Buying a new car comes with ups and downs in the process. You will have to spend time thinking about which model most takes your fancy, which dealership is best for you but most importantly, you will have to calculate your new car budget.
This can be done in numerous ways, such as using a handy online financial calculator or by setting up a spreadsheet with a breakdown of your monthly expenses. Outlined below are some easy ways to calculate your new car budget.
Determine your monthly expenses
This is the first step anyone should take when budgeting for a new car. In order to determine your monthly expenses, you will need to need to gather copies of all your latest credit and debit statements, your bills including mortgage or rent, utilities as well as bills for any accounts you may have open.
List all of these monthly expenses in a spreadsheet and divide them up into two categories: fixed and variable. Fixed payments should include payments that are the same every month such as your mortgage or rent, utility, internet and television service payments. Variable expenses include payments such as groceries and clothes. Once you have done this, you will have a clearer idea of what you spend each month.
Break it down
When buying a new car, you need to think about more than just the price sticker, you need to consider all of the costs involved with buying a new car. You should add all of these up when using a vehicle finance calculator to calculate affordability. These costs include the following:
- Fees and add-ons: These fees and add-ons include sales tax, registration fees and documentation fees which can increase the amount you are really paying up to ten percent.
- Dealer-installed options: Some car dealers put a lot of added extras onto a car, such as chrome rims or Bluetooth radios. These costs are often not advertised and can accumulate over time when you need to perform maintenance.
- Warranties and upsells: You went to the dealer to purchase a car, and once you choose this car the salesperson will try to sell you a warranty or form of protection at an inflated price. Be wary of dealers who charge exorbitant prices for something that is cheaper elsewhere.
One cost that you must always factor into the budget for your new vehicle is the cost of servicing it. Vehicles need servicing at least every six months, depending on the age and make of the model, and these servicing fees can cost anything from R800 to R5000 a time.
Many manufacturers now offer fixed-price servicing on their cars which allow you to pay an upfront or monthly fee, rather than just paying at service time every year. This makes budgeting easier and your expenses lower. However, older model cars may not have this perk, which means that if you are opting for a used car you will have to factor in regular services into your budget.
Don’t forget insurance
One of the costs of owning a car is the insurance. It is often overlooked by eager first-time buyers but it should definitely be a part of your budget. The cost of insurance varies, especially depending on the year and model of the car. A newer car will have higher premiums.
Using a car finance calculator will allow you to factor in the cost of insurance, which will show you your affordability. If the model you prefer is very recent, you will find that your insurance costs are higher. This could mean that you have to compromise and choose a less recent model, saving you money in the long run.
The twenty percent rule
If you want to be able to afford a car, as well as live comfortably, a good rule of thumb to follow is the ‘twenty percent rule’, meaning that your car payment and all other related services should take no more than twenty percent of your monthly take-home pay.
This might sound quite restrictive but it is important to keep in mind that it is only a guideline, but one that can be helpful for first-time buyers. As an example, if your take-home salary is R10 000, then your monthly car repayments should be no more than R2000. In addition, you will need to factor in your petrol expenses, insurance, maintenance and registration fees. Using this rule will allow you to budget efficiently.
Don’t bite off more than you can chew
Looking for a new car is exciting, and first-time buyers often get caught up in looking at all the shiny new models on the dealership’s floor but it is important to always keep your budget in mind. To calculate your new car budget, you can use a handy online financial calculator or draw up a spreadsheet to have a visual representation of your expenditure. Don’t forget the other monthly expenses that come with owning a car, and remember to factor in registration fees and sales tax.