Buying a new car is one of the biggest financial decisions you’ll ever have to make in your life. Owning a car is an ongoing responsibility and there are a lot of figures you should take into account before purchasing a new car, such as loan amounts, monthly payments and estimated cost of ownership. Kyle Prevost, a personal finance expert and blogger at Young and Thrifty, sat down with us to share some tips on how to avoid overspending on car ownership.
Create a Car Budget
Owning a car is expensive, especially when you have to worry about things like fuel costs, maintenance, insurance, changing tires as well as loan and lease payments. You can start by first creating an overall car budget. Make sure it includes information such as your monthly income, monthly expenses and all the car-related costs mentioned above.
Be realistic and honest with yourself on what you can afford when creating your car budget. “Cars are one of the largest sink holes of money for most middle-class Canadian families,” explains Kyle Prevost. “CAA has produced a lot of detailed information in regards to the full cost of ownership for different makes and models. I’d start here and then track your expenses for a few months.”
Have an Emergency Car Repair Fund
Accidents happen and can’t always be accounted for when it comes to owning a car. You should always be prepared for anything and everything to happen to your car, from a flat tire all the way to engine trouble. “Large-scale repairs are clearly the most difficult variable expense to budget for,” explains Kyle Prevost. Some repairs can be spotted early on and quickly fixed, but other incidents just happen out of the blue.
Kyle recommends to always have a designated emergency fund for car repairs, as some repairs can become quite costly, depending on the damage inflicted to the car. By having an emergency fund for car repairs, you avoid surprise costs and possibly accrediting debt through using your credit card.
Purchase a Fuel-Efficient Vehicle
When purchasing a new car, one of the biggest focuses tends to be on overall fuel costs. When writing out their car budget, car owners will often try to plan out how much fuel they can afford on a weekly basis, while struggling to deal with changing fuel prices. Kyle Prevost thinks the latter is a mistake. “I actually believe this is one expense that gets a little too much press and focus,” suggests Kyle. “The constant obsession with gas prices has always amazed me.”
Instead of planning and estimating your weekly fuel costs, Kyle recommends a better strategy. “You’re far better off putting your time and energy into choosing a fuel-efficient vehicle and making sure your tires stay properly inflated than you are worrying about a commodity price that you have no control over,” explains Kyle.
Lower Your Insurance Premium
One of the most expensive car costs are insurance premiums. While every car owner understands the importance of having insurance in case of an accident, car insurance can still be quite the financial burden to your everyday car owner. With the cost of insurance always increasing in general, Kyle Prevost recommends some tips on how you can help to lower your own insurance premium.
“The best way to lower your insurance premium is simply to be a safe driver that doesn’t take risks and doesn’t get speeding tickets. The lower your risk to the insurance company, the lower your premium,” explains Kyle. “Another great idea that Canadians should embrace is just owning cheaper vehicles. The premiums are cheaper on a 10-year-old commuter car than a new BMW or Audi after all.”
Consider Alternatives to Car Ownership
As mentioned in the introduction of this article, purchasing a car is one of the biggest financial decisions of your life. Tack on additional ongoing costs for maintenance and repair, and car ownership could cost you hundreds of dollars per month alone. Not everyone can afford that, so it’s important to do your research beforehand and be prepared. “The best way to limit car costs is actually not to own a car,” explains Kyle Prevost.
Kyle recommends exploring alternatives to car ownership to help save you money in the end. “Public transport and old-fashioned exercise have a ton of financial benefits that most people aren’t aware of until they track expenses (think parking, tickets, car washes, etc.),” explains Kyle. “If you absolutely need a car for a weekend you can always rent one or offer a favor in return to a friend for using theirs.”