How do I determine how much I can afford for a car?

Question

I make about $70k AUD per year before tax.

I currently have $10k AUD on my car fund. What I did was put $500-700 per week on that account, depending on how much I spent on other wants/needs.

Now, I make sure I am saving up money for my future car purchase, but I haven't set my budget yet. What are the things I should consider into my first car purchase? What price should I set as my maximum? Should I ask for a quote for car insurance beforehand?

I don't want to make a big purchase and have it biting me a few years later because I didn't consider X or Y.

My use for the car would be for daily work travel. One way to work is about 10km, so about 20km a day, plus maybe another 20km on the weekends. I expect to run my car about 10-15K's a year.

Answer 1

A car is a big purchase. I recommend spending only as much as you need to fulfill your transportation needs. For you, it sounds like you need basic transportation and reliability, and want to spend as close to $10k AUD as possible.

You're on the right track. New cars drop in value rapidly, so while a new car is probably out of the question with that budget, you can do quite well in a used car, and you won't need a loan. Consumer Reports has good suggestions based on budget and reliability of used cars. (It's a U.S. site, so just adjust for kilometers and AUD). Just make sure the car is either checked by a mechanic (if you buy private-party) or certified/warranted by a dealer.

With ~$10-12k AUD, you're looking at something like a ~2007 model year Civic, Fit, or Focus, or an older Prius, all which have good used cars scores. Maybe set $15k as your max budget if you are comfortable with that amount?

Oh, and nice job saving $500-700 each week. With that mindset, I don't think you need to worry about maintenance, insurance, etc. You'll be able to afford it.

Answer 2

+1 for a used car. If you don't know cars that well it's worth paying a little extra to buy your first one from a dealer.

I also recommend getting quotes for insurance before buying as this can be quite expensive for younger drivers. The last time I looked at rating tables for car insurance the price drops quite significantly after about 25.

If you are going to rely on the car to get you to and from work I'd also recommend getting the vehicle serviced every 3 to 6 months by a good mechanic. You'll have to work out what your definition of 'good' is although dealer servicing is generally considerably more than the better independent mechanics. But build this into your budget along with fuel and insurance.