before you buy a car

Next Stop - Reviewing Your Budget

To determine how much you can afford to pay for a car, you first need to review your budget. If you don't have a budget, now's the time to set one up. Which of these best describes how budgeting works?

1. It's a complex plan that requires you to curb your spending.
2. It's a written plan that shows how money will flow in and out of your household each month.
3. It's a formal plan that can't be changed once it's put in place.

"B" is correct. A budget helps you plan and achieve financial goals. You can always review and change it. To set one up: Add up your monthly income. Then add up your expenses. Finally, subtract your expenses from your income. The money that's left is the amount you have available to pay for car expenses.