You may love the smell of a new car and the freedom that comes with owning your own set of wheels, but you probably don’t love the hefty price tag that comes with a brand new vehicle. If you have your eye set on your dream ride, but are worried about whether or not you can afford this big purchase, consider the following advice to help you decide if you want to buy a new car.
Track Your Spending
If you’ve never tracked your spending before, it can be an illuminating experience. There are many apps that will help you get started, and after a few weeks you’ll have an idea of where all your money is going each month. This should help you understand whether or not you have extra money in your budget for car expenses, and if you don’t, it will give you an idea of where you can start cutting some of your spending. For example, you might find that you’re paying $10 a day for lunch and decide that you’d rather take the time to plan your meals and pack your own food so you can put that $200 towards a car payment instead.
Create a Monthly Budget
Budgeting stacks up your expenses in relation to your income, allowing you to create a realistic and responsible spending plan for your money. If you’ve been tracking your spending, you should have all the information you need to get started - you can use this budgeting template. When budgeting for a car, don’t just plan for monthly car payments. Take into account the money you’ll need to spend on gas, insurance, maintenance and parking. When all is said and done, you should have more money coming in to your bank account than going out - even with your added car expenses! If not, you’ll need to either make more money, spend less, or forgo the car for now.
Consider the optimal loan length.
When you’re crunching the numbers, you might be tempted to extend the length of your car loan to secure lower monthly payments. Car loans that span six years or more are becoming increasingly common, but experts see this as a troubling trend that is leaving Canadians with more debt than they can handle. Unfortunately, the longer term length probably means you’ll be paying more in interest, so you’re actually paying more for your car in the long run. In addition, because new cars depreciate in value so quickly, you’ll likely end up in a negative equity situation, meaning your car will be worth less that the amount left owing on your loan.
Compare insurance quotes.
The price of your car insurance will depend on the make and model of your new vehicle - but that’s not the only factor determining your premium. There are many things that affect the price of your insurance plan, like your age, where you live, and your driving record. It’s important to note that insurers offer different plans and prices for the same car and driver, so do your research before choosing a provider. There are many sites online that will allow you to compare quotes from multiple insurers so that you can find the best plan for your new set of wheels.
If you’ve tracked your spending, created a budget, priced out cars and compared insurance quotes, but you just can’t make the numbers work, consider setting a savings goal that works with your budget. A larger down payment will help lower your monthly costs. A car can be your ticket to freedom, but only if you have the financial means to bankroll this big purchase.