Buying a Car: Setting a Budget and a Timeline

Buying a Car Setting a budget and a timeline
Over the past few months, and the past couple of weeks in particular, my wife and I have been in the process of buying a car. It’s been a long and at times painful process, but just this past week we made our final decision and within the next couple of days we’ll be heading home in our sweet new ride.

We learned a lot from this experience. Neither of my wife nor I had ever been through the process of buying a car before, and other than deciding to have a child this was the biggest financial commitment we have made together. We definitely made some mistakes along the way, but I think in the end we did enough right to come away with a purchase that fit pretty much everything we were hoping for when we started out.

So, over the next few weeks I’m going to be writing a series on the lessons we learned from going through the car-buying process. My hope is that you can learn from us and use some of our experiences to improve your own purchase when the time is right.

CLICK HERE to get the entire 6-part guide.

Setting a budget

When it comes to buying a car, I think it’s important to go into it with two numbers in mind:

  1. How much you want to spend.
  2. How much you can spend.

In both cases, I want to be clear that we’re talking about the total price of the car. If you’re paying cash, that includes the purchase price PLUS all taxes and fees involved, which can be significant. If you’re taking out a loan, that also includes interest paid over the life of the loan. When you start talking to dealers and evaluating options, you want to be comparing apples to apples. If you’re not talking about the full price with everything included, you don’t have a fair comparison.

To answer #1, how much money you want to spend on a car, you have to evaluate this purchase in the context of your other financial goals. Hopefully at this point you’ve already set up a budget, you’ve started saving for retirement, and you also have dedicated savings for expected but irregular expenses like home maintenance and gifts. With those things in place, you should be able to come up with an ideal total purchase price that will best facilitate your progress on all of your goals.

To answer #2, how much money you can spend, you will look at things slightly differently. Whereas #1 gets you an ideal amount you would like to spend, #2 is determining the absolute maximum. As in, you can’t spend more than that amount without raiding your retirement, your emergency fund, or without sacrificing important financial cornerstones like insurance. This answer sets the limit that you truly can’t go above.

I think it’s important to know both of these amounts because while you will ideally end up close to your answer for #1, you will learn much more about the different options available as you go and without #2 you’d be missing out on both flexibility to adapt to your options and on the protection of having a hard limit. Both of those things will be valuable tools as you go through the process.

To give you an example from our own situation, we had an amount of money we’d been saving as kind of a mixed house down payment/car fund. Our ideal amount, our answer #1, was around half of that total savings. But we also knew that if we really felt like it was the best route, that entire savings amount was available to us without sacrificing either our financial security or our biggest long-term goals. Having that flexibility and that hard cap was helpful.

Setting a timeline

This is something I didn’t do well at the start and it ended up getting me into a little bit of trouble. Know when you would like to actually buy the car, and set the timeline around that. If your car has died and you need a new one now, your immediate actions will have to be different than if you have a couple of months. Obviously planning ahead and giving yourself some time to go through the process is ideal, but it’s not always reality.

Setting a timeline is somewhat similar to setting a budget. If you haven’t decided on a timeline, you run the risk of either rushing a decision that doesn’t have to be rushed or (like me) procrastinating on a decision that should be made sooner. By understanding the realities of your situation from the beginning, you can put the advice in my future posts into action within a time frame that fits your needs. You’ll know how much time you have to do research, how much time you have to contact and negotiate with dealers, and how much time you have to do your final test drives and actually make a deal. Some of these steps can be shorter or longer depending on your specific needs.


This first step in buying a car is all about setting some boundaries for yourself. Whenever I do this, with anything in life, I find that the process goes so much smoother and gets done much more efficiently than when I just wing it.

Next week we’ll look at how to find the car that fits your needs.

Start building a better financial future with the resource I wish I had when I was starting my family. It’s free!

40 Comments... Read them below or add one of your own
  • MyMoneyDesign September 2, 2013

    Good for you guys for getting a new car! Did you go new or used? The process and factors that go into buying a car for us are slightly different since my wife’s cousin is a car dealer and can usually find us some pretty good deals. It helps to have an inside track within the family.

    • Matt @ momanddadmoney September 3, 2013

      Come on now, I’m not going to spoil the surprise! I will say that it was a pretty close call between new and used. With the cars we were looking at, the value stayed pretty consistent.

      I wonder if having a family member as a dealer is truly helpful. I can certainly see why it would be, but I talked to a LOT of dealers and the prices would vary pretty dramatically. A family member may not be able to offer you the best price simply because of the dealership they work at. Just a thought though. I really don’t know.

  • Brian @ Luke1428 September 2, 2013

    We knew several years ago that we were going to need a new vehicle in the near future. Our four growing kids are busting out of the minivan. So we projected ahead to when that “car purchase date” might be and began saving for it. Have probably about another year to go before we pull the trigger but we will have a lot saved up for it by then – enough to pay cash. Most likely getting a Suburban or something comparable.

    • Matt @ momanddadmoney September 3, 2013

      We did the same thing, knowing we wanted to grow our family. My mom got a suburban several years back and with 4 kids she loved it. So from my family it comes highly recommended.

  • Taynia @ Fiscal Flamingo September 2, 2013

    Very good point about factoring fees and taxes into the price. Dealerships don’t like to disclose those until after negotiations and the buyer is hooked. It’s best to ask if they are included in your monthly payments if your not paying cash or have them rolled into the purchase price if you are paying cash. Looking forward to the rest of the series.

    • Matt @ momanddadmoney September 3, 2013

      Yep, you definitely need to know the full cost before you make your decision. Taxes especially, and insurance, can make a big difference when comparing new to used.

  • Alexa Mason September 2, 2013

    I bought a new car for the first time when I had first daughter four years ago. I wanted something safe and reliable. For not really knowing what I was doing I think I made a pretty good choice. I got an Equinox paid it off early and haven’t had a single problem with it. I am going to driver her until she dies!!

    • Matt @ momanddadmoney September 3, 2013

      We’re hoping to do the same thing with this purchase, drive it till it dies. Hopefully we can keep it alive for a long time.

  • Michelle September 2, 2013

    Looking forward to this series! W works at a car dealership so it’s interesting to hear both sides 🙂

  • Laurie @thefrugalfarmer September 2, 2013

    Matt, this sounds like a great series! Can’t wait to dig into it. Congrats too on the new purchase. 🙂

    • Matt @ momanddadmoney September 3, 2013

      Thanks Laurie! I’m excited to share the experience. I think the negotiating tips especially will be helpful for people.

  • Mrs PoP @ PlantingOurPennies September 2, 2013

    Ugh, I hate car shopping. Last time we felt like we were on a bit of a time crunch with getting a car, and it was miserable. =(

    • Matt @ momanddadmoney September 3, 2013

      It’s not an especially fun experience. We were definitely on a time crunch too, though one of mostly our own doing. That procrastination thing always comes back to bite me. But I do think there are some things you can do to make it a little less painful. Stay tuned!

  • Edward - Entry Level Dilemma September 2, 2013

    My brother just bought a car yesterday. He originally thought he needed to get one by the end of October because his ride to work already warned him that he doesn’t go out when it’s cold. But then he broke up with his girlfriend on Saturday. Since it was her place, he’s sleeping on a mattress in the basement of my place until he can find his own place, but it also meant that he now needs a car for tomorrow! He was totally unprepared and he had to borrow $200 from the Bank of Edward. 🙂

    • Matt @ momanddadmoney September 3, 2013

      Oh wow, talk about short notice. Sounds like he was lucky he’s got you to help out. Hopefully he can find something usable. I’d love to hear how it works out.

      • Edward - Entry Level Dilemma September 8, 2013

        He got an ’88 Dodge Lancer. Was able to knock the price down by $150. It’s the very definition of a beater, but it runs!

        • Matt @ momanddadmoney September 9, 2013

          Oh wow. That’s so old, haha! I just put my 1998 Honda Civic to rest and that’s 10 years newer. Glad he was able to find a deal though. All you need is something to get you around right?

  • Andrew September 2, 2013

    Congrats on the new car! Can’t wait for hear what you got and how the negotiating process went if you went to a dealership.

    • Matt @ momanddadmoney September 3, 2013

      I’ve definitely got some good lessons on negotiating. That was by far the biggest learning experience. I think it will be helpful.

  • Charles@gettingarichlife September 3, 2013

    The art of the haggle, with the internet the dealers can’t hide anything. I’m so glad I don’t have a car payment

    • Matt @ momanddadmoney September 3, 2013

      So true! And yet so many of them act like they still hold all of the information. I’m not sure if it’s ignorance or denial.

  • DC @ Young Adult Money September 3, 2013

    I like the new series! I like that you laid out the future posts and I think I will do the same for a series I am planning (in the past I didn’t write what the future posts were). I plan on buying a car in the near future so this is definitely timely for me. Congrats on the new purchase, btw!

    • Matt @ momanddadmoney September 3, 2013

      Thanks DC. I was a little nervous about laying it all out beforehand but it forced me to really think through what I wanted to say. It was a helpful exercise and I also hope it helps keep people coming back. We’ll see.

  • Holly Johnson September 3, 2013

    I really hope that we don’t have to buy a car again for a long time because I hate it! We try to do as much research as we can ahead of time and know what we’re willing to pay. It also helps that we have smart phones because we can look up anything that we didn’t think of ahead of time.

    • Matt @ momanddadmoney September 3, 2013

      The research is huge. You can get such a good feel for prices and quickly tell which dealers are trying to screw you over. It’s amazing how powerful the internet is.

  • Grayson @ Debt Roundup September 3, 2013

    Great series Matt. I like how you have this laid out!

  • Budget & the Beach September 3, 2013

    I’m looking forward to this because that’s me right now. I’m actually having trouble figuring out a timeline because while I had major car issues this year, I’m hoping with what I fixed my car will run at least two more years. That’s the goal anyway but I know the sh*t can hit the fan at any moment. So I’m a bit torn…

    • Matt @ momanddadmoney September 3, 2013

      Trust me, I know the waiting game. I’ve been saying I needed to replace my car for about 4 years now and I’m just now getting around to it. Having never bought a car I definitely learned a lot this time around. I think the posts will be helpful but if you ever have any specific questions let me know.

  • Shannon Ryan September 3, 2013

    Our cars are getting older so I know we’ll need to buy new ones in the relative near future. I haven’t set a timeline yet. 🙂 But am looking forwarding to your series. I promised my husband when we got married that we would always pay cash for our cars which we have done. So we’ve always fully owned them from the get-go but we also start saving for our next vehicles right away too.

    • Matt @ momanddadmoney September 3, 2013

      Starting the savings right away is such a good approach. I’m incredibly thankful that we had the cash available and it’s because we started saving long in advance of the need.

  • Ree Klein September 3, 2013

    Hi Matt ~

    I love that you are doing this series. A car purchase is a big decision and one that should be considered long before the time to buy arrives. For me, the best decision I made was to start saving small amounts out of every paycheck knowing that in 10 years I would want to buy a different car.

    Just like saving for retirement, if you start early you don’t have to save as much each month and you end up with a tidy sum so you can pay cash. Funny though, it was hard to part with the car fund so I ended up driving my old car for a few years longer than necessary!

    Your two points about what you are willing to pay vs what you want to pay are really good. I like that strategy!

    • Matt @ momanddadmoney September 3, 2013

      Couldn’t agree more on treating it like retirement. Cars don’t last forever so you’ll need the money eventually. Might as well start now and give yourself time. We faced the same thing though finding it tough to part with the money. You spend so much time building that fund and then it’s gone so quickly! It’s painful. But that’s what it’s there for right?

  • Kim@Eyesonthedollar September 3, 2013

    I hope we don’t need a car for a while, but I intend to pay cash for all vehicles from here on out. I’m anxious to see what you chose.

    • Matt @ momanddadmoney September 3, 2013

      I think paying cash is the right way to go most of the time. I do think there are some cases where a loan can make sense though. But that’s what the next post is for!

  • MoneySmartGuides September 4, 2013

    I think the unspoken guideline for transportation is something like 5-10% of your monthly income. But even that total amount might be too much. I sit own and total everything up and just sit on that number to see if I am comfortable spending that amount.

    • Matt @ momanddadmoney September 4, 2013

      Correct me if I’m wrong, but it sounds like you’re simply evaluating the monthly payment. If so, I think that’s a big mistake. The monthly payment can pretty easily be manipulated by the length of the loan and really doesn’t reflect the whole cost of the car. The mindset of being able to afford the monthly payment is what I think gets a lot of people into trouble without even realizing it.

      • The Student Loan Sherpa September 7, 2013

        Well said Matt. I think deciding what you can afford to pay based upon your other obligations is the way to go. I’ve seen a lot of people get bad deals on cars because they just negotiated the monthly payment.

        • Matt @ momanddadmoney September 9, 2013

          Yep, I heard it myself when I was in the dealership just the other day. The customer is sitting there telling the dealer what he can afford for the monthly payment and I couldn’t help but feel like he was about to get himself into trouble. That’s exactly how they want you thinking.

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