How to Plan for a “Big” Car Purchase

John Wooden, the famous UCLA Basketball is said “Failing to plan is planning to fail.”  His statement can apply to how we spend our hard earned money.  If we fail to plan for and make “big” purchases, we will waste money and make bad decisions.   Generally speaking, the two biggest purchases a person will make in his/her lifetime is buying a car and buying a home.  How do we plan for these big purchases?  Before you start to plan on making any sizable purchase, chart your fixed expenses.  For starters, write down and categorize all expenditures for a given month. Include all monthly bills -mortgage/rent, utilities, car payment, insurance premiums, etc.)  Then, build a spreadsheet like Microsoft Excel or Intuit’s Quicken or just a notebook so you can view your expenses.

financial planningThen capture your variable expenses.  This will include groceries, gas, transportation, ATM cash withdrawals, etc.  Estimate your monthly spending here and be reasonable.  Now we come to the bottom-line, add your fixed monthly expenses with your variable estimates, and subtract the total from your after-tax paycheck.  Now that you have this figure, tally your debt so you know how much you owe.  Many people carry their debt around their waist, i.e. in their wallets stuffed with credit cards.  American families owe an average of ~$15,149 according to the Federal Reserve Board.

If your monthly expenses are higher then monthly income you reasonably should not make any big purchase.  But for the purpose of this article, lets say you do have left over money.  You should track your monthly expenses regularly to get an accurate picture of your financial health.

Now set your sights on your long term and short term saving goals.  If you plan to buy/purchase appliances or laptop set your price limit you coule start a saving program.  Very few people can buy a car or buy a home without taking a loan.  Here are some stpes to consider.  First, what can your budget allow you to pay monthly (I think you have heard this before)?  Since you have set your monthly expenses on a spreadsheet (which is actually your monthly budget), you can make the judgment on how large of a monthly payment you can afford.  For an automobile, research financing for the lowest interest rate ( Get yourself pre-approved from the lender and you still have the option of going with the dealer’s financing, if the terms are better.  With some dealers, paying a sum of money upfront (down payment) can drive the interest rate to a very low to even 0% car payment per month. So, focus on saving what you will be required to have as a down payment.

Buying a Car

When buying a car there are so many variables to consider and it is to no surprise that people and their cars is a very personnel choice.  For some folks a car is a status symbol while for others it is only transportation.  Is it a “green car”, Luxury car/SUV, compact, trucks etc., – they come in all shape, color and size!  How do you make a smart choice? Do your automobile research.  Fortunately, using the Internet, a phone and email can do a lot of the work and research at home.  ConsumerReport is an excellent place to start.  You naturally want to buy an auto that is in your budget range but also gives you your best for your dollars.

little care

ConsumerReports ( can provide you The Consumer Reports New Car Price Report, which will provide market price ranges for your area, average prices other paid for the same car, dealer’s willingness to negotiate on the model chosen and a build and buy service.   If you are buying a used car ConsumerReport also has ratings on automobile reliability according to year as well. Below are the steps I recommend before you buy your car with the best potential deal.

  1. Choose the car you want!  Be precise down to trim and options.  Automakers let you build/configure your car of choice on their websites.  Then test drive the car.  Decisions change once you get behind the wheel!
  2. Set up the financing prior to buying a car.  Once you get an idea on how much your car may cost, shop around for your finance options and the lowest interest rates (  Try to get preapproval from your lender, this can help when negotiating with the dealer.  You can still go with the dealer if you get a better rate/terms.
  3. Get dealers to compete.  Play one dealer against another.  You know what car you want and what options, be precise.  Get as many quotes you can get and play one dealer against another.  It is easier to negotiate with a dealer if you have other offers – knowledge is power!
  4. Your trade-in!  If you are planning on trading in your current car again do your homework!  There are three good places to get your vehicle’s value; Edmunds (, Kelley Blue Book ( or National Automobile Dealers Association (  Imagine you are going to sell your car and then work on curb appeal.  Wash and wax your car, clean the interior and see if you can fix any problems cheaply, dealers will make deductions in their favor not yours.  It is usually best to negotiate your trade-in after you have come to closure with your new car transaction.  You still have the option to sell your car on your own if you think the dealer is going to low.
  5. Salesmen!  The dealers have a lot of extras for your car and they are salesmen who want you to part with as much of your own cash as possible.  Extra things like undercoating options, paint sealant etc., just give the dealer more profit. Service contracts and extended warranties usually don’t make sense because you probably chose a reliable car.
  6. Finally, you can usually negotiate lower prices at the end of the month with dealers.  Dealers have monthly sales goals and quotas they want to make and you are in a better position to get a good deal.

Hopefully, this will help you make a good decision on your next big purchase.  We have focused on buying a car.  My next blog will focus on buying the other big purchase – a home.


  1. […] As mentioned before in my previous blog, before making any purchase, it is wise to chart your fixed expenses. Write down and categorize all expenditures for at least a month. Include all monthly bills (mortgage/rent, utilities, car payment, insurance premiums, etc.) Build a spreadsheet in a program such as Microsoft excel or Intuit’s Quicken – even just a notebook works. After charting, capture your variable expenses. This will be groceries, gas, transportation, ATM cash withdrawals etc. Estimate your monthly spending here and be sure to be reasonable. Now the bottom-line, add your fixed monthly expenses with your variable estimates, and subtract the total from your after-tax paycheck. Additionally, tally your debt so you know how much you owe. You will need to know how much money do you need/have for a down payment on a home which will depend on what the price of the home you are buying. Now, let’s build a checklist to consider before buying a home. These are things that you must consider and think about prior to talking to a realtor: […]