Buying a new car is exciting, but even if you have a canned tuna budget, you often find you have caviar taste! So although that brand new Porsche is tempting (and it really is, we get it) sometimes you have to rein yourself in and be realistic about how much to spend on a car.
So exactly how much is that? What you can afford will be different to what your best friend can afford, obviously. But how do you know how much to spend on a car without over-stretching yourself?
We have some answers for you!
First – how to save for a car
Before we go into the specifics of what to spend on a car, how about we quickly cover off how to save for one. It may not be as difficult as you think but it will take planning, willpower and perseverance. Like most good things in life.
The core components to making good savings as quickly as possible are:
- Creating a detailed plan with clear milestones you want to achieve along the way
- Thinking carefully about what costs you’ll cut – sacrifices need to be made to achieve such a big goal
- Building a detailed budget with incomings and outgoings that you revisit regularly, tweaking where needed
- Keeping track of your savings so you don’t accidentally dip into them
- Keeping your willpower strong by continually reminding yourself why you’re saving this money
How much to spend per month on a car
The first thing to keep in mind when you’re deciding how much to spend on a car is that the purchase price or installments are only one part of it. When you’re working out your budget, it’s best to include all your monthly car-related costs.
On top of the costs involved with buying the car and/or repaying the finance company over time, you’ll want to work out your monthly or annual costs for:
- Car insurance
- Roadside assistance
- Pink slip
- Any incidental expenses like basic car maintenance, new tyres, cleaning services etc
Car finance calculators can help you figure out how much repayments would cost on the car you have in mind. Remember interest rates do move from time to time, and vary between finance companies, so this will be just an estimate.
For the other expected items, you should be able to get a fairly accurate idea by checking out insurance comparisons and fuel consumption comparisons, calling the manufacturer or a local mechanic about approximate servicing prices, and so on. Then set aside a small amount per month to cover unexpected expenses.
A rule of thumb for how much to spend on a car
Although experts have differing opinions, many expert sources from around the globe (such as NerdWallet for instance) agree that you spend no more than 30% of your annual income on your car. Which includes all of the costs associated with your car.
Of course, the less you can spend the better for your savings. But you want to enjoy driving your car too, especially if you’re planning on keeping it for years to come.
Generally, this 30% figure is is split into around 20% of your annual income on the actual car payment, with the other 10% going towards the other costs.
However, if you drive really long distances and have high petrol costs, are under 25 (find out why car insurance for young drivers is expensive) or will have a car that’s very expensive to service or insure, you might want to change the balance to 15% and 15%.
Saving on your car expenses
Once you’ve bought a car, it certainly doesn’t hurt to try and save where you can. Even if the car’s monthly costs fit easily within your budget. Any extra cash can go towards a nice holiday roadtrip in your new wheels, early retirement, home renovations, or whatever else you’d like.
The first you’ll want to look at is general running expenses. Driving sensibly can help improve fuel efficiency and with petrol prices often increasing, learning to run your car economically is a worthwhile investment. And it could make your tyres last longer too, so it’s a double whammy!
Pair that with choosing a mechanic who’s reasonably priced and looking into things like whether capped price servicing is worth it for your vehicle. It might take a bit of time, but it could save you money.
Then of course, you’ll also need some inside info on how to lower your car insurance premiums. Over a few years, saving some bucks on your monthly premiums can make a massive difference.
Here are some more tips on how to save money on car running costs.
Did you know that our comprehensive car insurance offers lots of different discounts including exclusive driver and multi-car? Plus at the time of writing, we’ll take 15% off your first year’s premium if you buy your policy online.
Go on, click below to get your quote – and start planning that kitchen remodelling while you’re at it.