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Saving Money and Managing Debt

Balancing saving, spending, and paying debt: Dave's story Add to ...

With his new job, Dave makes $3,200 every month after taxes. His dream is to buy a new sports car. At the same time, Dave knows he should start saving 10% of what he makes. Right now, he has no emergency savings at all.

Dave’s question: Can he really afford the dream car today, and also save money? Or should he buy something less costly and save more?

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First, Dave goes over his budget. He sets aside 10% of his pay for savings. Then he adds up all his other monthly bills: food, rent, clothing, phone, hydro, and so on. Lastly, he estimates the cost of getting a loan to buy the sports car and running it. Here’s how Dave’s numbers work out:

Dave’s monthly budget 

Income
$3,200
Savings (10% of his pay) $320
Expenses 
   Rent$1,000
   Other monthly bills$850
Estimated cost of running car$430
Estimated cost of car loan$600
Total monthly costs, including savings$3,200

 

What Dave learned: If he sticks to his plan and doesn’t take on any other debt, he can get the car he wants and save 10% of his pay. Dave will have to be careful, though. His budget is tight. Also, he will be spending a lot of his income on his car – and a car is not something that will last.

Content in this section is provided in partnership with Investor Education Fund, a non-profit organization founded and supported by the Ontario Securities Commission that provides unbiased and independent financial tools to help Canadians make better money decisions. To find out more, go to: GetSmarterAboutMoney.ca

 

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