You know what's shocking? How much it costs to get around town. It doesn't matter if you drive a huge SUV or you commute by train- unless you can walk to work, your transport costs are going to eat up a significant portion of your income. Yet, because getting to and from places is a necessity, you spend the money without really thinking about it. Which is dangerous.
Budgeting may be a four-letter word to you, and that's okay. But whatever you want to call it, you need to set a goal or guideline for spending money on transportation. Why? Because otherwise, way too much of your money will be spent just getting from point A to Point B-and who wants that? No one. To begin, you have to remember you only get to spend what you bring home. You'd be surprised how many people forget this. What you bring home has to cover housing, food, insurance, entertainment, and of course, transportation.
A good rule of thumb is to keep your transportation cost at or under 15% of your total take-home budget. Let's say your hypothetical income is $3,000 a month. This leaves you with $450 for transportation. A car-payment alone could wipe out this amount, but "transportation" costs involve more than just a car payment. The "transportation" umbrella actually covers a lot. It's time to get realistic about what you're spending on transportation. Start by mapping the following expenses.
Unless your vehicle is paid off (kudos if that's the case!)-you're stuck with a car payment. And car payments are expensive. If you're not careful, a single car payment could easily be more than 15% of your income. In 2014, the average car payment was $345. Now double that number if you are in a relationship where you share money and you each have a car payment. If your current car payment is more than what you should be spending each month, the best thing to do is pay it off as quickly as possible. Yes, the solution to having a high car payment is to put more money toward it. While this definitely puts your present in a bind, it's the best thing for your future.
The cost of gas fluctuates, which can make budgeting for fuel difficult. Yet, it's something you have to buy if you own a vehicle. The distance you live from work and the type of vehicle you drive factor into how much you'll spend on fuel each month, so bear that in mind. At the very least, work an estimated weekly fuel cost into your spending plan.
Yep, you've got to insure your vehicle. And no, state minimums aren't good enough. Insurance definitely isn't the place to cut corners, but you also probably don't need the lowest deductible option either. Speak to your insurance agent to determine what car insurance is best for your particular situation.
At the very least, your car needs a car wash and an oil change periodically, but it will also need brakes, tires and air filters every once in a while too. This, of course, doesn't account for any significant repairs you may need-which is where an emergency fund comes in handy. Factor in regular maintenance, and sock as much away as you can for unexpected breakdowns.
Depending on your state of residence, you will be required to shell out some money each year for license plates, registration and titling fees, and perhaps even an annual inspection and/or emissions test. While this won't set you back a ton of money, these tend to be the most oft-forgotten expenses, as they only come around once every year or two. Find out what you're required to pay and work it into your budget, so you're no longer surprised (or annoyed) when these expenses comes around.
Sadly, parking isn't always free. And if you live or work in a metropolitan area, parking costs can add up to hundreds of dollars a month. Yep, just for your car to sit in one spot all day. Some employers may offer to pay a portion of your parking fees, but if not, it can be a severe hit to your transportation budget. Be diligent about finding the least expensive options possible-and then factor them right into that budget of yours.
If your city offers public transportation, it is generally a more affordable way to get around, but it still costs. A monthly train or bus pass can cost anywhere north of $100. While this is significantly less than a car payment, it's still important to factor the cost into your budget. This is especially important if you own a car and also use public transportation occasionally. The cost of using both can add up quickly.
Peter Dunn, aka Pete the Planner, is an award-winning financial mind who has authored five books, hosts the popular Pete the Planner radio show and travels around the country offering financial education. For more from Peter, visit www.petetheplanner.com.
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