Dreaming about an exotic holiday? Struggling to keep on top of your monthly budget? Thinking about a home renovation but not sure how you’re going to afford it?
Maybe the reason you’re struggling with these financial decisions is because of your pride and joy — your car.
Almost five million Brits have signed up to financed car packages, with average monthly payments of £226. Not cheap. That works out, in total, at £1 billion a month on car finances — 47 per cent more than most people can afford to buy.
Spending a lot of money on a car is one of the easiest but potentially biggest financial mistakes someone can make. As well as the purchase price of the car, you’ve also got to pay for insurance, maintenance, and tax.
In fact, owning a car will set the average motorist back more than £206,625 during their lifetime, and a study of 2,000 drivers revealed that they’re expecting to pay as much as £439 per year on car maintenance — adding up to around a hefty £27,716 over a lifetime.
Your choice of car can have a huge effect on not only your personal finances but also your freedom. Since your car is likely to be the most expensive thing you’ll buy, after your home, it’s important for you to budget carefully to make sure it stays affordable.
There is a general rule for working out how much you should spend on a car and we’re going to explain how much you can afford to spend, compared to the amount you earn every year.
MoneyUnder30 recommend that you use one of three percentages to work out how much you can afford to spend on a car, these are:
- If you want a cheap, affordable and simple vehicle that’s good enough to get to and from work, you need to budget around 10 per cent of your annual income.
- If you’re looking for something safer, more reliable and more comfortable when travelling to and from work as well as for use on the weekend, budget 20 to 25 per cent of your income.
- If you’re a car person and view your car not only as a means of getting around but as a lifestyle item, budget around 50 per cent.
Sounds simple doesn’t it? Unsure which category you fall into? These rules are designed to make budgeting easier for a car, but they’re not set in stone.
For those of you looking to save some money when it comes to your car, Halfords Autocentre will pay for your MOT if you purchase anything in a Halfords store until October 14. You can redeem your MOT until October 31, 2019.
It’s easy to overspend when you’re car shopping, from stylish sports cars to extras that seem affordable in the showroom. Many people spend more than expected and there’s no point in leaving yourself short at the end of every month because of an expensive car that you can’t afford to use.
Plan your budget carefully based on your income and avoid overspending when you go car shopping to make sure you buy one that you can afford. This way, you will have personal freedom, not financial difficulties.