Budget, buying, paychecks, houses, and cars.

Document created by tima on May 17, 2016Last modified by tima on Dec 5, 2016
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1. Always calculate your budget and how much you can afford based upon your net income. Net income is how much money you deposit in your bank account, every pay period, and after taxes are withdrawn.

 

     A. Car payments are a great example, the below website recommends calculating your monthly car payment based upon the "gross" amount, or before tax reductions of your paycheck, but gross is your paycheck amount before federal and state taxes are deducted. And they advise not paying more than 20% of your gross paycheck on a monthly car payment. If someone lives in Washington State, and earns $2,000 per month, if they base a car payment on 20% of this amount it equals $400 dollars per month. If you take a look at the net income of a 2k salary in Washington State, it is $1,613.77, and 20% of this amount is $322.74. The difference between $400 and $322.74, is $77.26 which can pay for two gasoline fill ups for some cars. Notice a site such as Carfax, they say to base your monthly car payment on a gross paycheck amount: How Much Car Can I Afford? - CARFAX Blog 

 

     B. Miles per gallon or MPG: use a mileage calculator such as Gas Mileage Calculator - MPGomatic.com Here you can tell the vast difference in savings between mpg. Take a car that returns 25 mpg and one that returns 45 mpg. Over 100,000 miles, the savings equal $4,000 at $2.65 per gallon. If one drives 100,000 miles in 10 years, that equals $400 per year or $33.33 per month. Typically, gasoline prices fluctuate and savings can too.

 

     C. Calculate the mpg savings before you buy a new car just for the higher mpg efficiency, especially if you will not save the initial cost of the higher mpg vehicle in fuel savings over the miles you will drive it. If your old car returns 25 mpg, and you drive it for 200k miles, you will pay $21,200 in fuel costs with a per gallon cost of $2.65. If one drives 10k miles per year, it will take 20 years before you drive 200k miles and spend $21,200 in fuel. If a new car that returns 40 mpg costs more than 8k, then you will not break even over 20 years because 40 mpg at 2.65 per gallon, and over 200k miles equals $13,200, and you will only save a difference of 8k. Are the savings of a more expensive car with higher mpg, worth it over that period of time? You decide. It could add up to more savings if your 25 mpg highway mileage spends too much time in stop and go traffic, if it gets 15 mpg, then you end up spending $35,400 and you will save $22,200 over that span of time if you can manage to get a consistent 40 mpg in your new vehicle.

 

     D. Extended vehicle warranties, whether from the manufacturer or a trusted dealership, can pay for themselves if you plan on driving a car beyond the warranty, and it suffers mechanical failure because most people trust that a car will provide 150k miles worth of trouble free usage (as long as they follow the owner's manual regarding maintenance), but this kind of reliability is never guaranteed. Most auto manufacturers only warranty a vehicle for 5-7 years. If you plan on driving a car for longer than 7 years, then take a look at Hyundai or extending the warranty.


     E. Only purchase a used car if you can pay it off in two years, you can afford to either fix it yourself, or you if can tell it is in excellent mechanical condition, it has one previous owner or it comes with an excellent warranty from the dealership. Used cars can cost a lot of money if a previous owner abused the vehicle or failed to pay for preventative maintenance. If buying a used car, take the time to have a leak-down test, and compression test completed on the motor before you buy it, or ask if the owner had one completed recently and you trust them. These mechanical tests will reveal any leaks in the motor, and the compression test will reveal if the piston rings are failing or are not failing.

 

2. Think about living in a state that does not tax your income, and move there if you want to save as much money as possible. According to Paycheckcity.com, someone earning a $2,000 per month salary, on a monthly pay period, and with zero deductions in Oregon State, will receive a net paycheck of $1,472.00. In Washington State, where there is zero income tax withdrawal, the same $2,000 per month salary, on a monthly pay period, and with zero deductions would earn a net amount of $1,613.77. The difference between $1,613.77 in Washington State and $1,472.00 in Oregon State is $141.77. In Washington State, you would have an extra $141.77 on your net paycheck amount just by living in a state that does not tax your income.


3. Never overpay for a condominium, townhouse or house because buying a home is the largest purchase most people will ever make in their lifetime and the second largest purchase is a car. If you calculate the interest one pays for a home over 15 to 30 years, if the value of your real estate does not appreciate faster than the interest you are paying over that same period, then unfortunately you've lost a lot of money.


4. When in doubt, calculate it out.


5. When buying, never be afraid to ask detailed questions after you have researched a product.


6. Always cross shop products for better deals.


 

 

 

 

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