How to Create a Budget

The Something Awful Forums > Discussion > Ask/Tell > Business, Finance, and Careers > How to Create a Budget

polyfractal: Dec 20, 2004; Unwind my riddle.

So, how much do you budget for a car? How much car should you buy given a salary? I work from home and the car will predominantly for driving to the grocery, the airport and taking the dogs to the vet. Most days it will sit in my garage.

I know it is a nebulous question, but I've never purchased a car before...all of my previous cars have fallen into my lap (family car for a long time, then I got a free one in college from a professor). I've always driven lovely beat-up cars where I'm constantly worried about them falling apart. It would be nice to put on grown-up pants and buy a nice(r) used car that is only a few years old. It would be even nicer to satisfy a child-hood fantasy and buy a sports car.

I know what I can technically afford before it would start heavily impacting my monthly income. But is there a rule of thumb to follow? "No more than 10% of income" or something?

I'm 25 and make 100k/year, so my monthly take-home is around $5k. I used to make $30k/year so I've mostly retained the habit of being a miserly bastard.

Monthly

$500 IRA
$500 401k
$500 non-tax advantaged investment account
$700 rent/utilities
$400 student loan
~$1000 on <whatever> - dining out, electronic gadgets, dog bills, etc

Debt

~8000 student loan at 6%
No credit card debt or anything else

Savings etc

$8,000 emergency fund (typing that out makes me realize I should pad this more)
$16,000 in IRA, split between normal and Roth
$2000 in 401k (new job, so that will be halved if I leave now since the match won't carry over yet).
$17,000 in investment account

Most months I have $1000-$1500 sitting "left over" from the month's paycheck, depending on how much went into the <whatever> category. If there is a surplus I'll usually throw another $500 into my investment account or student loan. I've been lax with the budget since I make good money, religiously make sure I hit all three investment vehicles and usually have money leftover at the end of the month despite that.

My credit union will finance a used car at 1.99% APR. Even over a 60 month (!!!!) term, that is still a tiny amount of interest.

So, I know that technically I could pay a $500/month car payment. But is that smart? What do people do? Should I be looking at $10k cars? $20k? How long of a term should I take on financing? How much for down-payment?

(Typing it out, the question feels ridiculous: pay as much down-payment as you can afford, for as short of a term as you can afford. But given the low interest it makes me feel like stretching it out a bit more is not a terrible thing?)

# ¿ Jul 8, 2013 13:22

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# ¿ May 3, 2024 21:37

polyfractal: Dec 20, 2004; Unwind my riddle.

skipdogg posted:

There's no hard and fast rule when it comes to cars. I've seen young high earning men spend over 40% of their take home to have an insanely expensive vehicle. Some folks look at vehicles as tools to move them from point A to B and don't care much about them aside from their functionality. You earn enough you can pretty much buy whatever you want. What do you want from a vehicle?

I foolishly spend about 15% of our take home on vehicles. We both drive really nice newer Ford's so nothing super fancy but it sucks making those kinds of car payments. I'll be keeping my car a long time after it's paid off, and we'll probably lease something less expensive for my wife next time, or at least wait for a better lease deal to turn up.

I was afraid this might be the answer, thanks for the perspective. I guess I want a fun, sporty car that is going to be expensive...but the stingy bastard in me says it is ridiculous to pay a lot of money just for a car.

Engineer Lenk posted:

PF, are you at least only contributing to the trad IRA right now? Paying into a Roth with that salary means you expect tax rates to increase and have a ton of income in retirement, since SSI is partially exempted even for high earners.

Yep, only traditional IRA at the moment. Roth IRA contributions were largely from my older job making 30k and I thought I'd be poor forever.

Engineer Lenk posted:

What are you saving for in your non-tax-advantaged savings?

I have no idea.

I started because my previous job (after the 30k, before my current) was for a small startup that did not offer a 401k. I maxed out my IRA and had to put money somewhere, so I started dumping it into a regular taxed account. I don't really have plans for it...I've mostly been treating it like my retirement accounts (money goes in but does not come out).

Engineer Lenk posted:

If you pay off your student loans from your investment money, you can easily afford a $400/mo car payment. Beefing up your emergency fund to ~11k, you have 6k of 'investment' money plus whatever you can get for your current beater to work with for downpayment.

Yeah, I should just pay off my student loans in one fell swoop. The situation was confused for a while because my parents insisted on paying the student loan entirely ("We paid for your brother's, we are going to pay yours"). At some point I decided that was ridiculous and I'm a big boy, so I started paying into the loan too.

Emptying out my investment account might make me cry though. In particular, I have some cheap shares of Tesla which I picked up on a whim (the rest of the account is VTSMX), and those have done extraordinarily well. I guess that means I value money more than a car, so I should probably adjust my car budget appropriately.

I don't currently have a car since I work from home. I share my SO's car if I need to go somewhere in the evenings or weekends.

Engineer Lenk posted:

From your comments about your 401k, it sounds like you've only been in the new job for a couple of months. I'd wait a few more before committing to a large car payment, particularly since you went from 30k to 100k with your last job hop.

I left out an intermittent job. The 30k was two jobs ago, then I spent a year making 70k and recently switched to a new job making 100k. The salary change was going from Biology to Software.

# ¿ Jul 8, 2013 18:38

The Something Awful Forums > Discussion > Ask/Tell > Business, Finance, and Careers > How to Create a Budget