Not long ago, we spoke about the financial lessons they should teach in school. Given how large a role money plays in our lives, it’s astounding that financial literacy is not a priority in the education system. Sadly, some of us learn the hard way through life experiences.
I was recently updating my budget and I realize that ours two cars were an important expenditure. My wife and I live in the Washington DC area and we both commute relatively long distances to work. In addition, other trips (business and casual) add to the gasoline expenses. We easily spend over $500 in gas every month.
Have you estimated your vehicle expenditures recently? It may be worth considering. After successfully completing your driving lessons and acquiring your license, owning a car is not simply driving it around. It has a financial impact on your life.
I’ve learned that it is best practice to budget my car expenses in addition to everything else. Just as a CFO would want to know what’s happening in a specific area of their company, you want to be in control.
Here’s how to oversee your automobile expenses.
The monthly car budget
I bought a new car in 2016. My previous vehicle was paid off and I had been saving for about 18 months. When I was ready to pull the trigger, I first analyzed my budget and decided to spend no more than $300 per month. With that in mind, I used the online calculator at www.edmunds.com to have a clear idea of the value of the car I could afford. It is important that you do so before you step into a dealership. Trust me, once talking to a sales agent and test driving cars, emotions can easily take over and impulsive decisions are made.
Then consider insurance and gas costs. If you have eyes on a vehicle, it is easy to google its efficiency ratings and estimate your expenses based on your current driving habits. Add these expenses and then you’ll have your answer. Does your (future) car fit into your budget? If not, I recommend making some changes.
The emergency [breakdown] fund
When most Americans barely have $500 in a savings account, this will be a tough one; but, it is necessary. I bought my car brand new and didn’t expect to have any considerable expense in the first couple years. However, a few months later, a crack appeared in the windshield and it has to be changed. Though my insurance covered the cost, I still had to pay a deductible. Repairs can add up and when you’re not ready financially for them, it creates a disaster. Make sure it doesn’t happen to you by investing in an emergency fund. As your car gets older, that emergency fund may need to be increased.
There are times when your insurance coverage may not come to your rescue in a specific type and condition of incident. Plus, in some cases, claiming on insurance could lead to your premiums rising, while a simple trip to the shop may be the solution and paying out of pocket may solve the issue.
A coworker of mine was recently hit by another driver. At the time of collision, the other driver acted as a trustworthy person and promised to pay for any repairs. My naive friend accepted those terms and decided to not involve the police. This was a mistake and she ended up spending almost a $1,000 to fix her car. Another person’s vehicle was involved in a hit and run while sitting in a parking lot. Her expenses came to $450. Although, these types of events are not the norm, it is safe to be ready for them. Yes, you could hire legal experts such as the ones at www.billhurst.com; but it is always best to dig your well before you need water.
So, what’s the lesson? For one, before you purchase a car, evaluate its impact on your finances. Having a decent car that does not need repairs consistently is the choice to make but it does not equal to buying an expensive vehicle. Maintain a budget, save for the emergencies, pick the right insurance for you and protect your pocket.
***This article is in partnership with a guest writer, or a brand, or a company and may contain affiliate links. Nonetheless, these are my experiences and my opinion. For questions, contact me directly here.