WATCH | It can be tricky balancing our champagne tastes with our beer budgets, especially with cars. So, here's a handy breakdown of how to assess your income and figure out which cars you can afford.
In order to come up with these numbers, we had to assume a few things. First, that you're single, no children, and have a steady job. And in a perfect world, you don't have any debt - but who are we kidding, it's 2016, everyone has debt.
Only 36% of your total income should be put towards debt. You have to factor in credit cards, home and school loans, before car payments. Whatever is left of that 36% is what you have left to make car payments with.
We also have to assume things about your rent. According to the Census Bureau, the median asking rent price was $847. So if we multiply that for 12 months, you’ve got $10,164 in housing costs that you’ve got to subtract from your 36% for the year.
And because we're doing this the most responsible way, you should probably also factor in the cost of insurance, gas and saving for repairs for a car, which comes to $2,592 for the year. So think of it this way - you’re skimming at a minimum $13K off the top of your debt.
But that $13k still doesn't include credit cards or school loans. Once you find that final number, then you can calculate what you have left for car payments, making sure that number still stays within 36% of your income.
And remember, it's always better to shoot for something slightly less than you can afford, because insurance, gas, and emergencies can vary a lot depending on location, time of year, and other extenuating circumstances. Better to have some extra cash laying around to get you out of a tight spot if you need it. .