how much should i spend on a car if i make $40,000

As a first-time car buyer, how much vehicle can you afford, and whats a responsible price target? Responsible questions. Read on to know what to prioritize when it comes time to fi

how much should i spend on a car if i make $40,000

As a first-time car buyer, how much vehicle can you afford, and whats a responsible price target? Responsible questions. Read on to know what to prioritize when it comes time to find a dealer, negotiate and pay the fee for a new car.

Related: More First-Time Buyers Advice

Budgets are important, especially when youre buying a car. As with all things financial, theres a debate over how much money you should spend on your next vehicle. Roughly 40 percent of consumers try to stick within 15 percent of their budget, according to CNW Research, while about half want to stay within just 5 percent of their budget when they leave the dealership. You should check with a financial planner to determine what price is right for you; you dont want to become car poor because you cant afford anything for the month after making your car payment.

For the majority of shoppers, the budget hits home in the form of a monthly car payment. About 85 percent of new-car buyers today finance or lease their vehicle, according to Experian Automotive; a majority of used-car shoppers do the same.

So, how does that monthly payment turn into a new-car budget, and how much should it be? Start with some of our financing tips below.

Know Your Expenses

Estimating how big your car payment is should depend on many factors. How much money is coming in, and how much of it is going out on rent, mortgage payments and/or student loan debt? Those are relatively entrenched costs  and theyre harder to change than, say, deciding to eat out at restaurants less often or ditching your cable TV payment.

Expert estimates range broadly. Greg McBride, a senior vice president, chief financial analyst at, advises that a car payment should equal no more than 15 percent of your pretax monthly pay. That means that if you make $50,000 a year, your monthly car payment could be as much as $625.

But for many of us, it should be lower. The 15 percent ceiling applies only if you dont have any other debt other than a mortgage, McBride cautioned. Not many first-time buyers can say that, so be smart about how much money youre putting aside.

Car Payments Arent the Only Expense

Youll also have gas and insurance to pay for. Dont be surprised by how tolls and parking expenses mount or forget to have a regularly funded stash o cash for maintenance and repairs. All of those expenses have led some experts to recommend even lower budget limits for your car purchase. Managing Editor Mike Sante says you shouldnt spend more than 10 percent of your pretax income on the combined cost of car payments and auto insurance, while The College Board recommends 15 percent of take-home pay should go toward all transportation expenses.

Got an Idea of a Monthly Car Payment?

Good. Now, pull up Cars.coms auto affordability calculator and fill in the monthly payment youve decided on. If you have a car you plan to trade in or sell, estimate its value through Cars.coms calculator and fill it in along with your estimated down payment. McBride recommends having at least 10 percent down if youre financing a new car and 20 percent for a used car. Dont assume your trade-in will suffice as a down payment.

Enter a combined percentage for sales tax, which you can typically find on your states Department of Motor Vehicles, Department of Revenue or other state government website. (A local car dealership should be able to tell you that rate if you call.)

Now youre ready to think about the interest rates and terms for your car loan, assuming youre not paying cash. For the sake of this exercise, input a five-year loan (60 months) at the prevailing interest rate, which is about 3 percent as of February 2015, according to

Focus on the Cars Price, Not the Payment

Plug in all the numbers and you should have a pretax number for how much car you can afford to pay. Learn more about the negotiation process and our tips, and if you did your homework with Cars.coms car affordability calculator, you can now focus on making sure you find a vehicle that fits that price. The monthly car payments will work themselves out.

The bigger picture is, how much are you paying for the car, McBride said. Focus on getting the best price you can for the car, limiting those other out-of-pocket cost and add-on costs. And if you do all that, the monthly payment will [follow]  youll have a manageable monthly payment.

In the market for a cheap car? Find cars priced at $7,000 or less near you.

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