Car Finance

Car Budgeting Tips, Financial Advice, and Decision-Making Tools

How much should you spend on your car? - Car Budget Advice

Deciding on what car to choose based on the budget you can afford can be an extremely tricky task. Weighing up the cost of your utility bills, mortgage payments and general monthly expenses can be a rather long drawn out process but it doesn’t have to be and that’s why we felt it was important to tackle this one head on. 

In this guide, we’ll give you some tips on car budgeting when it comes to all the ways you can get a car but also give you some expert financial advice. Then we’ll finish with some tools that you can use right now to help you work it all out. 

How much of your salary should you spend on a car?

If we were your financial advisor and you came to ask ‘how much should I spend on a car?’ The first step would be to learn more about you. 

So here’s 5 questions to kickstart the process: 

1. What is your monthly or yearly income? 

If you have a family then you can add up your and your partner’s yearly salary and have a number that you can use alongside your current outgoings to work out how much you can realistically afford. Remember to include your taxation rate here. 

2. What are your yearly or monthly outgoings? 

What are you currently spending every month on average? To get this number is easy. Look at the last 12 months of your bank statements and work out an average monthly spend from there. 

Divide your total expenses in the last year and divide it by 12 to calculate your monthly expenses. I think most of us have an online bank account which makes it a painless task to work out how much you spent and what on. 

However, if we really wanted to get to the truth. It’s important to ask yourself if the last 12 months has been how you expect to live for the next few years?

Did you not go on that family holiday but actually wish you did? It’s important to think about the life you want when making financial decisions.

This all helps narrow your focus on what’s really important to you so you can decide on the wiggle room you have. 

3. Do you have a car to sell? 

If you wanted to get a new car, having one to sell would have to be factored into your decision.

It’s pretty simple to get an accurate quote for your car. Do this with Motorway right now if you fancy. 

4. What car type do you need? 

Do you want a family car or something to whip around town? Do you need a car to fit baby seats? 

Write down the vehicle type that would fit your lifestyle, then look at what’s available and create a shortlist of cars that would work for you. We’ll come back to this shortlist later on.

5. How do you prefer to get a car? 

What’s your preferred method to get a car? Buying, leasing, subscribing?

This will make the picture all the more clear. We’ll go into the different options later on.

So now you have how much money you have to spend from calculating your annual income minus expenses to find how much spare cash you have each month. If you have a car to sell, simply add that to your budget.

After answering these five questions it will give you a starting point to decide on how much you can afford in monthly payments or a lump sum purchase. 


How to budget for different types of ownership

Need help deciding on what type of car ownership you want? We have guides comparing car subscription with all of them, you can find them below: 

How to budget if you want to buy a car outright? 

The most important thing to remember is that a brand new car depreciates rapidly. In fact, it depreciates at a rate of 40% in a year. That’s a £30,000 purchase that will be £18,000 after one year of use. 

Unlike a house or another ‘asset’ that you would spend a lump sum on, it will lose value because it’s an item that deteriorates as you use it.

That’s why we advise that you don’t buy a brand new car unless you can afford to take those losses or you plan to own the car for 5 years + 

In real terms that would mean 10-40% of annual income. If you earn £60,000 a year at 40% of your income that’s a £24,000 budget for a brand new car. 

You can now go back to your shortlist and look at which vehicle fits your price range. 

Would buying a car be best for you? If not, keep reading. 

How to budget for a car lease? 

A car lease is for those that don’t want to pay out a big lump sum but would prefer to pay a set number of months upfront and then spread the rest over monthly payments.  

This way you can use any equity from the last car you sold and use it to lower your monthly bills by paying more upfront. You’ll pay more per month if you only pay a month upfront. 

Ultimately, this allows you to get a more expensive car with a more affordable payment structure because you don’t need to buy it upfront. If you have just sold a car to get a new one you might want to pay the full 9 months upfront to lower your monthly payments, and if you don’t have a car to sell then you might be better off paying 1 month upfront with a higher monthly payment. 

When it comes to how you budget for this there are some key differences: 

  1. If you already lease a car, decide if the amount you pay each month is too much, or could you afford more? 

  2. If you don’t currently have a car, look at your monthly income - expenses to see what money you have left over.
    Depending on if you want a nice looking car or a car that’s fit for purpose, decide how much your expenses can increase each month to afford that car, then ask yourself if you would be happy to pay that each month for the length of your contract.

  3. Take a look at your shortlist of cars and find the perfect car that fits into that price range.

How to budget for a PCP? 

PCP is similar to leasing in that you pay an upfront fee, or part-exchange your car and then pay the rest over monthly payments. The difference here is that It’s a credit product, so once the deposit is paid the credit agreement can be signed off. 

At the end of the agreement you can agree to pay for the car with the final balloon payment, you’ll pay for your car in the end then if you bought it outright but it does give you more options. 

Essentially this is more affordable for most people to get the car you want by using a loan to finance the car. 

You should take note that the APR rate advertised online can be different to what you actually pay. If you have a good credit score then you pay less in interest by lowering the APR. 

Working out a budget for PCP will be similar to what you worked out for a lease but you can pay more upfront if you want to lower your monthly payments by a sizable amount. If you plan on buying the car at the end then it would be advised to pay more off at the beginning but if you change your mind, this could result in you essentially wasting money. 

How to budget for a car subscription? 

Car subscription is either a low, or no deposit way to get a car. With Wagonex, you pay for a month’s subscription as a refundable deposit then you pay for the car in monthly payments. 

Different to leasing or PCP you can stay with the same car for as short as a month to as long as 36 months. This could be extremely useful to you if you want more flexibility about the exact car you drive each year, or each season. You could go from a BMW 1 series in the winter months and upgrade to a 3 series once it’s time to show off (just a little) in the sun. It’s really up to how you use a car subscription. 

The interesting bit about car subscriptions is, you only have to add fuel, that’s literally the only expense because subscriptions include: 

  • Road tax 
  • MOTs and servicing 
  • Breakdown cover
  • Repairs 

All of these items add to your total expenses so you can’t ignore them. If you want to know how these costs add up, read our guide on the running costs of car ownership. 

Working out what car subscription you can afford is a walk in the park compared to the others. All you have to do is look at the budget you set for yourself earlier in the article and work out which car subscriptions you can afford.

Expect a slightly higher fee because of the extra benefits you get, and remember the refundable deposit which won’t be a cost once we’ve returned to your account.

It’s also important to note that except for insurance that can go up and down in price based on the car or your driving history, the price of the car will be exactly as you see it on site, in other words, it’s transparent. 

You might be able to drive all the cars in your shortlist after a few years if you used a car subscription, but if you wanted to subscribe to one car for the long term, just choose the cars that you can afford from your shortlist. We’ll go through what makes up subscription’s all inclusive package in the next section.


What costs should you factor in that are outside the car itself?

  • Car Insurance 
  • Fuel or charging costs
  • Road Tax 
  • Breakdown cover
  • MOTs and Servicing 
  • Repairs

Car Insurance

Car insurance can be up to 40% of your monthly car bills. If you don’t factor the price into your budget, you’ll be left with a nasty surprise. If you want to get to see how much your insurance will cost for a specific vehicle, use this car insurance tool by

Road Tax

Road tax can be high as £150 a year, use this tool to check how much you’ll pay in road tax.

Breakdown cover 

Breakdown cover is a smaller fee compared to the rest but prices start at around £5 a month. 

MOTs and Servicing

MOTs cost around £50 a year but servicing can cost around £150 a year. 

Potential Repairs

According to Kwik Fit the average driver spends around £13 a month, or £156 a year. So always keep some room in your budget for when that day comes.. 

Fuel or charging costs

The best guess-timate for your fuel costs is £100 for a full tank of 400 miles and £10-12 for a full charge of 200 miles. You probably already have a general idea of your mileage every month from your expenses, so remember to either factor these in, or if you have already, that’s great.  

If you use your car more it might be a good reason to go electric but if not, you can save more by sticking with a petrol car. 

What do finance experts say about how much to spend on your car?

 Dave Ramsey, the financial guru who has around 10 million followers across his social media accounts said this about buying a new car: 

“A new car purchase shouldn’t be more than 50% of your annual income because it’s a depreciating asset” 

Bank Rate, a financial services company which produces guides, reports and calculators to help people understand the best way to use their money says, 

“When calculating all of the expenses, aim to find a car that costs no more than 20 percent of your take home pay. 

The goal is to find a car that meets your expectations and allows you enough breathing room financially to accommodate any unforeseen costs or reduced income.”


What tools can help you find a budget?

Get help deciding on if buying or leasing a car is your best option:

Lease vs Buying calculator from BankRate is a great tool to see if leasing or buying is the best way to spend your money. 

Budgeting Help:

Looking after your finances is everyone’s responsibility and this tool will help you get to grips with where you can save money to make that easier. Use this budget planner from Money Helper. 

Car Running Cost Calculator: 

Another tool from Money Helper is this running cost calculator. Essentially just input the model you like and it will tell you how much it costs to run. You may find that cars that are better for your budget might cost a lot more in running costs, so keep this close if you want to make a smart car decision.

Did this clear your mind on how to budget for your car?

We hope we did our job. 

Take a look at Wagonex's range of car subscriptions                                                                                                

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