How To Budget For a Car This Financial Year

If you weren’t quite ready to take advantage of the 2021 end of financial year car sales, you’re probably wondering how to best budget for a car purchase over the coming months. As they say, it’s not about how much it costs – it’s about how much you have left afterwards. Or how much debt you end up in!

Here’s how to work a car into your budget without breaking the bank.

Car buying costs

The easiest way to figure out how to budget for a car when it comes to the actual purchasing costs is to use a percentage of your annual salary. Around 15% is a good benchmark, according to Car Clarity.

So, if your salary was $100,000 per year, you’d have a budget of $15,000 for a car. By that we mean this might be the dollar amount for the down payment plus the repayments you can afford in that first year. Or, it might be the amount you have to pay for it outright (see our tips on buying a used car).

Of course, your existing debt repayments and regular spending commitments need to also be taken into account when looking at your overall budget situation. Consider any large outgoings like home loan repayments, regular holidays, private school fees, or similar. Think about what smaller costs you’re paying too, including what ongoing running costs your car will have.

All this and more is in our ‘Doing Your Financial Planning for the New Financial Year’ article.  And you’ll find all about personal car loans here. You’re welcome ????  

Which leads us to making a decision on the type of car… If you drive a lot and need a car that’s known for being reliable, maybe you’d spend a little bit extra for peace of mind and stretch to a figure that’s between 20-25% of your income. Read our tips on saving for a new car.

Or perhaps you’re buying a towing car which will be used only for weekends and holidays. In that case, you might spend far less and buy an older model for 8-10% of your income.

Other ways to budget for a car

If you’re buying a car for business purposes, find out whether a chattel mortgage or novated lease is an option for you.

If you use your car for business more than half of the time, you could be eligible for a chattel mortgage. This is a type of business loan that you can use to buy a car. Find out more about chattel mortgages and how to finance a vehicle if you’re self-employed.

If you’re employed, your employers might offer the option for a novated lease. Essentially, this is when a car is incorporated into your remuneration as part of a salary sacrifice arrangement. Find out more about novated leases here.

Include running costs in your car budget

Once you’ve bought the car, you still have to budget for other motoring expenses. For your average driver, the major one is going to be petrol. In fact, the average Australian household spends well over $3000 per year on fuel.

If petrol is going to eat into your car budget, check out our detailed fuel consumption comparison and opt for a car that’s economical to run. Plus, we have advice on reducing car costs this winter. Every little bit helps, right?

Keep in mind that it isn’t just the regular, day-today expenses you should factor in when you budget for a car. Petrol is one thing, but you’ll have to consider other costs like new tyres, repairs, and servicing as well as smaller things like oil changes and replacement brake fluid.

Make sure to include these amounts in your budget where possible. Savings.com.au indicates that in 2019, the average cost of maintaining a car per week was $29.55. That’s around $1536 per year, without accounting for inflation. Find out whether capped price servicing is worth it for you or not – you may save money by using a local mechanic instead.

Thought about car insurance?

You’ll also need to set aside money for car registration and insurance. Compulsory third party insurance is the very minimum required, but comprehensive car insurance offers much better protection. Not sure what the difference is? Read our article on comprehensive vs compulsory third party insurance to find out.

And car insurance might not be as costly as you think. Find out how to lower your car insurance premiums here, and then get a quote.

Tools for how to budget for a car

Budgeting not your thing? We don’t blame you. Luckily there are lots of tools that can help you out nowadays.

From simple excel spreadsheets to apps which track everything for you, there is a tool out there to suit your needs. Some of them even help you reach savings goals. Here is a great article from Mozo on seven of the best budgeting tools for Aussies.