Developing a personal budget to buy a car is like budgeting for any major purchase. The first step is deciding how much you can afford to pay for the car. You and your significant other will need to combine all your income and expenses, then see what you have left over for a car purchase. You do not have to buy a new Mercedes Benz right away either. Be reasonable in your car selection when starting out. Make sure the car is something you both like.
Decide what type of car you want. Make an estimate on how much you can potentially afford for a monthly payment. Look up the value of your current vehicle on Kelly Blue Book's website (see Resources.) Subtract what you owe on the car from its value to determine if you have any potential equity in the car.
Shop around for cars at car dealerships. Look at various models and years of the vehicle you want. Make a list of new and used cars you like and their prices. Make sure you obtain the actual monthly payments from the dealer for all the cars.
Take out both of your pay stubs. Calculate how much you and your partner make each month. Do not be embarrassed if you told her you were rich and actually earn less than her. Add any income you earn from a part-time business. Write your monthly net income down on a notepad.
Get copies of your latest bills such as mortgage, utility, cell phone and car insurance. Take out both of your checkbooks and latest credit card statements. Make a list of your monthly bills on a separate page of your notepad. Divide your monthly bills into two categories: fixed and variable expenses, according to Kiplinger.com. Put fixed expenses, which stay the same each month, like your car payment, car insurance and electric bill on the left side of the page. Write your variable expenses down on the right side of the page. Add up both columns of expenses to get totals for your fixed and variable expenses. Add your fixed and variable expenses to calculate your total expenses.
Subtract your total expenses from your income to determine how much money you have left over each month. Compare your disposable income, money you have left over, with the price of the car you want. Calculate how much additional money you will need to buy the car.
Plug your income into your budgeting software on your computer. Enter your fixed and variable expenses into your budgeting software. Look for wide variances on your expenditures. Quicken, for example, may recommend that you spend 5 percent on entertainment rather than the 15 percent your are spending.
Look at variable expenses that are higher than your budgeting software recommends, as you will not likely be able to change fixed expenses. Set new target amounts for those variable expenses. Set $200 as you goal for entertainment instead of $600, for example. Cut back on lunches at work. Cut the variable expenses you need to purchase your car.
Create a new budget with your revised variable expense targets. Make sure you monitor your spending each week so you do not exceed your budget.
- You may be able to eliminate some fixed debt before you buy your car. For example, you can pay off a $500 furniture bill early that is costing your $100 per month.