses.

## So, how do you figure out how much money you have to work with?

• \$1,200 per month in rent
• \$600 for food
• \$80 for cable and internet
• \$100 for gas
• \$80 for car insurance
• \$250 in utility bills
• \$200 for health insurance
• Childcare costs \$600.
• \$400 in savings
• \$3,510 in total

## Here are a few pointers that may be useful:

### #2: Make sure your monthly budget has enough wiggle room

If you used the criteria above to create a monthly budget, you should have a good idea of how much you can afford to spend on a car each month. Don't forget to leave some wiggle space in your budget, though. Life happens, and unexpected bills arise. Roofs and automobiles both require maintenance. It's possible that you'll be hit with unforeseen medical expenditures or lose your job. You'll be better off if you have more "extra cash" in your budget.

### #3: Shop around for auto insurance, which is the one expense you can control

While you have no influence over the cost of your new vehicle's license plates, you can browse around for the best auto insurance prices. Depending on whatever agency you buy from, the cost of your auto insurance policy can vary by hundreds of dollars. You can be sure you're getting the best deal by comparing pricing and policies.

### #4: Purchase a used item rather than a new one

According to Edmunds, new automobiles lose up to 9% the moment you drive them off the lot, and they continue to depreciate rapidly until they're worth nearly nothing. While this is true for used cars as well, you may at least escape the initial decrease that occurs over the first few years. Keep in mind that auto payments are calculated based on more than the vehicle's purchase price, whether new or used. In addition to the loan's principal, you'll have to pay interest. Older automobiles have lower costs (on average) and higher rates than new cars, which have higher pricing and lower interest rates.

### #5: Stick to your spending plan

This last point may seem self-evident, but it's crucial. If you've gone to the trouble of deciding on a spending limit for a car, make sure you stick to it! A cunning car salesperson will go to any length to persuade you to upgrade to a newer model or spend more money. Why? Because their livelihood is at stake! You may assure that you are in charge by setting limitations ahead of time.