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Finances After Graduation Podcast Episodes
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This week, Pete and Alex discuss car ownership and additional transportation options for post-graduation.
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When it comes to being concerned about costs, one of the best decisions you can make – and likely one that will allow you to maintain the greatest sanity – is to first worry about the things that are within your control. Our podcast tips have covered a number of areas where the decisions you make can more or less control the costs associate with them…and car ownership is no exception. If you are thinking of owning a car or weighing your options on transportation costs all together, here are a few things you will want to consider.
Needs vs. Wants
The key is to have an open mind. It’s okay to have great desires for what your first car will look like after graduation, but be sure to set realistic expectations and keep your budget at the forefront when making those decisions. Initially, you may have to settle for something you didn’t expect, but if you start at a place that is manageable for your finances, you can continue to work up to meet your goals. So, if you’re looking at your dream car after the first paycheck you receive from your first job after graduation, you may want to give it another thought. There are ways to have expensive taste and work within a lesser budget until you can get that dream car.
However, before you even start to pick out the car you want, you should probably ask yourself, “Do I really need a car right now?” Are you or will you be living and working in a city with alternate forms of transportation available? If so, utilizing those alternatives could save you a ton of money and prevent you from the possibility of having another fixed monthly payments on your hand; not to mention, you might not make as much money as you think. Think of the reality: Your annual salary may not be enough to sustain the expenses of having a car when there are other transportation options available to you.
Pete recommends keeping your transportation costs to 15% of your income. You may not have much of an idea of your projected salary post-graduation, but here is a place to get you started. If, for example, your annual projected salary is $35,000 for the year and you have student loans to pay, this is what you could be looking at:
Annual Salary: $35,000 - Taxes and student loan payments ÷ 12 months
Monthly Salary = $1,500
15% of Salary = approx. $240 per month for transportation expenses
Use the MoneySmarts budget calculator for yourself to see how your salary or anticipated salary measures up, and weigh your options based on the expenses you will have each month.
Cost of Living
You may have noticed there was some ambiguity in that math equation for taxes and student loan payments. Of course, these will vary depending on your situation. But it’s also important to keep in mind that taxes and other aspects of the cost of living wherever you are will determine those tax percentages for you (and the budget calculator can help you with that). Wherever you choose to live and work, not only will you have to think about how to travel from place to place, you may also consider what you can afford based on what you make and what basic expenses will cost you. The price of gas, your taxes, and even the cost of your groceries are all factors determined based on where you live.
Initially, it might even seem ideal to both own and car and a bus/train pass. While this may be more beneficial for your commute and your schedule, think about whether or not it makes sense in your budget to pay for a weekly or monthly bus pass and bear the expenses of having to maintain and park your car too.
This same concept goes for owning a car in school. If you already have a car, you might leave it at home and test the convenience of taking the bus while in school to see if you even have the necessity for a car on campus. On the bright side, you won’t have to worry about paying for a parking pass or looking for empty spots on campus every morning.
The Other Expenses
With the convenience that often comes with owning your own car (faster transportation, not having to stand outside in the snow, etc.), it’s easy to forget the additional expenses that accompany it. However, when building transportation costs into your budget – whether you drive, take the train, or use car services like Uber or Lyft– the added expenses should be a frequent consideration. In many cases, the costs may add up to even more than what you may already pay on your car note.
If you have your own car, you will want to budget for at least these additional expenses:
- Gas: think about your commute and how often you have to fill up
- Monthly parking options, including parking passes for campus
- Insurance: if you still live at home, it may make more sense and cost less to have a joint policy
- Maintenance: this includes less frequent but pricier expenses like oil changes, a new battery, tires, etc.
- Tickets and fines: be careful not to let bad driving habits or your driving record cost you
- Annual expenses, including new license plate stickers
Car Payment Options and Negotiations
When it comes to saving money, if you do find yourself weighing the options of car ownership and you’re in the market to buy one of your own, you have a few options. You can buy new or used, or you can lease. If you are looking for a temporary option, similar to renting an apartment, leasing a car gives you flexibility until you make a more permanent decision about whether or not to buy a permanent vehicle.
And the dealership doesn’t have to be your only option. Be sure to check online as well. Kelley Blue Book is the most reputable source when it comes to finding actual prices for new and used cars. If you need more help with finding prices, check out other sites as well like truecar.com, which helps to eliminate some of the negotiation for you. Edmunds.com has a tool that helps you estimate the 5-year cost of a vehicle. This tool comes in handy if you are comparing cars and trying to determine which one will cost you less over time, even if their sticker prices are different.
Your next question should be, do you need all the bells and whistles on your car? The more you want, the higher the cost of the car; and salespeople know this. Where you can take off the additions that you don’t need is where you have room to negotiate to a price that may be more reasonable for you. You will also hear that buying a new car or taking out loans for a new car may not be wise because cars lose their value the minute you drive them off the lot. This may be reason enough to consider buying a used car, but be mindful of any maintenance expenses that this could tack on. Ask about warranties and maintenance provided to you with the cost of any car, used or new.
Wherever you go, be sure to inquire about payment plan lengths in terms of how much you will owe and for how long, how much they ask for in down payment, what you will have to take out in a car loan, and what the benefits of the vehicle are for what you are paying. Remember that sacrificing for things like gas mileage efficiency can cost you on the back end when you find yourself filling up the tank twice as often or shelling out more in maintenance costs.
If you can fit it within your budget, one of the benefits of car ownership is that it’s a great way to help you build credit if you have a monthly payment, but it comes with its fair share of expenses. So, before you sign to buy or lease your next car, do your research, assess what you truly need and what you can afford, and be MoneySmart about your decision.