Thursday 7th April 2022
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When you’re saving up to buy a used car – or any other major purchase – the hardest part is getting started. Budgeting for anything means setting yourself a realistic goal, then making – and, just as importantly, sticking to – a practical plan. Along the way, you’ll be tracking your progress, making adjustments and working to get the best out of any opportunities that crop up.
For a lot of us, it’s essential to keep ourselves on the road for work. That’s why knowing how to budget for a used car is so important. Here are a few top tips from the RIFT team to get you rolling.
Protect your cash
If you’ve read any of our articles before, you’ve probably already got a decent grasp on the benefits of various types of savings account, along with their alternatives. If you need to brush up, feel free to check out guides like “6 Ways to Save for a House Deposit” or “5 Alternatives to Saving Accounts”.
The way savings accounts are handled has seen some pretty serious shake-ups in recent years, meaning a lot of people actually end up paying no tax at all on their interest. Before April 2016, tax was taken from the interest on most savings accounts at the highest rate you paid, which is 20% for Basic Rate taxpayers. Now, instead, you can earn a chunk of untaxed interest that’s based on the tax bracket you’re in. Basic Rate payers can get £1,000 before paying tax, for instance. At the Higher Rate, the amount you can earn drops to £500 per year, though. Keep in mind that if you're getting interest from other tax-free sources like cash ISAs, it won’t count toward this “Personal Savings Allowance”. Any tax you do owe on your interest will come out through your PAYE tax code, or via Self Assessment if you're signed up for that.
Savings accounts are good for keeping your cash protected, since they’re covered for up to £85,000 of losses by the Financial Savings Compensation Scheme on the off-chance that the wheels ever fell off the banking system. While they’re not a super-efficient way to grow your savings, particularly when inflation’s high and interest rates are low, the important thing is that you’re setting your cash aside somewhere it won’t get eaten into by your day-to-day spending.
Getting organised
Setting up a budget can feel like a steep climb if you haven’t done it before. Again, you can look through our guide articles for the basics, but there are also a few really useful apps out there to help you get organised. Some of them make saving so easy it’s practically automatic! For example, there are “round-up saving” features in savings apps like Monzo, Natwest and Moneybox that actually save cash as you spend it. This basically rounds your spending up to the nearest pound, with the extra change socked away in a savings account. It might not sound like it’ll take you much of the way toward your used car on its own. However, as anyone who’s tried the 1p Money Saving Challenge will tell you, those pennies really mount up over time.
Job done – you just made a budget! If you want to dig a little deeper into making the most of your money, have a read through our “4 Fixed Income Saving Strategies” guide to learn about things like “zero-based budgeting” and the “50/30/20” rule.
Don't forget about tax & insurance
This is something that can easily trip you up if you’re not careful. When you’re budgeting for a car, you’ve got more than just the asking price to factor in. You’ll also need to think about insurance, tax and the costs of dealing with breakdowns and servicing. Make sure you know what kind of CO2 emissions your new vehicle will be pumping out, too. You’ll be glad you thought ahead about that when you’re paying your Vehicle Excise Duty. You can find the latest rates and thresholds on the gov.uk site.
One smart idea is to keep separate side-budgets to cover things like parts or accessories. You’ll also need to think about coping with unexpected situations out on the road. The car you’re buying might not come with fixed-term roadside assistance, for instance. You absolutely don’t want to be having your first long, hard think about this while you’re already stuck in a lay-by somewhere.
If you’re laying down a deposit then paying the rest off in chunks, think about how much you can afford to front up at the start. The higher the deposit, obviously enough, the lower your monthly repayments will be. It’s a bit of a balancing act, but working out what you can afford like this is a good habit to get into, and can help you avoid any nasty surprises later on.
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Topping up your tank
Another critical thing to look at is the fuel consumption of any vehicle you’re seriously considering. It might be the car of your dreams at an absolute bargain price. However, if it’s a real gas guzzler you’ll be paying a painful charge any time you drive through an ultra-low emission zone. Worse still, you might find yourself banned from certain routes altogether.
It’s not just emissions charges you’ll want to look out for, of course. There’s also the basic, day-to-day cost of topping off your tank to consider. Before you slap down your hard-earned savings on a used car, make sure you know what kind of running costs you’ll be paying down the road.
Do your research
One final tip, given that you could be coughing up anywhere from a few hundred to many thousands of pounds on your car: look into its background before you buy. Make, model, registration and general history on the road can make a big difference to the value of a vehicle. If the price looks too high – or especially if it’s suspiciously low – ask a few questions before parting with your cash. While you’re at it, be absolutely certain the car’s in roadworthy shape. Even if the asking price is amazing, you’ll still lose out in the longer run if you end up on a never-ending cycle of expensive repairs.
Keep checking back here for more money tips and updates. We’re experts at saving you cash and we’re always here to help. That’s the reason why you’re better off with RIFT.
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