the budget

The Budget

Welcome!

So you’re looking to buy a car?

The first step to successfully purchasing a vehicle is to make sure you have enough money to buy it.

Together we’re going to work on creating a budget for your car,

finding your credit score and what car buying services may be available

to you.

Click to continue

It seems that whenever money comes up the word “budget” comes

up too.

But what exactly is a budget?

A budget is a list of what you’re going to spend your money on.

We spend our money on a lot of things.

And in order to buy a car, you need to figure out how much you can afford to pay a month considering what you already buy after taxes.

Food

Entertainment

Clothes

Phone bill

How much do you make after

taxes?

It’s easy to find a paycheck

calculator online.

Take this one as an example.

If you are single and do not take

any withholdings or exemptions

Your income after taxes is this

much.

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Your income after taxes is this much.


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Gross YTD is short for Gross Year to Date earnings.

It’s how much money you’ve made this year so far

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Additional Pay is extra money you earn.

For example if you get a bonus or if you were a sales person

you’d get commission .

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Withholdings or exemptions are a portion of your income that

are not taxed.

To learn more, please get in touch with your Personal Financial Management

Specialist on base.





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Net pay is the amount of money a month you take home

after taxes. This is sometimes called Take Home pay.





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Now that you know your Net pay – what do you spend it on?

You can create a list of all the items you bought in the past couple of weeks or month and how much they cost

you.

What I spent a month

Cell: $50Food/drink at home: $300Restaurants/Bars: $200Clothing: $100Necessities/miscellaneous:$100 $750

Once you figure out your expenses you

can look at how much you can afford to pay a month with

your budget.

25% of $1308.99

1308.99x .25327.25

$750 + $327.25 = $1077.25 Living Car TotalExpenses Payment Spent

So with the net pay we looked at earlier you

should be paying around $327.25.

But what is cost of ownership?

It’s everything you have to pay beyond the price of the vehicle. And this includes many things.

Consider this rule of thumb:Your car payment should be around 25% of

your net pay.15% goes to the car loan

10% goes to the cost of ownership

When thinking about your car payment ask

yourself these questions:

How much does the car I want to buy

cost?

How much does maintenance (like

buying new tires and oil changes) cost for

the car I want?

How much would it cost to insure the

car? How much would I have to pay for gas if

I had this car?

What goes into the cost of ownership?

Welcome to our showroom. Pick a vehicle to learn about how much it costs.


Ford F150


Ford Fiesta

Check out this Ford F150 For the Manufacturer Suggested

Retail Price (MSRP) you’d pay this much

But if you wanted the car as shown it would cost $20,000

more.

Also look at the miles per gallon (mpg).

The higher the MPG the less you’ll have to pay at the pump.

Look at the Cost of Ownership of the vehicle.The screenshot bellow from motortrend.com

shows the 5 year total cost to the owner.

Check out this Ford Fiesta

For the Manufacturer Suggested Retail Price (MSRP) you’d pay in

this range depending on the features you add.

Also look at the miles per gallon (mpg).

The higher the MPG the less you’ll have to pay at the pump.

Look at the Cost of Ownership of the vehicle.The screenshot bellow from motortrend.com

shows the 5 year total cost to the owner.

Your Net pay was $1308.99

Which car can you afford?

This car!

This car!

You may want to look into buying

a used car or looking at

cheaper Makes and Models of

cars.

You cannot afford to buy the Ford F150 with your current budget.

Your Net pay was $1,308.99

If you bought this car you’d only have $442.51 of the $750 you need

for all your other expenses.

Yes, you can afford to buy the Honda Civic with your

current budget! Your Net pay was $1,308.99

You’ll have the $750 you need for all your other

expenses.

But you may still want to look at

used cars or cheaper Makes and Models to get the

most bang for your buck.

After you’ve determined what you can afford to pay with your budget, you’re going to want to check your credit score and credit report.

Based on your credit report, lenders give you a credit score which measures the risk of lending you money.

The higher the score, the more lenders feel comfortable loaning to you and usually the better

interest rates you receive for those loans.

Your credit report contains detailed information on your credit history.

This includes some personal information, your credit accounts and loans, any bankruptcies, late

payments, and recent inquiries you may have.

You can pay credit reporting agencies such as Equifax and TransUnion.

But you can get one free credit report every year from this government approved website.

Your credit score is sometimes called your FICO score.

Credit/FICO scores range from 300 – 850. The lower the score, the higher the risk you are and the less likely a lending institution will loan you money.

What is an interest rate?Click here!

CREDIT HISTORY REPORT SUMMARY

You have no credit

It’s important to have good credit before buying a car because the higher your credit score, the lower your interest rate will be on your loan.

This means you don’t pay as much in the long run when paying off your car.

As a young marine, you probably don’t have much in your credit history to show that you are not a risk to lend to. This means that your credit score

may be on the low end of the range.

If your score is low, lending institutions will think you cannot pay them back – it’s too much of a risk to loan to you -- and

won’t loan you money. So you’re going to want to build up some good credit before trying to get a car loan.

But how do you build good credit?

You can build good credit by avoiding debt by paying your taxes and bills on time.

You can set up a email or text message reminders for your due dates through your credit card or bank website.

Bottom line: only use credit for what you know you can pay back in timely fashion to build good credit.

If you want more information, contact the

Personal Finance Management

Specialist on your base.

Like we said earlier, your credit score impacts your interest rate on your car loan.

So what’s interesting about the interest rate?

Let’s take two examples:Someone who has a lower credit score and so has an interest rate of 17.9% versus someone who how has a higher credit score and has an interest rate of 11%

for the same amount of time.

If you compare the numbers for the loan summary – the person with the higher interest rate ended up

paying $9000 more and at a higher monthly payment to finish at the same pay off date.

Let’s see what you know.

Can you help Stewart?

Hi there! I have a couple of questions about what

impacts my credit score…

I just opened my first credit card. Do you think my credit

score will be high or low?

High Low

I just checked my credit score on the

annualcreditreport.com and I have a low score because I don’t have enough credit

history.

How does a low credit score impact my interest rate?

Higher Interest Lower Interest

You were right! According to annualcreditreport.com and I have a low score because I don’t have enough credit

history.

How does a low credit score impact my interest rate?

Higher Interest Lower Interest

Looking at this chart – I would have a higher

interest rate because of my low credit score.

Should I get a car loan with a high interest rate?

Yes No

You’re right – I would have a higher interest rate

because of my low credit score.

Should I get a car loan with a high interest rate?

Yes No

After looking at how much I’d pay in interest, I

shouldn’t get a loan with a high interest rate. I’ll try to build up my credit first by paying my bills on time.

You’re right - I’d pay too much in interest, I shouldn’t

get a loan with a high interest rate. I’ll try to build up my credit first by paying

my bills on time.

Something that could help you a lot in prepping financially to buy a car is using a

car buying service.

Car buying services are available through your bank or a car buying concierge.

A car buying service will research and suggest cars that fit your budget and needs.

This could make car buying an easier process for you!

To find out more about any of the topics discussed in this module - contact your base’s Personal Financial

Management Specialists.

Thank you for learning with us!You may now exit.

When money is borrowed, the lending institution, often a bank, charges a small fee for this service. Interest rates are charged as a

percent of the amount loaned, also known as the principal.

Let’s take an example.

You borrow $6000 from the bank. This is your principal amount.You agree to pay back the principal in 1 year by paying small amounts every

month. The bank charges you an interest rate of 10% for loaning you money.

How much do you think you should pay every month to pay off the loan in one year?

$500 $550

The larger the amount you take out in a loan, the larger amount you’ll have to pay in interest because it’s a percentage of your remaining principal.

If you did not pay the loan off in a year you could end up paying even more.

Interest really shows that time is money. The longer you owe the bank, the more money in interest you end up paying them.

If you did not have an interest rate on your loan you could pay it off at $500 a month. But a 10% interest rate means at the end of the year you

will have paid the bank $6600 - $600 more than the principal.

Need more information?Contact your base’s

Personal Finance Management Specialist.

the budget

Documents

net pay

home pay

additional pay

highlighted text

car payment

car loan10

cost of ownership

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