So you’re looking to get your hands on a new set of wheels. Brand new, spick and span. 

You always picture the end result - cruising in your shiny new car, pumping tunes and making heads turn.

Nobody dreams about the pre-purchasing stage. Think: working out your budget and doing your due diligence. BOOOOOORING.

So we’ve broken down all the steps you need to think about pre-purchase, so you barely need to think.

Step 1: Run your eyes over your…budget

Eeeep. Yep, we said the B word. You're thinking about buying a car, which is awesome, but have you checked your budget lately? Like, really looked at it?

Need help setting up your budget? We’ve got you covered in our Academy course.

First things first, you want to make sure your income and expenses in your budget are up to date and accurately reflect your current lifestyle, so you have a realistic picture of how much you can spend on your car.

Started taking salsa lessons recently? Or gotten really into rock climbing? Make sure these things have been accounted for in your budget!

Once your budget’s up to date you can use the 50/30/20 budgeting model to decide how much to allocate towards the vehicle and its running costs. 

Still got questions about this 50/30/20 stuff? We cover it all in our Budgeting Academy

With the model in mind, most experts recommend allocating between 10%-20% of your annual income towards the purchase of a car. 

And if you’re looking to buy a higher-end lux vehicle, you might consider spending 20%-30% of your after tax income.

For example, if you’re earning $70,000 after-tax annually, then you would look to spend between $7,000 - $14,000 on a car. If that’s not enough, then consider working towards it over a few years.

Step 2: Look beyond the price tag

When buying a car, most people think about the car’s initial purchase price, but it’s more accurate to look at the total cost of ownership of the vehicle.

That includes the purchase price of your car, plus all the other costs that go into running it.

We’re talking fuel, stamp duty, insurance, registration, servicing costs, and financing costs (if they apply). 

Adding these costs into your budget means you won’t freak out when you've got to renew your car registration in the same month as your mate’s birthday bash. We’ve all been there…

Estimating other ownership costs:

• Fuel: To estimate your annual fuel spend, multiply the amount you spend on average per month on fuel multiplied by 12.

• Stamp Duty: Yep, it’s not just on houses. It exists for cars too. The cost of stamp duty depends on the price of the car. You can use the SRO website to estimate how much you’d need to pay

• Insurance: Request quotes of premiums from insurance websites by entering details or the car you’re planning to buy. Want to learn more about car insurance, check out our Insurance Academy

• Servicing costs: Servicing costs depend on the car model, and the level of wear and tear a car experiences. As a guide, the average cost of a basic car service in Australia costs $216, while the average logbook service costs $370. And here’s a hot tip: servicing a European car is typically more expensive

• Registration and licensing: To drive your car on a public road, it’s got to be registered with the state/territory’s Department of Transport and you need a valid licence. Registration costs vary by state, and the cost per state can be found here.

• Financing costs: Online car loan calculators can be used to estimate this. Your financing costs will depend on the mode/make of the car, your credit history, and the lender.

Using the 50/30/20 budgeting model, the running costs of your car (those that are paid ongoing) should form part of your “needs” spending.

Once these costs are estimated, look at how your total “needs” bucket is looking and make sure you’re all gucci with it.

Step 3: How are you going to pay for your new toy

The car loan debate is like the pineapple on pizza argument; people are torn and they’re passionate for their views.

If you can pay for your car outright, great—you skip the whole loan mess. But if you need a loan, just make sure it won't torpedo your finances.

As a simple rule of thumb, experts recommend that you put no more than 10-20% of your take-home pay towards car repayments.

For example, if you take home $4,000 per month, then you shouldn’t be putting more than $400 - $800 towards your repayments.

There’s no one size fits all option when it comes to buying a new car. 

But by recognising the steps involved and the potential risks, you can make an informed decision for your hot new wheels.