How Much Can I Afford for a Car

Before I get into how to calculate how much you can afford for a Car, let me first ask DO YOU REALLY NEED A NEW CAR?

Car Payments are a huge burden when you are already strapped with Credit Card, Student Loans, and other Debts. Are you buying a car because you NEED to, or because you WANT to???

Buying a Car will most likely be your second largest expenditure in your life.  You owe it to yourself and your budget to take 30 minutes and do your due diligence.  The ideal way to buy a car is to pay cash for the whole shebang,  when you finance anything you are paying additional money to a lender to borrow money.  Since 80% of Americans don't buy cars outright, here is the financially savvy way of determining what you can afford based on your budget and preferences.

In the example below I will mimic moving from a 2000 Ford Explorer to a Used Domestic SUV crossover 2-3 years old. 

Buying a New (Used) Car

1. Know the Monthly Payment you can Afford
1. Not sure how to calculate a starting monthly payment? check out - HOW TO BUDGET FOR CAR PAYMENT
2. Based on my monthly budget, my starting monthly payment is around $300

2. Factor in Additional Monthly Costs
1. Car Insurance - If you are upgrading your ride, you bet your bottom dollar that your car insurance will go up. Get a quote from your current insurance provider on how much your insurance will change.
1. I got a quote from my current car insurer that my monthly Insurance would increase $30.00 a month.
2. Gas - Changing cars can benefit your hurt your car budget. Going to better fuel economy car will allow you to budget more money for a monthly payment, but going down in fuel economy, such as moving from a 2 door coupe to a Mini Van will cost you more each month. 
2. Look up your average MPG for your current car and expected new car.  You can modify the calculation by the PERSONALIZE feature to change Yearly Mileage and Gas Prices
1. http://www.fueleconomy.gov/feg/Find.do?action=sbsSelect
2. Based on my driving habits, and a projected new 2012 Rogue I want. I estimated I will save 58.33 a month in fuel cost
3.  Max Monthly Payment 328.33

1. Determine Present Value of Monthly Payments
1. Present Value of your determined Monthly Payments is based on two  key  variables:  Length of Terms and Rate
1. 3 years financing for a car is preferred, 4 is acceptable,  5 is irresponsible. 5 years is the difference between your child being born and the child entering kindergarten...That is a loooong time.
2. You will need to know how you plan on paying for a car, before you even step foot in the dealership.  Your Loan Rate will be based on the amount borrowed and Credit Score. If is very important to KNOW your expected Rate. Many sites will claim super low rates, but only 5% of the population actually qualify for that rate. Get a quote from a trusted lender, like your current bank. You can do this Online and in about 5 min.
3. Using a Present Value calculation plug in numbers you have determined. For this example I will use $328.33 monthly payment. 4 year loan(48 monthly payments)  and 3.25% APR (which is .2708 per month)
1. From this calculation I get $14,759.84
4. http://www.investopedia.com/calculator/annuitypv.aspx

1. Factor In Up Front Costs and Credits
1. Add Your Down Payment
1. The Larger the Down payment the more car you can afford.
2. For my example I plan to put a down payment of $2,500
2. Add in Expected Trade In or Selling Value of your Current Car if you own
1. www.Kbb.com
2. If you currently already have a loan on the car you want to trade-in/Sell. You will need to look up the blue book value of your current car, then subtract out what's left on the loan.
3. Based on the milage and condition. My 2000 Ford Explorer is estimated to be worth  $2,000
3. TT&L Tax Title and License can cost a couple extra thousands of dollars, and differs state to state. Using the CarMax TT&L calculator determine the average TT&L for your range
1. http://www.carmax.com/enUS/tax-title-tags-fees-calculator/default.html

 Summary: 

$       300.00	Budgeted Amount
$          28.33	Gas and Insurance
$        328.33	Max Monthly Payment
$  14,759.84	Present Value for payments
$    2,500.00	down payment
$    2,000.00	trade in
$  (1,400.00)	Estimated Tax Title Licenses
$ 17,859.84	TOTAL ESTIMATE CAR I CAN AFFORD

Word to the Wise

• DO NOT get roped into Longer Financing Terms for a cheaper monthly payment

• Do NOT manipulate the numbers above to be more in your favor. Which means do not underestimate your gas cost for the future, or skimp on Car Insurance just to get a better monthly payment

• DO NOT take more money from Emergency Fund to have a higher down payment. Having the Audi A4 over the Toyota Camry is no reason to endanger real emergencies.

• DO NOT Buy a Car until you run these numbers with Actual values like Insurance Change and TT&L.

Company Perks: Getting the Most Out of Your Job

Day 1 of a new Job:  Orientation.

You sit there with binders and packets as HR shuffles through 401(k), Insurance Plans, and other standard policies.  If this is your first job, you can feel like a deer in the headlights.  What does all this mean? How does it affect you financially?  No time to zone out. These standard Benefit Packages with affect you financially.  Take time to understand what your company offers besides your paycheck.

401K

If your company offers retirement matching for 401(k)  or Roth 401(k) this is a no-brainer for savings. 

Always contribute enough to get the maximum match. Say your employer matches 50% of a 6% contribution. That means if you contribute 6% of your salary, your company will throw in half of that amount. If you are young and your budget can afford it, max out your 401(k). Your future self will thank you.

There are 4 things to look for when picking funds:

• Better-than-average returns: A fund, if it's worth your while, should have performed in the top half, and ideally the top 25%, of its peer group over a three-, five-, and 10-year time span.
• Low price: A fund's expense ratio -- what you are charged annually and what will lower your overall return -- should not exceed the average among the fund's peers.

• Solid management: If you're opting for an actively managed fund (as opposed to an index fund), the manager should have a solid track record of experience.

• Reasonable size: Sometimes when a fund becomes too popular, its asset base -- the dollars invested in the fund -- gets bloated. That means the manager can't move in and out of a stock too quickly without moving the market.
• In picking the right funds for your portfolio, make sure you diversify your investments. That means don't over-invest in any one sector such as technology or in any one investment style such as growth stocks or value stocks.

http://money.cnn.com/magazines/moneymag/money101/lesson23/index3.htm>

Employee Stock Purchase Plans

Additional compensation methods for Publicly traded companies is to offer an option to buy company stocks at a discounted rate at set intervals of the year. You elect to have a certain dollar amount removed from your paycheck each period to go toward buying company shares.  If shares for your company stock are trading at 50.00 and your ESPP is at a 10% discount, your ESPP will buy them at $45.00. While ESPP are a great way to own discounted stocks, don't put all your eggs in one basket. Remember diversification is the key to consistent portfolio growth

More information on ESPP here ->  http://www.investopedia.com/articles/stocks/12/employee-stock-purchase-plans.asp

Flexible Spending Accounts

A Flexible Spending Account (also known as a flexible spending arrangement, FSA ) is a special account you put money into that you use to pay for certain out-of-pocket health care costs. The money contributed to your FSA is set aside before taxes are deducted, so in most cases you save about 30% on your Federal taxes. The average tax savings for a person earning $50,000 who contributes $2,000 into an FSA account is approximately $600. That means you get $2,000 worth of health care purchasing power PLUS pay about $600 LESS in Federal taxes.

You can use funds in your FSA to pay for certain medical and dental expenses, including copayments and deductibles.

FSAs are available only with job-based health plans. You can put up to $2500 into an FSA each year. You generally must use that money within the plan year. But your employer may offer a grace period or carry over

Even if you are Young, Single, and Healthy it's smart to have some money in your FSA because it can be used on a wide variety of Health items like glasses, allergy medications (with prescription) or contact lens solution.  Find out what is elligible here:

http://www.discoverybenefits.com/participants/eligible-expenses/eligible-expenses-chart

Wellness Services

Companies are starting to realize Healthy Employees are More Productive Employees. Heath reimbursements are being added to encourage employees to workout and eat right. Check to see if your job offers gym or weight watcher reimbursements. Always know what your health plan has to offer. Use the free Wellness Checkup or Free Flu Shot. Being healthy save YOU Money.

Employee Discount  Programs

Your average size company should be part of some discount program. Whether it is a 3rd party group discount site like www.corporateperks.com, or discounts with local businesses.  Ask your HR Representative if your company participates in discount programs and which ones.  Employee discount programs offer deals on goods and activities. A family of 4 headed to Six Flags can save close to $100.00 on tickets and parking.  When your shopping around for deals on items you plan on purchasing, remember to check out your companies discount program

Employee Referral Program

More employees are hired through reference than Resume Submittal Programs. Use your networking skills and begin to refer your talented friends to open positions in the company. If you work for a large company, peruse the Hiring Portal to see what jobs are open.  Each employee  referral that results in a new hire can net you a couple hundred to thousands dollars . ( Unfortunately these payments are considered Bonuses and are subject to higher taxes..but hey...more money is more money) 

When to Buy

There is not necessarily the one best time to buy an item. Prices for goods rise and fall throughout the year based on Consumer demands and Location. You may already know that you can find deep discounts on TV's Black Friday weekend, but did you know another round of discounted TV's happen right before the Super Bowl. If you are in the market for a grill, you'll find discounts faster up north when the weather becomes cooler. Before purchasing any Big Ticket Item do your research and never buy on impulse. You are costing yourself valuable dollars.

January 

Bedding and Linens

TVs

Electronics

Cameras

Computers

Small appliances

Air conditioners

Carpeting and flooring

Furniture

Winter clothes

Toys (on clearance after the holidays)

Bicycles

Christmas decorations

Shoes

Motorcycles

Houses

Boats

Gift cards

Vacation Packages

Feb

Big screen TVs (before the Super Bowl)

Exercise Equipment

Air conditioners

Furniture (around President's Day)

Perfume

Chocolate (post Valentine's Day)

Steak (post Valentine's Day)

Seafood (post Valentine's Day)

March 

Luggage

Boats

Winter Sports Gear

Digital Cameras

April 

Electronics

Vacuums

Cookware

Tires

Auto parts

Car care supplies

Home improvement supplies

May 

Party supplies 

Grill supplies 

refrigerator

Vacuums

Cookware

Mattresses

Pet supplies

Gym memberships

Athletic apparel and shoes

Camping and outdoor gear

Carpeting

Lawn mowers

Small consumer electronics

June 

Dishes - Due to Weddings

Tools (around Father’s Day)

Camcorders

Carpeting

Computers

Indoor furniture

Small consumer electronics

Summer sports gear

Swimwear

July

Grill supplies (charcoal, lighter fluid)

Party supplies (disposable plates, cups, napkins and utensils)

Furniture

August

Pool supplies

Outdoor toys

Outdoor play equipment

Outdoor furniture

Bathing suits

Summer clothes

Summer shoes

Sunglasses

Linens

Pillows

School supplies

Office supplies

Underwear

Socks

Undershirts

Air conditioners

Backpacks

Dehumidifiers

Lawn mowers

Outdoor furniture

Snow blowers

September

Previous Version iPhones

Bikes

Grill supplies (charcoal, lighter fluid)

School supplies

Office supplies

Clothes

Large appliances (refrigerators, stoves, washers, dryers)

Lawn mowers

Grills

Trees, shrubs and bulbs

October

Large appliances

Tires and other car care supplies

Jeans

Winter Coats

November

Aluminum foil

Plastic wrap

Disposable baking pans

Cookware

Electronics

Tools

Carpeting and flooring

Computers (Black Friday)

TV (Black Friday)

December

Gift cards

Disposable baking pans

Aluminum foil

Plastic wrap

Electronics

Computers

Cell phones

Carpeting and flooring

Cookware

Tools

Toys

Winter clothes

Cars

http://www.consumerreports.org/cro/2013/08/best-time-to-buy-things/index.htm

http://frugalliving.about.com/od/bargainshopping/tp/Best_Time_To_Buy_Everything.htm

Using Mint.com

The hardest part of budgeting is having one location that stores all your financial information. In the past budgeters have had to pull bank statements, credit card statements, saving, and everything else in between in order to figure out the full picture. Enter MINT. The easiest, most efficient way to manage your money online. Best part...TOTALLY FREE. How are you not already using this budget miracle??

 If you are technology-challenged, the idea of using an online tool for money management can seem severely overwhelming. Just searching for a How To Video for Mint returned over 29,000 hits on YouTube.   Below I've outlined the best teaching Videos with My Tips and Notes.

I could never find a single Training Video that covers beginning to end How to Set Up and Use Mint.  I've broken out the best training videos on the web in a logical order, (Note some videos may seem to overlap in content. )

For additional resources, or questions on a specific task in Mint, check out  http://www.howtousemint.com/  and the mint.com YouTube channel

Watch the Demo first to get a quick overview before getting your hands on experience: http://www.howtousemint.com/learn-to-use-mint-com-via-the-online-demo-site/

Steps by Step Tutorials for Mint.com

1. Setup Mint.com Account and Link Accounts

http://www.grovo.com/set-up-an-account-with-mint/sign-up-for-mint

TIP:

• Add all Savings, Checking, Credit Card and Loan accounts. Any account that has money going in, or being taken out needs to be accounted for.  Other "Assets" such as your cars or house are not as important.

2. Review & Edit Transactions

https://www.youtube.com/watch?v=83uY_b2Ueq0

TIPS:

• Mint will import the last couple months of bank transactions. Take the time, and review each line and category. You will most likely want to change a couple of transaction categories to tailor to your Budget needs
• Keep Categories to a manageable count.  Having more than 20 categories to budget against will become more difficult to manage.

Group similar transactions into a single Category. Example: Starbucks will be imported as Coffee Shops. Unless you really want to track exactly what you spend on coffee, think about just using Food & Dining or Restaurants.

• Review your Transactions at least once a Week. This will make End of Month reviews so much easier.

3. Setting up a Budget

https://www.youtube.com/watch?v=TnfXX27Tfow&feature=youtu.be

TIPS: 

• Setting up a Budget will be the hardest task when using Mint. You may not even know what you think you should be spending on Gas. If you are struggling with where to start, checkout my other post on CREATE A BUDGET

• You don't have to create a budget for every single category of transactions. You may already know your big budget breakers such as restaurants, gas, or clothes shopping. Set up a Budget for those categories in which you'd like to monitor.

• Then set up an alert. Alerts are automatic emails sent to you when you are getting close, or over your budget.

4. Trends

https://www.youtube.com/watch?v=p3ceNFLLR3E

TIPS: 

• As great as Mint.com is, it has some enhancements it should do to the trends section. Trends are great to see how your spending is trending. I like to analyze this page at the end of the month to see a quick snapshot of that month's spending.

• It is difficult to see month-to-month budget vs actual spending. To do that, take a look at my other post on CREATE A BUDGET to see how you can compare your Expected Spending to Actual Spending.

Just going through the above steps in Mint will greatly benefit you monthly budget. More advanced Features of Mint include setting Goals such as Paying off a Mortgage or saving for a Big Trip.  The Investment feature tracks brokerage accounts and shows you how your investments fare against key Indexes.

1. Goals

https://www.youtube.com/watch?v=OtBa9gKcySI

2. Investments

https://www.youtube.com/watch?v=_RlBzDPulk4

The Foundations of the Financially Savvy

The purpose in writing these articles is to help those that otherwise feel helpless when it comes to money management.  I've been interested in money management since I was a kid. Growing up my grandfather would give me a piggy bank each Christmas filled with coins.  I loved to open that piggy bank and count the coins.  I learned my first hard spending lesson in 7th grade. I had saved up money to buy the coolest pair of Black Nike Hightop Shoes ever created. I felt like I needed these Nike shoes to fit in with the rest of the Middle School Volleyball Team. What was a year's worth of birthday and allowance money, lasted for just 4 months before becoming just another pair of shoes in my closet.  I learned it took awhile to save up money, and I had to spend it wisely to make it last.

For the last couple of years I've been following some of the top Money Management personalities; learning from their advice and strategy. I even got certified to be a budget coach wanting to help others manage their money. As a budget coach, I've been surfing the internet looking for other financial guru's but tended to only find the Coupon Clipping Mom who focused on 5.00 Dinner Recipes and Do it Yourself decorating.

 The goal of my site is to help you develop better money management habits that become integrated in your everyday life.

There are three key foundations you will need to master in order to really become financially savy

1. Understand Your Brain and Money
2. Organization & Budgeting
3. Everyday Saving Tactics

Your Brain and Money

There are tons of budgeting step by step plans out there, but the majority of people who fail to keep up with a budget fail because of lack of motivation.  I can say I will run a marathon. I can even download a proven step by step running schedule, but if I don't actually find my motivation to put my feet to pavement, I will ultimately fail at my goal.  If you continuously fail at managing  money I'ts because you haven't fully addressed what I call "Spending Triggers". These triggers cause to you make poor financial decisions over and over again. You must recognize these triggers, identify how to counteract them, and then find motivation for better spending decisions.

Organization & Budgeting

Organization needs to be simple, and budgeting needs to be consistent. Complexity breeds frustration, which results in giving up. Not having finances organized in a easy to understand way results in wasted hours trying to track down information. It's easier to get burned out when it takes 3 hrs at month end to do a budget, than 30 min if you had simply planned better.  MINT.com is hands down the BEST FREE budgeting software offered. I can't speak highly enough about Intuit's great product.

Everyday Saving Tactics

Chances are, if you are not paying attention to your monthly income verse expenses, you are not paying attention to the price you're paying for everyday items….and you are paying more than you should.  If you could tweak current spending habits, and learn simple new ones; that savings can add up greatly over time. You may scoff at the idea of saving 5% on a 7.00 sandwich because it translates to .35 cents, but if you could focus on saving 5% on everything you buy, we're talking 100's of bucks a month. 

 As I've researched the concept of how to save on pretty much everything I've realized key buying concepts:

1. There is a good time to buy and a bad time to buy.
1. Buying when everyone else is buying can produce the best deals. School supplies will be cheaper during back to school, than other times in the year. However, for other items, it suits you best to buy when no one else is buying. You will get better deals on services  (home remodeling) when companies are slow and looking for business.
2. Every item, even groceries, have a cyclical rise and fall in prices. Know when to buy and consistently save money. 

2. Items are more negotiable than you think
1. You don’t have to settle for the price quoted by your cable company or gym. When there is competition for you business, you have more leverage in negotiating a better deal