Budgeting for your car

New Sports Car Buying a car could be the second most expensive purchase you make in your life (after a house) so it is essential you consider all the financial implications before you drive away.

What are the purchase costs?

There are a number of initial costs that must be factored into your budgeted purchase price. These include:

  • Car registration.
  • Compulsory Third Party Insurance.
  • Other insurance – if additional cover is required.
  • Mechanical or other inspections.
  • Dealer delivery charges.
  • Government taxes and levies – including stamp duty and transfer fees.

What everyday costs should I budget for?

The most obvious running cost you’ll have is fuel, but with oil prices fluctuating, petrol can be difficult to budget for. In addition to fuel, other costs include:

  • Insurance – if you require comprehensive or third party, fire and theft insurance in addition to the compulsory third party included with your registration, this must be factored into your budget as insurance costs can add up.
  • Loan repayments – if you required a loan for your car, these costs must be considered.
  • Regular services – again, these can be costly, especially if you are not comfortable doing minor work on your car such as oil and filter changes.
  • Spare parts and repairs – including tyres, filters, mechanical parts and lights. Repairs, including those for normal wear and tear can soon add up, in particular for non-standard or luxury cars.
  • Membership of associations and clubs – annual fees of automobile associations offering breakdown assistance need to be considered in your budget.
  • Registration costs – unfortunately, not a one-off payment on purchasing the vehicle, registration is a potentially costly annual financial drain. You may also be required to provide certification regarding the mechanical performance of the vehicle which involves a trip to an inspection station and additional costs.

Ways to reduce the costs of owning a car

Some car companies today offer long warranties on their cars, they range from the average of three years to a high of five years. This means that you could be covered under warranty for the whole time you own your car. Some warranties have kilometre restrictions, and this should be kept in mind when purchasing. Having a good, long warranty on your car means that you can greatly reduce the amount of money you'll need to spend if something was to go wrong with the car. This could not only save you money, but also save you the stress of worrying about any problems that the car may have in the future, as most of these problems will be covered by the warranty.

A recent trend in car company's offerings has been to include free servicing for a specified length of time, if you buy a car from them. Servicing is one of the major costs of owning a car, so if you can find a dealer that offers this, you will save yourself hundreds, if not thousands of dollars worth of servicing fees.

Traditionally to gain access to roadside assistance you would have had to join a motoring club or association, however a majority of car companies now offer free roadside assist on all new cars. If you were buying a used car, or if your choice of new car does not offer this free service, then enquire with some insurance companies, as a lot offer roadside assist as an option available on your policy for a small additional cost, or sometimes even for free.

Working out your budget

Once you have decided on your new car, put down on paper all the potential costs involved with the everyday running of the vehicle. If in doubt, over-estimate rather than under-estimate. And don't forget the fuel costs; with petrol fluctuating up to $1.40 a litre, everyday travel can become an expensive exercise.

Example

Jonathan* is planning to purchase a new car for $30,000. He has decided that he can contribute $10,000 from his personal finances, leaving $20,000 which he is financing with a car loan.

Jonathan's budget

  • Fuel – Jonathan estimates that he will travel approximately 300km per week. At an average economy of 10km per litre and a slightly inflated fuel price of $1.45 to take into account any sudden rises, Jonathan's annual fuel cost will be $2262
  • Insurance – Jonathan has decided on comprehensive insurance for his new car, costing him $326 per year
  • Registration – and compulsory third party insurance will cost Jonathan $732 per year
  • Maintenance and service charges - Jonathan has calculated that $300 should cover all his annual maintenance needs
  • Loan repayments – annual repayments are $5650
  • Club membership – Jonathan has chosen to join his state's automobile association with an annual fee of $150

Jonathan's annual costs for his new car are $9420 which equates to a weekly budget of $181.15.

Different fuel types can make a difference

Although the purchase price of a new diesel car tends to be higher than that of its petrol counterpart, the extra initial value is justified. Diesel has been shown to be far more economical, allowing you to travel up to twice as far per litre than petrol. It has also shown to have superior performance capabilities.

At half the price per litre than both petrol and diesel, LPG fuel is slowly becoming more and more popular in these times of rising fuel costs. Although you need around 20% more LPG fuel than unleaded to drive the same distance, it still turns out to be more economical. However, many people still have a fear of LPG cars, believing them to be more temperamental than petrol or diesel cars.

The Australian Federal Government has recently announced subsidies to encourage consumers to convert their cars to LPG. They will pay $1000 towards the cost of converting an existing petrol car. Depending on your fuel consumption, type of driving (short hops in the city or longer distance driving) and yearly kilometres driven, it could be beneficial to you to consider this offer.

However, it's important to remember that the initial outlay will not be recouped immediately, financial benefits can take years to be realised. So make sure you do your sums first and if you do decide to convert, always use a reputable mechanic.

*This is fictitious example to demonstrate an example budget for running a car.

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