Few purchases in life are bigger than your first car. As a (probably) young adult, it’ll likely be the first “adult” purchase you make, and couple that with the thought of being able to get out on the road and being able to own your very own vehicle, it’s all a very exciting process that you’re going to want to get right.
Of course, with approximately a gazillion new and used cars and all sorts of buying options to choose from, it can be tough to know where to begin. Your best bet is to start with understanding how far your budget can take you, which largely boils down to these five key areas.
The upfront cost
While it’s always wise to think about the hidden costs of driving when buying your car, the most important figure you need to consider is still the price in the car windscreen. The upfront cost of your car will represent the biggest chunk of your spending, and you need to make sure the price you’re paying isn’t maxing out or going over your budget, otherwise you won’t be able to afford the other important bits you need to get on the road.
The main decision you’ll need to make in buying your car is not only whether to buy used or new, but whether to pay in full or get a finance deal. For most budgets, the choice will either to pay in full for a used car or get a new or used car on finance – make sure you weigh up the pros and cons of all available options and choose the right one for you.
Insurance is one of those fun annual spends that costs you a decent chunk of money and seemingly changes nothing for it, but it’s absolutely essential (and legally required) you have it in the instance you get into an accident. As a new driver, your insurance costs will likely be the toughest financial pill to swallow, with premiums for new drivers aged 17-20 averaging an eye watering £1,800, while those aged 21-25 can expect to pay around £1,000.
With initial prices so high, you must shop around to find the best premium rates out there – this is pretty easy to do via any of the major price comparison sites. It’s also important that you work out whether you can pay the whole amount of your premium in one go annually or break it into monthly payments. The former is always the better option if you can do it, as your insurer will add interest to a monthly repayment deal.
Your biggest running expense to factor into your budget will be fuel. If you drive 5,000 miles on the year, that’ll likely cost you around £790 with a typical petrol or diesel vehicle. Beyond that, you’ll also need to consider regular costs you’re likely to come up against, a good example being parking charges if you’re driving to work every day.
As you should with any good budget, don’t ignore small regular costs when calculating your total outgoings – they will add up over the course of year.
Repairs and maintenance
Repairs and maintenance are effectively a part of running costs, but they’re worthy of their own section because of the potential financial demand they can place on you. When you buy a car, you should have an emergency fund stowed away in the background. Then, if anything unexpectedly goes wrong with your car (as it can with used options especially), you’re at least somewhat financially prepared for the repair costs.
Maintenance budgeting is a bit more predictable, as things like your MOT and service are done on an annual basis, however you still need to be prepared to respond if any issues arise in a test or vehicle health check. For example, could you afford a new set of car tyres if you needed to, or pay for new front brakes?
Those kinds of things are where your emergency budget comes in handy.
Your other finances
Finally, with your car being such a big purchase, you need to consider how it ties in to your wider budget. Essentially, when you’ve bought your car, paid the insurance, accounted for the fuel and covered off all the potential extras, will you still have the money you need to afford the other fundamentals in your life (rent, bills, groceries), and have some disposable income left over to live comfortably?
As a general rule, your budget for your car, including all the bits you’ve just read about above, should be around 10-20% of your annual salary tops. With the amount of choice and seemingly attractive buying options out there, you need to be careful to not be suckered into a deal you can’t really afford in the long run, so make sure you do your sums before agreeing on a deal.
Buying your first car should be a fun and exciting experience, but it’s also one you need to take seriously, too. The more budget preparation you can do before buying, the more likely you are to find a deal that makes the most sense for you in the long run.