Can I Afford That Car?

Yesterday you calculated your gross annual income, gross biweekly income, federal taxes and social security taxes.

To determine your yearly take home pay, you should subtract your federal taxes and social security taxes from your gross annual income.

This will tell you how much money you will actually have to play with for the year.

Most everyone dreams (or has nightmares) of buying their first car. Your assignment for today is to determine what car you can afford on your income.

The general rule of thumb is to not spend more than 18% of your take home pay per year on a vehicle (this includes the car payment, insurance, cost of up-keep, etc.). For our purposes, we are going to lower that percentage to 15% (because we are not going to include insurance and upkeep).

Take 15% of your annual take home pay. That is how much you should be able to spend on a car per year. Divide that number by 12 and you will then have how much of a monthly payment you can afford.

With that number in mind, go to different car websites and find 2 new vehicles and one used vehicle that you can afford on your salary. I want to know the basic info about the vehicle (make, model, etc)

Put all of this information into the Excel spreadsheet that you made yesterday. Most dealership websites have a loan calculator of their own (you can use 6% as the interest rate if one is not supplied for you). If you cannot find a loan calculator, go to Bankrate and use theirs.

Email this spreadsheet to me. This is due today.