Itís time to replace that old car. Your
repair bills are
to add up to more than the payment would be. But how do
you know for sure if you can afford another vehicle?
People ask themselves this question regularly,
and not just
cars. Unless you have control of your finances there is no
way to tell. You have to know how much your income is and how
much your bills and expenses are to find out if you have enough
left over for any purchase.
The only way to accomplish this is to have a
budget in place. Your budget has to be as accurate as possible and
include money for your long and short term savings. All of these
things must be considered before you can determine if you can afford
to buy anything.
The best way to start is to determine how much
disposable income you have. You do this by only using your take home
pay plus any other income you may have after any deductions.
The next step is to put down on paper all of
your reoccurring bills such as your house payment or rent,
utilities, phone, internet costs, car payments, insurance, etc.
These are fairly simple to determine, however, you will have to
do not have a constant payment each month like your electric
Now comes the hard part. You have to find out
how much you spend each month on your household expenses. This
includes everything from car gas to groceries. The most common
method of doing this is to keep track of everything you spend for 30
to 60 days, however, it seems like most people will not stick to
this for that long.
I would suggest that you sit down with a piece
of paper and brain storm what your expense are. I will tell you now
that you won't be able to think of everything so you will have to
make adjustments later. It's hard to remember things like Vet bills.
Now that you know what your income, bills and
expenses are you have to set up your savings if you don't already
have one. This should be split into long and short term savings.
This should be considered just as important as your bills. It is
best to save at least 10% of your income with 50% each going to long
and short term savings. The short term saving is going to be your
buffer to cover unexpected expenses and possibly for things that are
only paid every three, six or twelve months.
Your long term savings needs to be invested in
some way. It is always best to consult a professional financial
adviser before making a decision how to invest.
Now to answer the question "Can I Afford
This?". If you have enough money left over, after considering
all of the above, to afford an extra payment then go for it.
Here is a simple formula:
Income - Bills - Expenses - Savings = How much money you have to pay
that extra bill
If the item you are considering is important
you may want to
some of your short term savings toward things like a down payment.
But remember you still have to have enough money each month
to cover the regular payment.
What if you don't have enough to cover that
extra payment? Then