A financial journey in Southern California typically includes several twists and turns – such as understanding how to manage spending, build savings and control debt. There might be “speed bumps” in the form of unexpected changes in income. Along the way, you might also navigate milestone purchases such as financing a home or car.

When considering a significant purchase, the destination is within reach when you steer through the following five financial steps.

1. Look at your financial picture.

Start by considering what you can afford given your current income, expenses and other debt obligations. Get a handle on how much money comes into your household each month, and where the money goes. Make sure to consider your net income – what's available to you after taxes.

When purchasing a home, a common rule of thumb is to spend about 30% of your monthly gross income on housing. That includes costs like mortgage principal and interest, property taxes, insurance and maintenance. For transportation costs, a general rule of thumb is to keep total monthly car costs at about 20% of monthly take-home pay.

These guidelines set you up to understand how a big purchase fits into your overall financial picture.

2. Check your credit score and report.

Checking your credit score and report is key when considering a big purchase like a home or car. Pull your credit report from AnnualCreditReport.com, and follow the additional instructions to see your current credit score – which influences your cost of financing a home or car. The higher your score, the lower your interest rate and overall cost of borrowing should be. Check out our post on understanding your credit report and credit score to learn more.

Be sure to check your report for accuracy. Resolving errors or incorrect information often helps increase your credit score, giving you more attractive financing options. If the report is inaccurate, file a dispute with the credit bureau. Make sure to check all three bureaus, as sometimes one has information that another does not.;

3. Figure out financing.

If you’re in the market for a home, give yourself enough time to explore mortgage options including types of mortgages, terms, fees, interest rates and other information. It’s often a good idea to get a preapproval letter from a trusted lender, like Frontwave Credit Union – especially in a competitive market with low housing inventory.

When looking to finance a car, take inventory of the most competitive auto loans offered by the dealership, credit union, bank or other lender. Be sure to look at both the interest rate and term. Some ultra-low interest rate offers also come with ultra-short terms, which can make your monthly payment a lot higher than you’d expect. Check out our post on comparing auto loan rates to learn more.

No matter what type of loan you’re considering, check the fine print. Is there a pre-payment penalty if you pay your loan off earlier than expected? Be sure to factor this into your final choice.

4. Plan the purchase.

A purchase plan involves understanding when to pull the trigger. Some questions to ask yourself:

• Do you have enough in savings to provide a good down payment on a home or car? 
• For a home purchase, have you taken the time to find a real estate professional you can trust to look out for your best interests? Ask friends or family for referrals.
• For a car purchase, do you feel the dealership is able to provide advice and guidance?  Have you taken the time to research vehicle make and model from a reputable source of information?

This is also the time to get your documentation in order, like proof of employment, insurance or other financial information.

5. Make the deposit.

Finally, get ready to make an earnest money deposit.

• In the case of a home purchase, this indicates you are a serious buyer. Generally, earnest money deposits range from 1% to 2% of a home’s purchase price and are only refundable under specific circumstances.
• For a new car purchase, deposits typically total about $500 once you agree to the vehicle price in writing. Understand whether the deposit is refundable if you change your mind about the purchase.

The Journey Ahead

While not an exhaustive list, these steps help prepare for the financial road ahead. As you travel along your financial journey, take advantage of free financial counseling and guidance provided by Frontwave Credit Union’s trusted nonprofit partner GreenPath Financial Wellness. Contact GreenPath for your free financial counseling session at 877.337.3399, or visit www.greenpath.com/frontwave to learn more.

This article is shared by our partners at GreenPath Financial Wellness, a trusted national non-profit.