Are You Financially Ready for A Newer Car?

Your first step is to do nothing except write a check to yourself in the amount you’re thinking you can afford every month. Put aside a car payment every month for three months (long enough for at least one of life's little emergencies to crop up).

During that time, make three phone calls: one to your bank, to find out what kind of rates they charge on loans to people with your credit history; one to your insurance agent, to ask the rates for comprehensive insurance on a model you think you'd like to buy; and one to your local DMV (Division of Motor Vehicles), to see what registration and licensing would cost.

At the end of three months, ask yourself these questions:

• How much did it hurt? If you skimped at all on other bills or shorted the amount of the payment, you're not ready.
• Would you have enough left over to pay for insurance and licensing fees each year?
• Would you pay this much every month for the car that's in your driveway already? Sooner or later, every new car becomes an old car, and you'll probably feel about the next car just the way you do about your current one.
• Would you rather have the cash? An average car payment is $350 and that adds up to more than $1,000 in just three short months. Perhaps you'd prefer to get a tan in Mexico and limp along with your old Chevy for another year.
• Could you continue to save for another year and simply pay cash? Five grand would buy any of hundreds of reliable used models. Save for three years and you're in new-car territory, if your old car will fetch a few thousand as a trade-in or private sale.