How Much Car Can You Afford?

It happens every year.  I see the pristine Christmas scene and the doting husband who takes his unsuspecting wife outside with her hands over her eyes and surprises her with a new car.  You know the one with the big red bow on top.  And I daydream about replacing my wife’s 2007 Corolla and she thinks that I am the most wonderful husband ever.  Until this year…

I saw this commercial where this good-looking guy brings his equally attractive wife down in front of their mini-mansion. He has bought her a red upscale suburban-type vehicle and bought a black truck for himself (Have you seen it?).  And then she runs over by the truck and says, “I love it”.  As she steals his truck, the reality of the situation hits me.  How can she be so selfish? Obviously, the truck is for him!  And by the way- what does this guy do anyway.  Who can afford $120,000 worth of car for Christmas?  I wonder what they were driving before- that both vehicles need to be replaced at the same time.  But I digress in my envy.

Most of us are not in an income bracket where we can afford two new vehicles, but if you look at how much families are spending on vehicles these days, you would assume that many of us think we are living in the lap of luxury.  That is until the bill comes due. Every day I see families who have sabotaged their finances by buying too much car.

In a previous article, we talked about how much of your budget to spend on housing and today we are talking about your transportation category.  Our recommendation is 14% of your net spendable income (Gross minus Taxes minus Giving minus Childcare/child support cost).  This 14% needs to cover

• Auto Payment
• Insurance
• Gasoline
• Auto Maintenance
• Tags and Property Tax

I see way too many financial clients who have allowed their transportation budget to get way out of line.  Two high car payments and all the trimmings put them in a category of stealing from the rest of the budget and they become what we call “car poor”.  Meaning they can barely afford the gas to use the vehicle on a trip or worse they have to make drastic cuts in other critical areas of their lives to survive.

Our recommendation: Next time you are thinking about making a car purchase make sure and run the numbers before you make the purchase.  Starry-eyed spouses come with driving cars that your family can actually afford.

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About The Budget Guys: 
For the last 10 years, The Budget Guys have been helping families and individuals get their financial lives together. Tim has been married to Terri for over 30 years and Chris has been married to Tiffany for over 20. We have both had our share of knock-down-drag-discussion over finances. So, we bring some experience. We would love to sit down with you at your kitchen table (metaphorically speaking, we actually meet in our offices), and lend a fresh set of eyes to your situation. For more info and budget help, check out TheBudgetGuys.org.