Upgrading a car to suit your family’s changing needs means that you will need to buy something new which could dent your family budget.
When your family starts to grow, its around that time that you start to question if your current family car will still do the job or should you upgrade. Upgrading a car to suit your family’s changing needs means that you will need to buy something new which could dent your family budget. Let’s look into how much should you budget and spend on your next family car.
What should I include in a new car budget?
This is one of the first thing that we would think about when looking at which car to buy. The best way to look at this is with setting a family car budget. This budget should cover:
- Buying the car
- Monthly finance payments
- Registration & Insurance
- Running it – Fuel
- Servicing it
Buying the car
When buying a new car, there are somethings that everyone should know before going into a dealership. This is because new cars are priced somewhat different to everyday things we buy.
There are 2 kinds of new car prices. There is a Recommended Retail Prices (RRP) and a driveaway price. What’s the difference?
RRP vs Driveaway Prices
The RRP of a car is not what you will end up paying at the dealership. This price does not include registration or government charges such as stamp duty. These must be paid on top of the RRP before you can drive that car on the road. The dealers will organise this but will pass on the bill.
What new car buyers should be looking for are the driveaway prices. These prices include all the additional costs so you pay no more than the advertised price. The only thing above the driveaway prices will be If there are things that you want to option on the car. These could be nice bigger wheels or a sunroof.
Monthly finance payments
When Australian families look at buying a new family car, financing is the best option. That’s because new cars are the 2nd biggest value items most of them buy. Average family car will set most families between $30,000 – $35,000. With financing, you don’t end up paying everything upfront which makes it much easier on the family budget.
Registration and Insurance
If you have owned a car in the past, you know that registration and insurance is an ongoing part of keeping it on the road. Registration in many parts of Australia is approaching close to $1,000 a year.
Insurance depends on many things including the price of the car, the state/area you live in, your age, type of policy, insurance company etc. On average, according to Canstar, a new car will cost you over a $1,000 if you live in Victoria or New South Wales. Every other state, it’s just under a grand.
Running it – Fuel
According to Australian Bureau of Statistics (ABS), Australian families drive just under 14,000 km per year. This means that the average fuel bill will be around $2,000 per year.
With running any family car, servicing is also part of it. Many of the newer Australian family cars only need to be serviced once a year if you drive under 15,000 km per year. If you buy one of these cars, you will only visit the dealership once and pay somewhere between $500 – $800 per year on servicing it.
How much to budget for a family car?
If you decided to upgrade to a new family car like a Mazda CX-5 which is $35,000 and you traded in your current car which is valued at $15,000. You will need to borrow $20,000. Borrowing $20,000 will mean that you pay just under $400 a month on a car loan with a 6% interest rate.
A family car budget needs to include everything we have touched on, not just the cost of the car. As you can see, all the other things such as insurance, registration, fuel and servicing add up to nearly $5,000 for an average family or about $400 a month.
So to buy and run this new family car, you would need about $800 a month in your family budget.
Is there rule of thumb for family car budgeting?
A good rule of thumb is to keep the new car’s budget under 15% of your family’s after-tax income. For the family above looking at the $35,000 car, they would need to have about $5,500 per month to make it under this rule. If your car budget goes over 15%, you may want to find a new car that offers better value for money. For more on value for money family cars, check out our guide on first family cars under $25k.