Thursday, February 19, 2009
Category:
Personal Finance Tips
This is one topic that might resurface within the next few months and is worth considering. Do you need a car, or is it a luxury, especially with the current state of the economy and volatile petrol prices?
Cars are ubiquitous and are undisputedly convenient, especially in the cold winter months when the though of waiting for buses and trains is fairly miserable. However, in saying that, there are people without cars and they manage just fine. In fact, there’s an argument to suggest that if you don’t have car you’ll find yourself unwittingly doing more exercise if you’re walking more.
Often the cities with the best public transport systems (such as London) are the ones where cars are needed the least. It’s understandable that if you live in a rural area a car can offer a freedom of movement that the public transport system may not.
However, bear in mind that if you do decide to purchase a car (in other words if you don’t have one already) that the costs associated are not just that of the purchase price. You have to consider road tax, insurance, fuel, servicing, MOTs and any repair costs that you might not have budgeted for. In total, this can add up to many thousands of pounds a year.
So – ask yourself the following questions:
Do you need a car? What would you use a car for? Would you use the car for leisure and work? How many hours and how many kilometres do you spend travelling a day? Most of us think we need a car - very few of us really do. The cost may outweigh the convenience of being able to drive anywhere at any time.
What alternatives are there? Most UK cities have transport systems that are reliable and safe. Consider whether you could get to work by taking public transport. Other options may be to walk, use a bicycle or drive a scooter. One of your colleagues could give you a lift to work in his or her car. All of these would cost you less than driving a car. And traffic would not affect you.
What can you afford to spend on a car? There are many formulas you can use to determine what you can afford. One of the more reliable formulas is to spend no more than 20% of your net salary on a car. Or try to pay cash for a second-hand car that is not too expensive. This means you do not have a monthly installment to pay. You would only have to cover the insurance, maintenance and fuel.
How much would leasing a car save – or cost – you? There are a few advantages to leasing a car. One of these is a lower upfront payment and a lower monthly installment. You could drive a car that has more prestige than what you could get when buying. But the car belongs to the leasing company and you would pay a residual value at the end of the lease agreement.
Get a financial cushion. You could be made redundant tomorrow. How would you pay your car’s installments and do you have enough money to support yourself – food, bills, rent and enough to enjoy yourself once in a while – while you try to find a new job?
And last but not least, use the credit crunch to your advantage. If you can afford it then now may be one of the better times to buy a car. Sales are down everywhere so salespeople could give bigger discounts. The end of the month is also a good time to approach car showrooms as the salespeople will be starting to get antsy about their targets. Improve your credit record, save up for a deposit and be prepared to bargain.
