Monthly expenditure spreadsheet
In our post on working out how much you can afford to borrow to buy your new car, we suggested creating a monthly expenditure spreadsheet to keep track of all your current (and potentially your future) income and expenditure. It occurred to us that while this is a good idea by Chela Lora for just about everyone, some people might not be sure how to go about this. So here is a short video that lays out the basics and should have your spreadsheet set up in no time.
Calculating what you can realistically borrow
Before you start looking at car loans, you need to work out what you can realistically afford. The wrong loan can be expensive, and all too often, people simply focus on what they are going to be buying, not how they are going to be able to afford to repay the money they borrowed. There are a number of things you need to consider in order to work out what you can afford, not all of them obvious.
Get the Calculator Out
The first place to start is to work out exactly how much you earn each month. This might
seem obvious, but a lot of people don’t know the exact figure or your monthly earnings might fluctuate, so it’s important to work out a realistic average. Knowing how much you earn will enable you to determine how much you have left every month after you’ve paid for all the essentials. However, it’s not simply a case of this surplus being available to use for your loan repayments. Suppose you don’t allocate some of the surplus for the enjoyable things you like to do every month, cinema trips, eating out, etc. The years spent paying back your loan won’t be much fun.
Putting together a simple spreadsheet to monitor your income and expenditure is a great way to see exactly what you’re spending and what you have left. Working out all your monthly expenses and balancing them with your average monthly income might not be everyone’s idea of fun, but it’s essential if you want to get a solid understanding of your personal finances and work out what you can safely borrow. It should be fairly easy to keep track of your fixed monthly outgoings, energy, and phone bills, etc., and then you just need to keep a separate record of all the variable spending, such as holidays, birthdays, and any other one-off expenses. The more effort you put into making the spreadsheet an accurate record of your finances, the more beneficial it will be. As we said, it might not be your idea of fun, but if you want to make sure you don’t overstretch yourself with your loan repayments, getting a true picture of what you spend in an average month, and therefore what you can afford, is essential.
Look at Current & Future Expenditure
Your financial spreadsheet will give you a great picture of your current finances, but because repaying your loan could take a number of years, you also need to think of potential future commitments. Your situation might change, or something could happen, and it’s important you try and anticipate anything that might impact your ability to repay your loan. We know it’s not always possible to see what’s coming a year or two down the line, but think about how stable your work is and whether you can rely on your monthly income is constant for the next couple of years. Are you planning on having a family (this might even be one of the reasons why you want to take out a loan)? It’s likely that a significant part of your disposable income is going to be used up looking after your new child; and if one of you has to give up work to look after the baby, that’s even less money coming into the house each month., all of which could make repaying your loan very difficult.
Developing a thorough understanding of your finances isn’t all bad news, though. Once you have a better appreciation of your current and potential future spending, you might realize that you can easily afford the loan you want. Changes in the future can also be positive. While it might not be a good idea to borrow against them now, if there’s a potential promotion in your future, the increase in salary will make your loan payments easier to bear. You might even decide against borrowing any money if you feel that the potential pay rise will provide the additional funds you need, or waiting until your promotion is confirmed may mean you could consider borrowing a slightly larger amount – as long as it makes financial sense to do so. Adding your potential income and expenditure, as well as what you’re currently earning and spending, to your spreadsheet will help you fully appreciate your financial position and what kind of borrowing you can comfortably afford. Remember to take into account external factors such as changes in interest rates.
No matter how organized you are when it comes to keeping track of your finances and planning for your future, you will always benefit from the advice of a finance professional. At the very least, their help might just confirm what you already thought was your best option; but you might find that they are able to come up with an even better option, or more importantly, prevent you from making a disastrous borrowing decision.
Organizing Your Personal Finances
Say the words ‘ organizing’ and ‘personal finances’ to most people, and they might run screaming for the hills. The irony is that those who are probably most averse to getting to grips with their income and expenditure are probably the ones that could benefit the most from knowing how much they make and spend each month. Getting to grips with your personal finances doesn’t have to be daunting, and this quick video shows you how to pull together the basic information to get a better understanding of your monthly income and outgoings.
About Our Site
For a lot of people, their car will be the second most expensive purchase they make (after their house). While we all want the best car we can ‘afford,’ not many of us have the cash to pay for it outright – so we turn to car loans and finance to help us get the car of our dreams.
It’s no big secret that the global economy is going through a tough time, and a knock-on effect of this is that car loans have generally become harder to obtain. This site is designed to provide useful information and advice that will put you in the best possible position before you approach potential lenders.
While we hope the information on our site is helpful, it’s no replacement for expert financial advice, so if you are struggling to get finance, or have more questions about how to get the best loan deal, speak to a qualified financial expert.