How to Save For Your First Car

Use These Tricks To Save Money and Buy Your First Car

Saving for your first car is not as daunting as it may seem. The key here, however, is personal finance management or budgeting. No great gains can be made without meticulous planning and for your first car, smart budgeting can make all the difference.

The first thing you need is a plan. As they say, failing to plan is planning to fail. You do not want to go on about something as important as saving for your car without having a solid plan first. Why? Simply because cars are among the biggest expenditures for anyone. If we have to rank our expenditures then buying a house would come first, followed by either university education or a car.

Get Your Plan Together

Planning to buy your car requires a careful assessment of your current financial situation as a starting point. You should have a clear idea of how much savings you have to start off with.

We have discussed personal financial management at length in earlier articles. If you are a regular reader then you will know that by this point if you are into regular budgeting then you should be able to quickly assess your savings, saving and spending rate from your budget.

If however, you are not into budgeting then we strongly suggest reading some of the earlier articles.

Step 1: Calculate Your Savings

The first step is to always see how much savings you have got. This will help you calculate how much you need to save more and how much you can actually agree to a down payment once you go to buy your first car. If your savings are enough, this shows that your personal financial management is going fine.

Step 2: Know Your Savings Rate

The next step is to check your savings rate. Your savings rate shows how much you are saving from your monthly income. The average savings rate in Australia is between 10% and 15% but the lockdown period showed that the Australians can take the savings rate up to 40% if needed.

If your savings rate is not high enough, you can start increasing it by gradually cutting down on the expenditures.

Step 3: New or Used?

Once you have determined your financial position, now you need to decide whether you want a new or a used car? Both have their own merits and demerits. It is needless to say that if you can afford it then you should go for a new car. However, if you are a young adult who is simply looking to buy the first car, then it is likely that you would want to go for a used car.

A used car that is 3-4 years old can easily have its value depreciated down by up to 40%. The older it is the cheaper it will be. This is why used cars allow buyers to be flexible in their choice. You can easily look for a car that falls within your budget.

So the decision to buy new or used depends on your purchasing power and your personal preference.

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Step 4: Lease or Cash?

Deciding whether you want to lease out a car or buy it in cash is very important. Leasing out a car means going to a bank to work out a plan to finance the car. Leasing or financing options are available for both new and used cars.

Paying for a car straight in cash is the old school way, but it is no longer seen as a very efficient way of purchasing a car. If you are going to purchase a car that is under the $10,000 mark and you have got the cash to pay for it, then you should pay for it in cash right away. This works well for used cars and leaves no hassle for the buyer. There is no lengthy paperwork required, you simply have to pay the cash to the seller and take the car home.

If however, you cannot afford to pay in cash then financing is the best option for you. Select your car and work out a payment plan with the bank. The lease or financing option allows the payment for the car to be broken down into monthly payments over 3-5 or more years, based on your affordability and credit rating.

The lease option makes the purchase light on the budget because you only have to pay a few hundred dollars each month, every month for the duration of the lease. But there are hidden costs to consider.

Lenders make up for the extended payment time by charging an interest rate.

Credit Expected Lease Rate
Strong 2% – 5%
Good 6% – 9%
Poor 10% – 15%

These are the rough interest rate boundaries according to the credit rating of individuals. So if for instance, you intend to buy a car that is worth $30,000, the minimum interest rate that you will have to pay would be $600 and the maximum would be $4500. Apart from this, the leasing or financing option also includes processing costs and penalties for non-payment of the monthly lease payment.

Considering all things, if the value of the car that you intend to buy is above $10,000 or if it is new then you should go for the lease option because it will break the cost of the car down into smaller chunks that you can pay over time. Banks or lenders can work out a monthly payment plan that does not put too much stress on your budget.

Also See: It’s Only a Matter of Time if You Don’t Quit – Day 107

Step 5: Insurance

Another very important cost to consider is insurance. You cannot drive your car without insurance. So you need to factor in car insurance cost into your budget. The average annual insurance cost on the cheapest insurance plan in Australia comes around $1100 but this cost will depend on your age, location, driving style and other factors.

Step 6: Maintenance

The final cost to consider before buying your first car is the maintenance cost. The more you use your car, the more its maintenance will be. It also depends a lot on your driving ethics. If you are a rough driver then you may have to come across frequent maintenance costs.

Cars are machines after all and even if you take care of them properly, they can break down anytime. So you need to have an emergency fund in place to finance any unexpected maintenance costs such as buying car parts from TDot Performance.


Go through these steps before you actually go out to buy a car and determine how much it will cost you. If you want to go for financing, then you should set aside roughly $500 – $600 per month for lease and insurance payment for a car that costs between $10000 and $20000. The key is to budget properly and keep your savings rate high enough so that you keep on stacking up your savings even with the additional outflow of buying the car. 

Also See: Is Private Education Worth The Investment For Your Kids?

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Fun Fact

How to Save for Your First Car?

You’ll need to save a whole lot. Most financing requires at least 20% down. So if you are buying an average car at around $30,000, you’ll need to come up with at least $6,000.

Australia Unwrapped provides only general and not personalized financial advice and in no way has taken your circumstances into account. Investments go up and down; any questions, talk to a financial advisor. This blog is opinion only, and in no way should investment decisions be based on this information.

Australia Unwrapped does not endorse or vouch for the accuracy or authenticity of postings, comments or the article.

Dave P
Dave P
Be a little better today than yesterday.
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