Purchasing your dream car is undoubtedly a big financial commitment, but it doesn’t mean spending more than you can afford. To ensure you purchase a vehicle that fits into your budget, follow the 20/4/10 rule of car buying, according to The Balance. The 20/4/10 rule is an excellent formula to help you figure out your vehicle’s budget. Based on the formula, you should pay 20% of the down payment on a vehicle with a four-year auto loan, then spend only 10% of your income on transportation. 

While saving for years to buy your dream car is ideal, creating a budget in advance is crucial. Budgeting gives you a perfect idea of the lifetime costs of owning a vehicle. With a budget, you can easily compare car prices, which is an essential part of building smart financial habits. Keep reading to get insights on how to budget for your dream car.  

Start by Optimizing Your Budget

Owning a car is a great achievement, but it can be expensive. To purchase your dream automobile, you need to cut your expenses. Doing so helps you save enough money for the sticker price, and the best way to save up money to fund your car purchase is by optimizing your budget.  

This step entails listing all your expenses, including rent, insurance fees, internet and phone bills, groceries, gym membership, subscriptions, and existing loan repayment. Remember to write your budget on a spreadsheet, based on priority. That way, you can identify what expenses you can reduce or find cheaper alternatives. After creating a personal budget, determine if your current income can finance your dream vehicle. 

Consider Car-Related Expenses

Many people assume that the sticker price or MSRP is the only expense they have to budget for when planning to buy a car. However, the total cost of car ownership goes beyond the marked price. As a car owner, you’ll want to budget for recurring costs, like insurance premiums, gas, repairs, and maintenance. 

Note that several factors affect each car expense. For instance, your age, driving history, car model, and credit score have a significant impact on how much you pay for auto insurance premiums. Therefore, compare insurance rates from different companies to get the best deal. Likewise, maintenance fees fluctuate often and vary in every state. 

When budgeting for maintenance, account for unexpected repairs. In most cases, sudden car breakdowns means that you’ll have to call in a tow service provider to ferry your vehicle to a mechanic. With that said, be sure to find out the cost of towing a car in your region. Typically, tow companies charge rates based on distance. For instance, you might pay $35 to $125 to get your car towed for five miles. 

Research the Car Market  

Conducting thorough research for your ideal vehicle is a crucial step to budget for it. Research helps you understand the benefits and downsides of your desired car model. With valuable information about a vehicle, you can decide if it’s worth creating a budget for. When researching your dream vehicle, check if your desired features are available on a cheaper brand or model. You can also determine if a lower trim model will satisfy your travel needs. 

To achieve the best outcomes when searching and comparing automobiles, find a reliable vehicle review site. Many auto review websites provide room for car experts and consumers to share feedback on different models. By reading opinions from existing car owners and experts, you can quickly determine if your dream vehicle fits the purpose. Be sure to go through reviews on registration and insurance costs, as they vary from state to state.  

Buying your dream vehicle, whether it’s a compact SUV or sports car, can be expensive and challenging. However, owning your dream car isn’t impossible if you know how to budget. Auto experts recommend applying the 20/4/10 rule and optimizing your budget. Also, research the market and compare prices, then include all car-related expenses in your budget.


Habit Stacker provides useful, high-quality content geared towards creating a successful life.  Feel free to reach out with any comments, queries, or suggestions.  We’d love to hear your feedback.  Please contact us at  Chris@thehabitstacker.com.

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