Everyone has their own budget and if you’re in the market to get a new car, you’re probably wondering how much you should spend.  I don’t care if you’re purchasing the car new, or used, you’re going to have to set a limit.  If you fail to set this limit, you may soon find out that you’re going to be spending way more than what you can afford.

Now, before you start off with your budget, there are a few other things that you’re going to have to budget in such as the following:

Your gas efficiency: What kind of MPG are you going to get?  The more efficient your car is, the more you’re going to get for your money.  If you don’t need a gas guzzling truck, I would avoid it.  Try to save with something that gets around 30+ MPG.

Your insurance: Every car is different when it comes to insurance.  Generally, what I do is make sure that I purchase a car that isn’t too expensive.  I will pay with cash and after that, I will get the cheapest insurance possible.  That way, if something happens, I’m not going to worry about it as much.

Remember that if you’re going to loan out the car via a bank, you’re not going to be able to get bare bones insurance.  Instead, you’re going to find that you’re going to have to get insurance that meets their standards, which means more money.

New vs. used: When you take a new car off the lot, you’re going to see the value go down right away.  Never consider a car as an investment, because they rarely are.  What you’re going to want to do is make sure that you compare a new price tag to a used one.  You will be amazed at how much you can save when purchasing used.

How to figure out your budget…

#1 You’re going to want to know how long you’re going to have your loan for.  Most loans are going to be for either 36, 48, or 60 months.  Very rarely does it go more than 60 months.

#2 Write down what you plan on adding as a down payment.

#3 Now, you’re going to have to add about 10-15% for taxes, license plate fees, and more.  This is going to vary state to state, but what you’re going to find is that 15% is a safe number.

#4 If you have a trade-in, get the value from KBB.  Get the trade in value on KBB to see what you’re more than likely going to get.

Now, let’s work out an example to see what you could potentially afford.

Your budget:  $350 per month w/ $5,000 down payment.

A 5 year loan (60 months) x 350 = $21,000 + $5,000 = $26,000

$26,000 – 15% finance charges = $22,100

The final number is going to show you what you should be looking at in terms of your budget.  I wouldn’t spend no more than $22,000 if you want to stay under your $350 budget.