How much can I afford to spend on a car?

Don't make the mistake of deciding on the car you'd like to buy first, and letting that dictate your budget, says auto-enthusiast site Jalopnik. Instead, you should review your income (looking at your take-home pay) and then subtract your current monthly expenses to help determine how much money is left over every month.

Along with major monthly payments, like rent or a mortgage, be sure to account for other bills like utilities, student loans and credit cards, says Consumer Reports. You should also include some other recurring expenditures, for example, your monthly grocery budget or television service provider bill.

Don't forget to budget for the cost of car ownership as well, says Jalopnik, which typically includes car insurance, gas, maintenance and unexpected repairs. Consumer Reports recommends that your budget should account for future expenditures as well, such as savings for vacations, emergencies, retirement savings or other financial goals.

If you're planning to finance your car, after you've deducted all bills and expenses from your monthly income, the figure that remains is what you have available for things like a car payment. But, it's not time for shopping just yet. Consider plugging that figure and your ideal loan terms into an auto loan calculator to give you an idea of the vehicle cost that's likely within your means. It may be more beneficial to focus on the vehicle cost you can afford, rather than the monthly payment, because you may be tempted to stretch the loan out over a longer period of time to justify a more expensive car.

So, what's a reasonable term for a loan? According to Edmunds, 72 months is the current average but they recommend no more than a 60-month loan —this is because the longer you make payments, the more interest you may pay.

After determining how much car you can afford, it's time to start thinking about the actual vehicle you'd like to buy. The key to finding the right vehicle, according to U.S. News and World Report (U.S. News), is pinpointing where your wants intersect with your needs.

Start by thinking about who you're going to be driving around. For instance, do you need a vehicle with ample space to accommodate a large family or kids' car seats? You may also want to review safety ratings on different vehicles to learn how they may perform in a crash. Then, consider where you live and think about things like geography or climate. Do you need a car with all-wheel drive that may be more suitable for winter weather conditions? And, lastly, consider your lifestyle in terms of your daily work commute or weekend activities, says U.S. News.

An honest assessment of how you'll use the vehicle will give you a better idea of what you're looking for before starting your search.

Now it's time to research specific vehicle models. You may prefer to research vehicle makes and models online, or visit a car dealership. Be sure to keep your budget and needs and wants criteria in mind while you begin to narrow options. As you narrow your choices to a few vehicles based on what's important to you and within your budget, and take them for a test drive. But before you pick a winner, it can be helpful to make a few last financial decisions.

It'd also be a good idea to get an insurance quote on each vehicle at this point, so you know what to expect —depending on the make and model, you may find that the insurance premium can vary. And, before you commit to a loan, check your credit history, suggests the Consumer Financial Protection Bureau. It may help you determine the interest rate you'll pay (along with a more accurate monthly payment estimate).