I loved my first vehicle, Old Blue.
It was a tired-looking 1994 Mazda B3000 pickup. Once, Old Blue even took me all the way to Alaska when I was 18. But because I was a student with no budgeting skills, I wasn’t able to maintain it like it deserved.
It was a sad day when the mechanic called back. I’d been putting off repairs for years, and even though it drove wonky, it still drove—until one day it didn’t.
“I’m sorry, but the cost to fix this thing is more than it’s worth. You’re better off buying a new car,” the mechanic said.
Sound familiar? It doesn’t have to be that way. If you know how to budget, you’re prepared for anything that comes up, from before you even buy a car until well after it’s gone.
You can think of budgeting as two separate things: making sure you have enough to buy the car in the first place, and then making sure you have enough money each month for its ongoing costs.
We’ll walk you through the costs you need to think about first, and then help you plan how to budget to buy a car.
Can you make your auto loan payments?
Being able to make your auto loan payments is the most obvious thing to take into account when you’re budgeting to buy a car. And it’s true; unless you buy a real lemon of a vehicle, this will be your biggest cost.
You can use an auto loan calculator to play around with numbers and see your potential monthly payment and interest charges based on what you want to buy.
Remember: longer-term loans might give you smaller monthly payments, but you’ll be in debt for longer and you could end up paying thousands more in interest charges by the time it’s paid off.
Don’t leave home without car insurance
After the car itself, car insurance may be your next-biggest cost.
Before you pull the plug on that next vehicle, you can give your car insurance company a call to see how much a policy on that shiny new car might actually cost you. It might surprise you how different it is from your current car.
Murphy’s law and repairs and maintenance
I’m as guilty as anyone of getting caught off-guard when my vehicle breaks down. But here’s the thing: you know Murphy’s law, that says what can go wrong, will go wrong? Your car won’t stay sound forever. It’s not a matter of if it’ll need fixing, it’s a matter of when.
You also know that it’ll need regular maintenance, like oil changes, new tires, and periodic servicing. These expenses are easy to look up and predict. What’s not so easy are the random repairs that’ll pop up.
For these random expenses, set aside some money every month so that when these situations rear their ugly heads, you’re prepared.
My husband and I set aside $100 per month for our current car, and we haven’t had to worry about being short with funds.
You can’t ignore registration fees
Speaking of unexpected expenses that you actually can expect, a lot of people get caught off-guard by registration fees too.
If your state requires it, you may also need to pay for emissions testing or have other hoops to jump through. These fees are easy to look up in advance.
Don’t forget fuel
Having a car is great, but what if you can’t actually afford to use it?
That’s why it’s important to tally up how much you expect to drive. Divide this number by your potential car’s miles per gallon (MPG), and you’ll see how much fuel you need to purchase to get where you need to go.
How to plan your car-buying budget
Most people only think of the monthly payment when it comes time to buy a car. But now you know that the monthly payment is only a small piece of the puzzle.
Instead, do this: tally up your total monthly costs of owning a car. To recap, that would be your:
- Monthly auto loan payment
- Monthly insurance payment
- Savings for repairs and maintenance
- Fuel costs
- Registration fees
For some of these things, like registration fees, you’ll probably only pay them once per year. In that case, simply divide the annual cost by 12, so you can get a good idea of the monthly cost.
Now, compare that with the rest of your budget. If you don’t have one, now’s a great time to start. It doesn’t have to be fancy in the beginning: even a simple list of all your monthly expenses in a notebook will do.
Now that you’ve figured out the true cost of owning your car, does it actually fit in your monthly budget? Is your income high enough to cover all of your car-related expenses, plus food and rent and everything else?
If it does, great! If not, you might need to revise what kind of car or even what kind of financing you get.
No more surprises: Keep your budget going each month
As I found out in my twenties, one of the toughest things about budgeting for a car is remembering all of the expenses.
It’s especially tricky with cars because there are so many expenses that don’t happen every month. It’s not like your internet or electricity bill or your that you can reliably plan for each month.
Easy to use budget programs
That’s why keeping up with your budget every month can be so handy. I personally use and love YNAB. I log into it at least once a week to keep up with my budget.
The big advantage of budgeting each month is that I know how much I have set aside for the non-monthly expenses, like repairs and registration fees.
I can log into my YNAB budget right now and see that I have $526 set aside for my semi-annual insurance payment, $72 set aside for registration, and $915 set aside for repairs.
Your monthly budget can see you beyond your car now
If you’re fancy, you can even start saving up for the down payment on your next car. That’s what I’m doing; each month, I set aside another $100. So far, I have $5,600 saved up towards my next vehicle, because I know Big Red (my current truck) won’t last forever.
If you don’t have a budget, at the very least consider opening a separate savings account for your car-related expenses. That way, if the money’s not separated on paper, at least it’s in its own account so you aren’t tempted to spend it later.
Budgeting to buy a car this way is a lifesaver. If you follow these tips, you won’t need to worry about the stress of broken-down vehicles anymore, putting off repairs until the car is junk, or going into debt more than you have to.