The Budget

1. The Budget Welcome! So you’re looking to buy a car? The first step to successfully purchasing a vehicle is to make sure you have enough money to buy it. Together we’re going to work on creating a budget for your car, finding your credit score and what car buying services may be available to you. Click to continue

2. It seems that whenever money comes up the word “budget” comes up too. But what exactly is a budget? Food Entertainment Phone bill Clothes A budget is a list of what you’re going to spend your money on. We spend our money on a lot of things. And in order to buy a car, you need to figure out how much you can afford to pay a month considering what you already buy after taxes.

3. Take this one as an example. If you are single and do not take any withholdings or exemptions Your income after taxes is this much. How much do you make after taxes? It’s easy to find a paycheck calculator online. cv Hover over highlighted text to learn more! v

4. Take this one as an example. If you are single and do not take any withholdings or exemptions Your income after taxes is this much. Gross YTD is short for Gross Year to Date earnings. It’s how much money you’ve made this year so far cv Hover over highlighted text to learn more! v

5. Take this one as an example. If you are single and do not take any withholdings or exemptions Your income after taxes is this much. Additional Pay is extra money you earn. For example if you get a bonus or if you were a sales person you’d get commission . cv Hover over highlighted text to learn more! v

6. Take this one as an example. If you are single and do not take any withholdings or exemptions Your income after taxes is this much. Withholdings or exemptions are a portion of your income that are not taxed. To learn more, please get in touch with your Personal Financial Management Specialist on base. cv Hover over highlighted text to learn more! v

7. Take this one as an example. If you are single and do not take any withholdings or exemptions Your income after taxes is this much. cv Hover over highlighted text to learn more! Net pay is the amount of money a month you take home after taxes. This is sometimes called Take Home pay. v

8. Now that you know your Net pay – what do you spend it on? You can create a list of all the items you bought in the past couple of weeks or month and how much they cost you. What I spent a month Cell: $50Food/drink at home: $300Restaurants/Bars: $200Clothing: $100Necessities/miscellaneous:$100 $750 Once you figure out your expenses you can look at how much you can afford to pay a month with your budget.

9. Consider this rule of thumb: Your car payment should be around 25% of your net pay. 15% goes to the car loan 10% goes to the cost of ownership 25% of $1308.99 1308.99 x .25 327.25 $750 + $327.25 = $1077.25 Living Car Total Expenses Payment Spent So with the net pay we looked at earlier you should be paying around $327.25. But what is cost of ownership? It’s everything you have to pay beyond the price of the vehicle. And this includes many things.

10. When thinking about your car payment ask yourself these questions: How much does the car I want to buy cost? What goes into the cost of ownership? How much does maintenance (like buying new tires and oil changes) cost for the car I want? How much would it cost to insure the car? How much would I have to pay for gas if I had this car?

11. Welcome to our showroom. Pick a vehicle to learn about how much it costs.

12. Welcome to our showroom. Pick a vehicle to learn about how much it costs. Ford F150

13. Welcome to our showroom. Pick a vehicle to learn about how much it costs. Ford Fiesta

14. Check out this Ford F150 Look at the Cost of Ownership of the vehicle. The screenshot bellow from motortrend.com shows the 5 year total cost to the owner. For the Manufacturer Suggested Retail Price (MSRP) you’d pay this much Also look at the miles per gallon (mpg). The higher the MPG the less you’ll have to pay at the pump. But if you wanted the car as shown it would cost $20,000 more.

15. Check out this Ford Fiesta Look at the Cost of Ownership of the vehicle. The screenshot bellow from motortrend.com shows the 5 year total cost to the owner. For the Manufacturer Suggested Retail Price (MSRP) you’d pay in this range depending on the features you add. Also look at the miles per gallon (mpg). The higher the MPG the less you’ll have to pay at the pump.

16. This car! Your Net pay was $1308.99 Which car can you afford? This car!

17. You cannot afford to buy the Ford F150 with your current budget. Your Net pay was $1,308.99 If you bought this car you’d only have $442.51 of the $750 you need for all your other expenses. You may want to look into buying a used car or looking at cheaper Makes and Models of cars.

18. Yes, you can afford to buy the Honda Civic with your current budget! Your Net pay was $1,308.99 You’ll have the $750 you need for all your other expenses. But you may still want to look at used cars or cheaper Makes and Models to get the most bang for your buck.

19. After you’ve determined what you can afford to pay with your budget, you’re going to want to check your credit score and credit report.

20. You can pay credit reporting agencies such as Equifax and TransUnion. But you can get one free credit report every year from this government approved website. Your credit report contains detailed information on your credit history. This includes some personal information, your credit accounts and loans,  any bankruptcies, late payments, and recent inquiries you may have. What is an interest rate? Click here! Based on your credit report, lenders give you a credit scorewhich measures the risk of lending you money. The higher the score, the more lenders feel comfortable loaning to you and usually the better interest rates you receive for those loans. Your credit score is sometimes called your FICO score. Credit/FICO scores range from 300 – 850. The lower the score, the higher the risk you are and the less likely a lending institution will loan you money.

21. If you want more information, contact the Personal Finance Management Specialist on your base. It’s important to have good credit before buying a car because the higher your credit score, the lower your interest rate will be on your loan. This means you don’t pay as much in the long run when paying off your car. CREDIT HISTORY REPORT SUMMARY You have no credit As a young marine, you probably don’t have much in your credit history to show that you are not a risk to lend to. This means that your credit score may be on the low end of the range. If your score is low, lending institutions will think you cannot pay them back – it’s too much of a risk to loan to you -- and won’t loan you money. So you’re going to want to build up some good credit before trying to get a car loan. But how do you build good credit? You can build good credit by avoiding debt by paying your taxes and bills on time. You can set up a email or text message reminders for your due dates through your credit card or bank website. Bottom line: only use credit for what you know you can pay back in timely fashion to build good credit.

22. Like we said earlier, your credit score impacts your interest rate on your car loan. So what’s interesting about the interest rate? Let’s take two examples: Someone who has a lower credit score and so has an interest rate of 17.9% versus someone who how has a higher credit score and has an interest rate of 11% for the same amount of time. If you compare the numbers for the loan summary – the person with the higher interest rate ended up paying $9000 more and at a higher monthly payment to finish at the same pay off date.

23. Let’s see what you know. Can you help Stewart? Hi there! I have a couple of questions about what impacts my credit score… I just opened my first credit card. Do you think my credit score will be high or low? High Low

24. I just checked my credit score on the annualcreditreport.com and I have a low score because I don’t have enough credit history. How does a low credit score impact my interest rate? Higher Interest Lower Interest

25. You were right! According to annualcreditreport.com and I have a low score because I don’t have enough credit history. How does a low credit score impact my interest rate? Higher Interest Lower Interest

26. Looking at this chart – I would have a higher interest rate because of my low credit score. Should I get a car loan with a high interest rate? Yes No

27. You’re right – I would have a higher interest rate because of my low credit score. Should I get a car loan with a high interest rate? Yes No

28. After looking at how much I’d pay in interest, I shouldn’t get a loan with a high interest rate. I’ll try to build up my credit first by paying my bills on time.

29. You’re right - I’d pay too much in interest, I shouldn’t get a loan with a high interest rate. I’ll try to build up my credit first by paying my bills on time.

30. Something that could help you a lot in prepping financially to buy a car is using a car buying service. Car buying services are available through your bank or a car buying concierge.

31. A car buying service will research and suggest cars that fit your budget and needs. This could make car buying an easier process for you!

32. Thank you for learning with us! You may now exit. To find out more about any of the topics discussed in this module - contact your base’s Personal Financial Management Specialists.

33. Let’s take an example. You borrow $6000 from the bank. This is your principal amount. You agree to pay back the principal in 1 year by paying small amounts every month. The bank charges you an interest rate of 10% for loaning you money. How much do you think you should pay every month to pay off the loan in one year? When money is borrowed, the lending institution, often a bank, charges a small fee for this service. Interest rates are charged as a percent of the amount loaned, also known as the principal. $500 $550

34. If you did not have an interest rate on your loan you could pay it off at $500 a month. But a 10% interest rate means at the end of the year you will have paid the bank $6600 - $600 more than the principal. The larger the amount you take out in a loan, the larger amount you’ll have to pay in interest because it’s a percentage of your remaining principal. If you did not pay the loan off in a year you could end up paying even more. Interest really shows that time is money. The longer you owe the bank, the more money in interest you end up paying them. Need more information? Contact your base’s Personal Finance Management Specialist.