Author Topic: Tracking a Car Purchase in Your Budget  (Read 1242 times)

zero_house

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Tracking a Car Purchase in Your Budget
« on: August 22, 2022, 02:12:24 PM »
The 2007 Toyota Matrix we recently bought from a neighbor after our family returned from a long trip turned out to be too rusty to be safe. I've searched endlessly for another used car but have only found overpriced (or otherwise sketchy) offerings, until you get up to around the $15,000 range, at which point we could almost get a new car with a warranty. We've decided that the best value might be to just buy a new Honda Civic.

If we pay cash, I'm not sure what the best way would be to track it in our monthly budget. We normally have a set monthly budget figure, and we track a running total of over- or -underspending. We usually try to cut back on spending until we are back in line with our budget. However, if we purchased a new car, we probably wouldn't be "back in line" for almost two years. Should we just calculate what the monthly payment would be if we financed the car and subtract that from our monthly budget? Or should we just stay in saving mode until we're back in line with our budget?

How have others who have made a large lump-sum purchase handled it?

Paper Chaser

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Re: Tracking a Car Purchase in Your Budget
« Reply #1 on: August 22, 2022, 02:28:56 PM »
For what it's worth, Toyota and Hyundai each make competing cars that come with hybrid capability and have starting prices within a couple thousand bucks of the cheapest civic you can get. They're far more efficient:

https://fueleconomy.gov/feg/Find.do?action=sbs&id=44132&id=44073&id=44057

You could also consider a Ford Maverick Hybrid (if you can actually find one). I believe they're the cheapest hybrid that you can buy period. They start lower than any Civic, offer more capability than the Civic, and get better fuel economy (although not as good as the Corolla or Elantra hybrids):

https://fueleconomy.gov/feg/Find.do?action=sbs&id=44132&id=44073&id=44057&id=45110
« Last Edit: August 22, 2022, 02:34:36 PM by Paper Chaser »

JLee

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Re: Tracking a Car Purchase in Your Budget
« Reply #2 on: August 22, 2022, 02:30:01 PM »
I have a local credit union offering car loans as low as 2.24%.  With the current inflation climate I would likely finance.

getsorted

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Re: Tracking a Car Purchase in Your Budget
« Reply #3 on: August 22, 2022, 02:58:45 PM »
The 2007 Toyota Matrix we recently bought from a neighbor after our family returned from a long trip turned out to be too rusty to be safe. I've searched endlessly for another used car but have only found overpriced (or otherwise sketchy) offerings, until you get up to around the $15,000 range, at which point we could almost get a new car with a warranty. We've decided that the best value might be to just buy a new Honda Civic.

If we pay cash, I'm not sure what the best way would be to track it in our monthly budget. We normally have a set monthly budget figure, and we track a running total of over- or -underspending. We usually try to cut back on spending until we are back in line with our budget. However, if we purchased a new car, we probably wouldn't be "back in line" for almost two years. Should we just calculate what the monthly payment would be if we financed the car and subtract that from our monthly budget? Or should we just stay in saving mode until we're back in line with our budget?

How have others who have made a large lump-sum purchase handled it?

Posting to follow, because I am also curious how others handle this. I use Mint and I am unclear on how it's processing large, financed purchases, such as the plumbing bill I used a HELOC to pay for. It coded the purchase as "spending" when made; will it also be coding each payment as "spending? It seems like the purchase plus payments are thus being double-counted in cash flow for the year.

HPstache

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Re: Tracking a Car Purchase in Your Budget
« Reply #4 on: August 22, 2022, 03:44:00 PM »
The 2007 Toyota Matrix we recently bought from a neighbor after our family returned from a long trip turned out to be too rusty to be safe. I've searched endlessly for another used car but have only found overpriced (or otherwise sketchy) offerings, until you get up to around the $15,000 range, at which point we could almost get a new car with a warranty. We've decided that the best value might be to just buy a new Honda Civic.

If we pay cash, I'm not sure what the best way would be to track it in our monthly budget. We normally have a set monthly budget figure, and we track a running total of over- or -underspending. We usually try to cut back on spending until we are back in line with our budget. However, if we purchased a new car, we probably wouldn't be "back in line" for almost two years. Should we just calculate what the monthly payment would be if we financed the car and subtract that from our monthly budget? Or should we just stay in saving mode until we're back in line with our budget?

How have others who have made a large lump-sum purchase handled it?

"Too rusty to be safe" sounds like severe BS or overly dramatic to me.  Please explain
« Last Edit: August 22, 2022, 03:46:21 PM by v8rx7guy »

LightStache

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Re: Tracking a Car Purchase in Your Budget
« Reply #5 on: August 23, 2022, 08:26:16 PM »
The 2007 Toyota Matrix we recently bought from a neighbor after our family returned from a long trip turned out to be too rusty to be safe. I've searched endlessly for another used car but have only found overpriced (or otherwise sketchy) offerings, until you get up to around the $15,000 range, at which point we could almost get a new car with a warranty. We've decided that the best value might be to just buy a new Honda Civic.

If we pay cash, I'm not sure what the best way would be to track it in our monthly budget. We normally have a set monthly budget figure, and we track a running total of over- or -underspending. We usually try to cut back on spending until we are back in line with our budget. However, if we purchased a new car, we probably wouldn't be "back in line" for almost two years. Should we just calculate what the monthly payment would be if we financed the car and subtract that from our monthly budget? Or should we just stay in saving mode until we're back in line with our budget?

How have others who have made a large lump-sum purchase handled it?

Posting to follow, because I am also curious how others handle this. I use Mint and I am unclear on how it's processing large, financed purchases, such as the plumbing bill I used a HELOC to pay for. It coded the purchase as "spending" when made; will it also be coding each payment as "spending? It seems like the purchase plus payments are thus being double-counted in cash flow for the year.

I typically delete/exclude major transactions. So in this case I would delete the plumbing bill, make sure the HELOC is recorded as a liability, and count HELOC payments as monthly expenses.

In OPs case where there aren't going to be ongoing payments, I would just disregard the purchase in my budgeting. I account for major purchases -- house, car, extended travel -- separately. Those aren't reflect in monthly/yearly budgets.

bryan995

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Re: Tracking a Car Purchase in Your Budget
« Reply #6 on: August 23, 2022, 10:05:44 PM »
No reason to pay cash when loans can be had in the <2% range.

I just closed a $0 down @ 1.99% for 60 months.
Had the option for 20% down at 1.74% but that simply wasnít enough to justify using any liquid cash.

zolotiyeruki

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Re: Tracking a Car Purchase in Your Budget
« Reply #7 on: August 24, 2022, 08:58:03 AM »
What does "too rusty to be safe" mean?  What is that judgment based on?

The 2007 Toyota Matrix we recently bought from a neighbor after our family returned from a long trip turned out to be too rusty to be safe. I've searched endlessly for another used car but have only found overpriced (or otherwise sketchy) offerings, until you get up to around the $15,000 range, at which point we could almost get a new car with a warranty. We've decided that the best value might be to just buy a new Honda Civic.

If we pay cash, I'm not sure what the best way would be to track it in our monthly budget. We normally have a set monthly budget figure, and we track a running total of over- or -underspending. We usually try to cut back on spending until we are back in line with our budget. However, if we purchased a new car, we probably wouldn't be "back in line" for almost two years. Should we just calculate what the monthly payment would be if we financed the car and subtract that from our monthly budget? Or should we just stay in saving mode until we're back in line with our budget?

How have others who have made a large lump-sum purchase handled it?

Posting to follow, because I am also curious how others handle this. I use Mint and I am unclear on how it's processing large, financed purchases, such as the plumbing bill I used a HELOC to pay for. It coded the purchase as "spending" when made; will it also be coding each payment as "spending? It seems like the purchase plus payments are thus being double-counted in cash flow for the year.
I typically delete/exclude major transactions. So in this case I would delete the plumbing bill, make sure the HELOC is recorded as a liability, and count HELOC payments as monthly expenses.

In OPs case where there aren't going to be ongoing payments, I would just disregard the purchase in my budgeting. I account for major purchases -- house, car, extended travel -- separately. Those aren't reflect in monthly/yearly budgets.
In our family, we have effectively two budgets:  a monthly budget, which covers normal day-to-day stuff, and a yearly "infrequent expenses" budget, which includes things like vacations, Christmas, car insurance, etc.  The common term for this second type of budget is a "sinking fund," while we call it "short term savings."  Each month, we transfer $xxx out of our checking account into our short term savings, and that transfer is part of the monthly budget.  When we have those infrequent expenses, they come out of that short term savings account.

getsorted

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Re: Tracking a Car Purchase in Your Budget
« Reply #8 on: August 24, 2022, 08:58:28 AM »
I typically delete/exclude major transactions. So in this case I would delete the plumbing bill, make sure the HELOC is recorded as a liability, and count HELOC payments as monthly expenses.

After checking more thoroughly, I think what Mint does is the opposite. If a line of credit is already linked, they record the spending as spending when it happens, and everything that is marked "loan payment" or "credit card payment" is coded as a "transfer." Payments I make to my HELOC and credit cards don't show up in Cash Flow or Budgets.

Interestingly, my mortgage isn't linked in Mint (I have it recorded as "property" but have to manually update it). Those payments do show up in Cash Flow.

LightStache

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Re: Tracking a Car Purchase in Your Budget
« Reply #9 on: August 24, 2022, 09:16:29 AM »
I typically delete/exclude major transactions. So in this case I would delete the plumbing bill, make sure the HELOC is recorded as a liability, and count HELOC payments as monthly expenses.

After checking more thoroughly, I think what Mint does is the opposite. If a line of credit is already linked, they record the spending as spending when it happens, and everything that is marked "loan payment" or "credit card payment" is coded as a "transfer." Payments I make to my HELOC and credit cards don't show up in Cash Flow or Budgets.

Interestingly, my mortgage isn't linked in Mint (I have it recorded as "property" but have to manually update it). Those payments do show up in Cash Flow.

I don't like that treatment because it's going to skew your annual spend way higher.

This is similar to the concept of depreciation. If it's a large expense that spans more than one year, I think you should spread it out over its life.

Of course this is just my individual preference. There is a right way to record these transactions for a business that follows modern accounting principles, but there are many ways to skin the cat when tracking family budgets.

getsorted

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Re: Tracking a Car Purchase in Your Budget
« Reply #10 on: August 24, 2022, 09:17:53 AM »
I typically delete/exclude major transactions. So in this case I would delete the plumbing bill, make sure the HELOC is recorded as a liability, and count HELOC payments as monthly expenses.

After checking more thoroughly, I think what Mint does is the opposite. If a line of credit is already linked, they record the spending as spending when it happens, and everything that is marked "loan payment" or "credit card payment" is coded as a "transfer." Payments I make to my HELOC and credit cards don't show up in Cash Flow or Budgets.

Interestingly, my mortgage isn't linked in Mint (I have it recorded as "property" but have to manually update it). Those payments do show up in Cash Flow.

I don't like that treatment because it's going to skew your annual spend way higher.

This is similar to the concept of depreciation. If it's a large expense that spans more than one year, I think you should spread it out over its life.

Of course this is just my individual preference. There is a right way to record these transactions for a business that follows modern accounting principles, but there are many ways to skin the cat when tracking family budgets.

There may be a way to change how it manages this; I don't know.

zero_house

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Re: Tracking a Car Purchase in Your Budget
« Reply #11 on: September 02, 2022, 11:28:25 AM »
No reason to pay cash when loans can be had in the <2% range.

I just closed a $0 down @ 1.99% for 60 months.
Had the option for 20% down at 1.74% but that simply wasnít enough to justify using any liquid cash.

May I ask where you found this rate, through a bank or a dealership?

zero_house

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Re: Tracking a Car Purchase in Your Budget
« Reply #12 on: September 02, 2022, 11:30:47 AM »
Thanks for the advice to just get a low-interest auto loan. We applied through a credit union but were turned down because we do not have recent proof of income. (They do not accept investment income.) Have others gotten around this somehow?

bryan995

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Re: Tracking a Car Purchase in Your Budget
« Reply #13 on: September 02, 2022, 09:49:37 PM »
No reason to pay cash when loans can be had in the <2% range.

I just closed a $0 down @ 1.99% for 60 months.
Had the option for 20% down at 1.74% but that simply wasn’t enough to justify using any liquid cash.

May I ask where you found this rate, through a bank or a dealership?

This was via CAFCU.  Dealership offered me 7.99% :)
However this was a special promotion that has since expired.
I had a backup of 2.29% via Parsons CU. <3% is out there.   We had w2 income so had no issues being approved.

https://www.f150lightningforum.com/forum/threads/cafcu-financing-promo-rate-1-74-just-started-today-promo-code-cafcu83.10639/
« Last Edit: September 02, 2022, 09:53:50 PM by bryan995 »

lifeisshort123

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Re: Tracking a Car Purchase in Your Budget
« Reply #14 on: September 03, 2022, 08:44:15 AM »
I would finance given the low interest rates.  Donít pay a high interest rate though.

Laura33

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Re: Tracking a Car Purchase in Your Budget
« Reply #15 on: September 08, 2022, 10:42:44 AM »
How we managed it:

1.  First car:  cash downpayment, financed the rest.  Accounted for loan payments in monthly budget.

2.  Once loan paid off, continued depositing monthly loan payment into savings.

3.  Second car:  used cash + small loan.  Repeated 2 above.

4.  By 3rd car, had enough cash in account to cover the full cost of the car.  Continued to deposit $$ into account for next car.

We do this for vacations, semi-annual tax/insurance bills, car maintenance, etc. as well.  We add all those irregular/periodic expenses up, divide by 12, and then transfer that automatically to a separate account every month.  You can then true-up the actual vs. expected spend at the end of the year and adjust the next year's transfers accordingly.

This got easier when Quicken came along, btw -- I enter the actual $$ when I spend it, and the monthly deposits are just transfers that don't really count for anything.  For one-offs, we categorize those as "Special," so we can see how much the actual expense was but also segregate it from the sort of standard living expenses. 

Note:  IMO, it is actually helpful to have those periodic big expenses accounted for in your annual expenses, even if it's painful to look at.  One of the things we noticed after several years in our new house was that there was always something in the "special" category -- one year a major remodel, one year a new roof, one year a garage, one year a new car, etc. etc. etc.  And at some point, when there's always some extra unanticipated cost, it's not really "extra" anymore, is it?  So better account for it and include it in future projections.

Catbert

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Re: Tracking a Car Purchase in Your Budget
« Reply #16 on: September 08, 2022, 11:36:05 AM »
+1 on Laura33's comment that there is always something.  Don't create a retirement budget without recognizing the stream of cars, roofs, remodels, etc will happen on a regular basis.

 

Wow, a phone plan for fifteen bucks!