Once you get your L plates driver's license, the next thing you should do is save for a car. Cars can be very expensive, costing tens of thousands of dollars. Saving will make it easier for you to afford your vehicle purchase. From the selling price to the ongoing costs, there are many things to consider when saving for your first car.
1. Determine the Type of Car You Want to Buy
Knowing the type of car you want to buy will help you determine how much money you need to save. Firstly, figure out why you want a vehicle, as this will tell you what kind of car you should get. For example, if you just want a car to drive to college, work or the shops, a small car or sedan would be your best choice. If you have children, you probably need a bigger car, such as a sedan or SUV. If you do lots of handy work, a Ute might be your best bet. As for whether you should buy a new or used car, there are a few things to consider.
Pros of Buying A New Car:
- Great as status symbol.
- Reliable, and if anything goes wrong, it is covered under warranty.
- Many companies offer roadside assistance with the purchase of a new vehicle. So, this gives you peace of mind in case you get stranded on the highway.
Cons of Buying A New Car:
- New cars depreciate by 25% as soon as you drive them off the lot!
- If you bought it on credit, you would likely incur a sizeable debt.
- New cars have higher insurance premiums.
- New cars don't stay new for long.
Pros of Buying A Used Car:
- You can get the best value for your money.
- Cheaper, and it won't burden you so much with debt.
- Low mileage used cars are almost practically new.
Cons of Buying A Used Car:
- You might have a fear that the used car has problems you'll inevitably have to deal with later. So, you will have to do maintenance checks on the radiator, breaks, and tires.
- It can be challenging to find a used, reliable car. Especially if you're inexperienced and don't know what to look out for to make sure you're not getting a dud.
So What Should You Buy, New or Used?
Choosing between a new or used car really depends on your current financial situation. As long as you're comfortable with the financing options and feel that the option you've chosen can meet your needs, you should be fine! Just make sure to do your research carefully and choose the one that fits your needs the best. Upon determining the type of car you want to buy, compare prices from dealers, classified ads, and other online sources such as CarSales.com.au. Then, once you have a good idea of how much the kind of car you want will cost you, start saving up for it!
2. Consider Ongoing Car Costs
You should also consider the costs of owning and maintaining your car. You don't want to end up in the position of buying a car and not having enough money to pay for the ongoing expenses. These include car insurance, vehicle registration, license, roadside assistance, servicing, repairs, motorway toll charges and petrol. You will also have to budget for new car tires every three to five years, as well as a new car battery every three years. If you're buying a foreign-designed car, it might need imported parts or special servicing, which can be very expensive. If you're looking at a sports car (which tend to have a higher overall accident rate), repairing it will also be costly.
3. Create A Budget and Stick to It
Now you know how much money you need to save for your chosen car, the next step is to create a budget - and stick to it. Look at your income and expenses and see how much you can save each week. Depending on your income and the cost of your desired vehicle, it might take you between 1-3 years to save. In this case, you should also take into account that your car's price could go up by 2-4% due to inflation by the time you finish saving. Especially since COVID has disrupted the international car supply chain, the price of used vehicles has gone through the roof, too! So, for example, if you're thinking of saving $6000 in 2 years, you should save $60 a week to reach your goal and have a buffer for inflation (so you end up saving $6240). If you plan to take out a loan to buy your car, you may need at least 20% of the car's purchase price saved up as a down payment. Though this can feel like a challenging goal if you want the car now, there are lots of ways you can motivate yourself to keep saving. Try saving pictures of the vehicle you intend to buy on your phone screen saver to remind you of your goal. You could also try a savings challenge with a friend to see who can save up and buy their car first. If you have a savings account, check it from time to time to watch your money grow and see the amount of interest you've earned.
4. Reduce Your Spending
You can save up even more money for your car by reducing your spending. Don't buy the latest fashions or the newest gadgets simply because everyone else is - if you don't need it, don't buy it. If you want to buy books, get the eBook version, or if you're going to buy music, download individual songs instead of the whole album. When it comes to food, make your own meals, and eat at home. Or instead of going out, plan a picnic! You must compare the prices of items between stores too and choose the cheapest one you can find. Also, consider buying used items or items that are on sale.
Most importantly, don't buy on impulse. Give yourself a week to think about whether you really need the item before buying it. In the end, you might find that you'd prefer to save money for your car.
5. Earn More Money
If you don't have a job yet, go and get one. If you do have a job, consider getting another job or starting a side hustle to earn more money. There are many options available to you! For example, you could babysit a friend's child, take care of someone's pet, do tutoring, and help family members with household chores. You could even offer to do yardwork for your neighbours, such as mowing.
Moreover, you could even hold a garage sale and sell some of your things. Or you could sell your stuff to resale stores, e.g., you can sell your books at a used bookstore or sell your clothes online. You can also try putting spare change in a jar and wait until it's full before depositing the money into your savings account.
6. Open A Savings Account or Term Deposit
If you don't already have a high-interest savings account, open one up. Then deposit money into your account on a regular weekly, fortnightly, or monthly basis. You can also consider opening a term deposit, where you'll receive a fixed rate of return for a certain period of time, which can be as little as 1 month to as long as 5 years. Putting away thousands of dollars can earn you a decent amount of interest, a great way to save even more! With a savings account and term deposit, it will also be harder for you to access your funds, so you'll be less likely to spend them. Also, compare various lenders and check for fees and other requirements like minimum balances before choosing an account.
7. Choose the Right Car Loan
Only consider getting a car loan if you need a car in the immediate future and you don't have enough savings to pay for it in full. Remember, you may need at least 20% of the car's purchase price saved up as a down payment. The more money you're able to pay upfront, the less you'll pay in interest. You can choose between a secured and an unsecured car loan. With a secured loan, you'll need to put up your car as security against the loan. So, if you can't meet your repayments, your lender could sell the vehicle to repay the loan. A secured loan also has a lower and usually fixed interest rate. Also, depending on the terms and conditions of the loan, you may not be able to pay it off sooner without paying any penalty. A secured loan is usually only offered for new cars. With an unsecured loan, you don't have to put up your vehicle as security, so it'll have a higher interest rate. Note that this type of lending is usually offered for used cars. Also, look at various lenders, including financial institutions and car dealerships, and compare their loan terms, conditions, interest rates and fees. Choose a car loan that'll mean you can afford to buy your car and save your money in the long term.
8. Negotiate the Price of The Car
You can cut down the amount of money you save on your first car by negotiating a lower price. Whether you're buying from a dealer or a private seller, you can knock hundreds or even thousands of dollars off the price of a used car. First, look at how many kilometres the car has travelled, its service history and the options equipped. This will give you a better feel of the car's value, and you'll be able to better negotiate the price. If you're buying a car out of warranty, have a mechanic inspect it to check for any issues. If the car has minor problems, you can negotiate the price down even further. Checking online tools such as www.redbook.com.au can also give you a super-objective idea of the actual value of the car, based on the make, model and year. Once you know what price range the vehicle is worth, this helps you determine whether the asking price is under-priced or over-priced.
Buying your first car: what's next?
With these tips in mind, you should be able to save up for your first car in the shortest amount of time possible. And the more you're able to save, the higher quality car you'll be able to buy. So, start saving now and reap the benefits of your hard work when you finally get to drive your new pride and joy home!
If you need help to manage your debt before you can begin saving, contact our debt help experts at Credit Counsellors Australia. We can help you get back on track financially and ready to buy that car in no time!