The purchase of a new car is not to be taken lightly. For most people, it’s second only to the home in terms of up-front cost, and thus it’s worth planning and budgeting carefully to ensure that you aren’t spending over the odds for something that you’ll later regret.
When you’re working out how much to spend on a new car, consider a few factors. Most of them are highly personal and rooted in your personal philosophy. Others are a little bit more easily quantified.
Can I Really Afford This?
Your car should be easily accessible for a person on your salary. If you’re stressing over your repayments and worried about when you’re next going to be able to fill up, then your car is probably too expensive.
Of course, the cost of a car isn’t all paid up-front. You’ll also have running costs to consider. These include road tax, fuelling costs, maintenance and insurance. You should also think about depreciation, especially if you’re buying new. It might be that you have to pay slightly more upfront to spend less in the long term.
Before a major purchase like this, you should think about how much you’re bringing in. How much disposable income do you have each month, and do you have any other financial commitments competing for your wallet’s attention.
As a general rule, if you’re looking for something functional, but you don’t want to spend a huge amount, then 10% of your annual income is a sensible baseline. If your car is a lifestyle purchase as well as a functional one, then you might go as high as 50%. So, if you’re earning £100,000, you might devote £50,000 to the purchase of a new car.
Bear in mind that you’re going to be recouping a portion of your spending when you come to sell the car. The way that you pay for the car will also be important. You might look for a reputable used dealership to keep your costs down without taking on risk. Long-term leasing options might also help you to enjoy the new-car feeling without committing to a major purchase, or requiring that you sell the asset when you’re done with it.
How much time am I going to be spending in the car?
Certain occupations demand that you spend more time behind the wheel than others. If you’re moving up and down a motorway for most of your working life, then you might spend a little extra to travel in comfort, while keeping your running costs down.
