How to Determine How Much You Can Afford to Spend on a Car

While most people dream of being able to purchase and drive their dream car, reality dictates that they settle for a more practical car that they can afford. Individuals who spend more on a vehicle than they are able to afford put themselves in jeopardy of having their car repossessed when they are unable to make the payments. To ensure this doesnt happen to you, its important in advance to determine how much you can afford to spend on a car.

Instructions

1

Detail your household expenses. Break down your monthly expenses. Add up how much you spend in different categories such as housing, transportation, food, entertainment, gifts and other expenditures. if you are unsure how much you spend, keep track of this for a month or two before you move on to the next step.

2

Establish a budget. Using your expenses, establish a budget that balances the amount of money youre bringing in with the amount you can afford to spend in each category. Add in extra money for emergency expenses you may have, such as car maintenance or emergency home repairs. Make sure to also include money in your budget for yearly or semi-annual expenses such as car registration, car insurance or wellness checks for people in your family or your pets.

3

Analyze excess money. Review your budget to determine how much money you have remaining to see how much you can afford to pay towards a car each month. If the amount isnt what you want, reassess your budget to determine where cuts can be made in other areas to accommodate the money you need to pay for a car every month.

4

Consider savings. If you have money in a savings account, use this for a down payment on your next vehicle. This lowers the monthly payments youll make and can allow you to spend more on a car. However, its important that you dont utilize all your savings to purchase a car in case an emergency occurs such as a layoff or a health crisis. If you dont have enough money in your budget or in your savings to spend on a car, consider putting off buying a car until you can save more money.