Saving For Your First Car

Monday, August 11, 2014

Nobody really likes to think too much about saving for anything – especially not a car and especially not your first car. To many, a car represents freedom. Adventure. The ability to just up and disappear somewhere. I can remember getting my licence and immediately jumping into a ute with a CD and disappearing into a storm for an hour or two. It’s one of my favourite memories.

And, while I probably shouldn’t admit to it, saving often feels like pretty much the complete opposite. You’re sacrificing fun for the future. So, for many, saving for a first car is a simple conversation – because you don’t want to think about it too much. Generally, you get as much money in the bank as you can and/or get a loan and grab a car. ASAP. Even if it’s a bit rubbish.

(Heck, many people will tell you a rubbish car is pretty much a rite of passage for a young Australian.)

But, as predictable as this advice may be, it’s simply not advisable to take shortcuts. Typically, people couch that advice in warnings that it will lose you money or hamstring you financially (and, generally, that’s true) but, in more practical and basic terms, it simply won’t get you what you want. Will it get you a car? Sure. But, as we’ve covered, a car represents freedom.

And, it won’t get you that.

When I was eighteen, I crashed one of my parents’ cars. In a weird twist of fate, they ended up getting more back on insurance than they initially paid for it. I figured I was off the hook – they’d made a profit, right? When I said that aloud, they looked at me like I was an idiot. They’d had that car for several years. The money they’d poured into it was far more than they’d initially spent on it.

As soon as you buy it, a car will start losing value. And, costing you money. It’s one of the annoying facts of life. In addition to the initial cost of the car, you’ll also have to wear costs like petrol, registration, maintenance, repairs. That is true of any car you buy; regardless of how you pay for it. So, if you buy a car, you’ll always be hit with debt.

You take a bunch of shortcuts? You’ll be hit with a lot of debt. The categorical opposite of freedom. Truly, it’d probably be quicker and more efficient to ride your bike and simply find a nice money-flushing toilet and make regular deposits.

So, how do you avoid shortcuts when buying for first car? Well…


1. Know Your Money

Even before you start looking into cars, you should have a good solid look your financial situation. How much money do you have? How much can you save? We’ve previously covered Becoming Financially Independent and Making a Budget on Insight. These are both things that you should do before looking at saving for your first car.


2. Know Your Goal

Why do you want a car? This is very important (and why knowing your financial situation is very important). You might not even need a car. Or, you might need a car for a specific purpose. When I was eighteen, I lived in a rural area with no public transport and needed a car simply to get to the shops. But, living in the city, I’ve probably only driven four or five times in the past two years.

Again, remember that a car will almost always lose you money. You want to make sure that’s for a good reason. It helps to think of your future. Family? Career? How long do you plan to have this car for? When my sister bought her first car, she did so with a five-year timeline – which allowed her time and opportunities to save money for a better car that better suited her lifestyle.

These are all things you should think about when saving for your first car.

(If you’re having problems; RACQ have a great guide on all of the different aspects that can factor into what car you might want to buy – from recreational concerns like whether you’ll need to tow a trailer and how many cylinders your engine will need to cost concerns like fuel consumption.)


3. Know Your Car

With a clear idea of your financial situation and your goals, you’ll already have an idea of the kind of car you’re looking to grab. From this point, it’s simply a matter of doing some additional research. You should seek out multiple avenues.

A website like, for example, is incredibly comprehensive and surprisingly easy to use to research and compare different makes and models. You should also start looking into test driving cars. have an excellent guide as to what you should be looking at and for when test driving your first car.

You should also take anecdotal advice from friends and families into account. For twenty years or so, my father swore by Peugeots as a family car. This is at a time when Peugeot were so unsuccessful in the US that they stopped selling there – and, over twenty years later, still aren’t available there. Your friends and family can have surprising insights. Use them.


4. Know Your Loan

With a clear concept of your finances, goals and ideal car, you can start to look at whether you need or want a loan. For some of you, you may decide you’d rather pay upfront. If not, you’ll have to choose between a secured and unsecured car loan. What’s the difference?

Basically, a secured car loan sees you put your car up as security against your loan. If you fall behind on repayments, your financial institution could take your car and sell it to repay your loan. An unsecured loan means your car is not put up as security.

One is not necessarily better than the other. There is an obvious benefit to an unsecured loan in that you won’t have to put up your car as security – but you’ll also probably pay a higher interest rate because the lender is taking a bigger risk on you.

Conversely, secured car loans will have a lower interest rate – but, in addition to your having to put your car up as security, you’ll also typically be required to have a fixed rate of interest. This means you won’t be able to pay off your loan quicker without paying a penalty.

(Secured car loans are also typically only offered for newer car models – because the cars are more valuable.)

In addition to deciding between secured and unsecured loans (and fixed and variable interest rates), you should also do some research into various lenders. For example, some car dealerships will offer to give you a loan – but they may not be the best option for you. Shop around.

When weighing up your options, remember to factor in not just all the costs of the loan (fees, interest rates and so on) but the cost of the car itself. Again, you’ll always have to pay for maintenance, repairs, fuel and other concerns for a car. Factor those costs into your plans.


5. Start Saving

You’ve got all your information. It’s time to knuckle down and start putting the cash away. You may want to think about a savings account to specifically store your savings for your first car and an automatic savings plan that regularly diverts money to your savings. For example, I have an automatic savings plan that puts $50 into a high-interest savings account on a weekly basis. It saves me more money and makes life easier.

And, with that, you should avoid any dangerous shortcuts in saving for your first car.

While some of these steps may seem elaborate, it’s important to note that saving for your first car isn’t going to take forever or be a massive uphill struggle (even if it may sometimes seem like that). Once you’ve done your research and thought about it, it’ll probably take far less time and effort than you thought.

And, when you do finally get your car – you’ll be able to truly enjoy that sense of freedom of just driving off into the night for a couple of hours without worrying about the future. Good luck!