You’ll often see references to your household budget within our blog. Budgeting is the core of financial management and something we think everyone should do. We asked our Hannon car loans team to outline a simple method of creating a household budget for a car loan. It’s quick, simple and doesn’t cost a cent!
The Power of a Budget for a Car Loan
Budgets are useful for much more than telling you whether you can afford a car loan or not.
They can tell you exactly where your money is going. Exactly how much you’re spending and on what. It can identify areas where you could make savings and quickly show you exactly how much you’re paying for utilities, subscriptions and more.
Creating a household budget
Use a free spreadsheet app like Google Sheets to create your budget for a car loan..
Open a new spreadsheet, call it something meaningful and set three columns.
The first column should be titled income and include all your household income. Have a box at the bottom with your total income.
The second column should be titled outgoings and include all your expenses. Make sure to include everything you’re regularly paying for in this column. Have a box at the bottom with your total outgoings.
The third column should be titled debts and include all your credit cards, personal loans, car loans and non-mortgage or rent debts. List your debts in order of cost, the highest interest rate at the top and lowest at the bottom.
This is the part that will take the most time. Make sure all three columns are as complete as you can make them. If areas vary from month to month like groceries or energy bills, use an average.
Finally, subtract your total outgoings from your total income to tell you how much you have left over each month, or how much you’re falling short.
Using the budget to manage money
Now you have an idea of what’s coming in, what’s going out and what you owe, you have an accurate picture your financial situation.
If you have a cash surplus at the end of the month, set aside a portion for savings. Set up an automatic payment into a savings account so it’s already taken care of.
If you’re saving for a down payment on a car loan, set up savings for that. Use a different savings account or put it all into the same account and track it in your budget.
Knowing how much surplus you have at the end of each month will also tell you how much you can comfortably afford on a car loan.
If you’re in deficit each month, use the outgoings column to identify areas where you can cut back to balance the books.
Keep cutting back until you can either not cut anything else without seriously impacting your lifestyle or until you have the cash you need to do what you want.
Now you should see just how useful a budget can be and why we recommend them so much. Once you know the full picture about your finances, you can make much more informed decisions and that’s good for everyone!
For those of you who know that you have a challenging credit situation, please visit Dixie Auto Loans where we have a team of credit specialists ready to help you get approved for a car loan today!
For any questions or concerns, please don’t hesitate to contact us here!