Budgeting with a 17 Year Old

Last night my wife spent about an hour budgeting with our 17 year old daughter. As mentioned earlier she is a stellar student, but still learning about the financial world. They determined that she will need about 50% of her income to cover her car payment and insurance.

To me that is crazy, I cannot believe that my 17 year old's car costs more than all of our family cars combined. We have a pick-up, van and an SUV. The difference is we purchased all those cars reletively cheap. The truck was $1000, the van was $16,000 but we put $8000 down and the SUV was my car from college.

Let's start with the van and forget about the cars that are paid off. Our van loan is for 36 months and we just recently purchased the van. The payment is about $184 and we pay double that payment each month. Our van will be paid off in 18 months max.

Our daughter's car payment is about $230 each month and she pays about $230 each month. She owes about $9400 on it, paid $12,000 for it and has 40 months left to go. Her car is already upside down and that is with a trade and down payment. Her actual vehicle value is $6000. I estimate that if she made payments for $400 a month she would not be upside down anymore within 18 months. She would have a car worth let's say $5500 and own about $2500 (this is math in my head).

Of course her payment is more than she can afford so she will never truly catch up. What is the lesson here? When determining a car payment always make sure you can make a double payment on the vehicle. If something comes up that month, pay a few dollars over the minimum instead of double.