How to budget for car depreciation?

[LeDoThoil]

I’d like to put away a regular amount to buy my next car. Currently I drive a 10 year old Toyota Auris, which I bought a few years ago from savings. I’ve moved career since then and I don’t earn as much, money is a bit tight generally and will be for the foreseeable future. The Toyota is going fine, I get it serviced regularly (at a main dealer, I’m not handy with cars at all), we drive 20k kms a year these days and the car has a bit over 150k on the clock.

If I put away €100 a month is that a sustainable amount to fund a new car when the time comes to retire the old one? It might sound delusional but I’d hope to get another 8-10 years out of this car, the mileage would be sky high at that stage but I see lots of old Toyotas around me that seem to be still going strong. And obviously if the car died earlier I’d just buy another car (probably another Toyota) for whatever budget I’d saved up.

I have a budget for car servicing and although this will go up as the car gets older, my servicing budget is running a bit of a surplus at the moment, so I’m hoping it’ll even out over the lifetime of the car.

Curious to hear what depreciation has cost others on an annual basis, and whether there are other ways of looking at this. If my plan worked out it would involve buying at 10-12 years and keeping for 8–10 years, assuming a depreciation rate of €1200/year. Car purchases have the potential to blow a hole in the household budget and I’d really like to have enough put away so I don’t need to get a personal loan at short notice.

 

[Sarah Ryan]

As long as you keep servicing that car, it will go for another million miles it's Toyota.
I drive a 05 Audi A4, 196k on the clock, it's only warming up no intention of changing until it's unrepairable.
Save for a new car by all means, but you still have got so much life left in that one, if you are happy to keep it of course and it's still does everything that you need it to do for your family.

 

[Fortune]

Surely depreciation is irrelevant here? You need to estimate the cost of a car at the future point when you expect to buy it, and divide that by the number of months you will be able to save for. If you expecting to "get another 8-10 years out of this car" and are talking about it dying, its value and depreciation are irrelevant

 

[Homewardbound11]

As one who has my own car but use it for work . High mileage and extensive wear and tear . When I cost the depreciation into car ownership I depreciate it 22 percent from new per year . The car is usually traded in for a new one around 3-4 years .this is on the high end of depreciation but not far off as it’s higher in the first few years

 

[Brendan Burgess]

I’d like to put away a regular amount to buy my next car.

I don’t earn as much, money is a bit tight generally and will be for the foreseeable future.

Be careful of having different jam jars for different expenditures.

Scrimping today so that you will have the cash to buy a car in 8 years is probably not a good approach.

Have you other borrowings? For example, if you have a mortgage, you would be better off overpaying the mortgage than putting the money into a jam jar marked "new car in 10 years."

Likewise, if you have not adequately provided for your pension, making more pension contributions might be a better approach.

Make sure that you are in a credit union, so that when you do need to buy a car, they will lend you what you need if you have not saved it up.

Brendan

 

[ClubMan]

Have you other borrowings? For example, if you have a mortgage, you would be better off overpaying the mortgage than putting the money into a jam jar marked "new car in 10 years."

A Money Makeover might help here to get better targeted and holistic feedback...

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[Dr Strangelove]

It's very hard to know with precision when your car is going to sit down and to save for that precise moment. The good thing about having to buy a new car is that it's generally easy to get credit to buy one.

It might be better to simply wait until your current sits down and then borrow rather than having your cash tied up on low-yielding savings for potentially longer than you need it.

Agree with @ClubMan that it can't be viewed in isolation from your overall circumstances.

 

[T McGibney]

It might be better to simply wait until your current sits down and then borrow

The problem with this is the difficulty in buying a new or newer car in a rush at a time when you don't have a car.

It's not a great position to be in.

 

[LeDoThoil]

Thanks all. Some useful replies there. @Homewardbound11 and @Sarah Ryan thanks for offering data points - would be interested in others.

@Fortune maybe depreciation isn’t the right word here but my car is worth something now, it will be worth less and less as it gets older and has more mileage, and I suppose I’m wondering how to fund the replacement of the asset.

@Brendan Burgess @Dr Strangelove interesting perspectives there. I’d have an aversion to going into debt for expenditure that is relatively predictable in magnitude if not exact timing, even if paying off the mortgage (I’ve no other debts) and taking a loan would be cheaper than saving in advance and losing to inflation. I would have enough in my emergency fund to cover a car, but that’s not what I had in mind for an emergency (different if the car unexpectedly went kaput tomorrow I suppose). But you’ve given me something to think about.

I take the point about having too many jam jars but it’s a great source of solace to me that I have enough to cover predictable bills. But judging by the replies here, it sounds like people either have enough general savings to cover a car purchase, or are happy to use credit to purchase?

Thanks again for all the replies. @ClubMan appreciate the point about looking at things holistically with a Money Makeover - will give it consideration.

And again would be interested in how much people are budgeting for their car decreasing in value.

 

[Brendan Burgess]

You are not really budgeting for depreciation or for the car decreasing in value.

You are budgeting for buying a new car. You should assume that the current value and future value of your car is close to zero. (There may be trade-in deals but I think that they are a mirage.)

I would have enough in my emergency fund to cover a car,

This is crazy. So you have a large jam jar called "emergency fund" and you have a jam jar called "new car" and another jam jar labelled "mortgage"

 

[Des Pondent]

Currently I drive a 10 year old Toyota Auris,

The Toyota is going fine, I get it serviced regularly (at a main dealer)

It might sound delusional but I’d hope to get another 8-10 years out of this car

I have a budget for car servicing and although this will go up as the car gets older, my servicing budget is running a bit of a surplus at the moment

We have an 18 year old Auris from new, for those not familiar it is a hatchback Corolla, what a remarkable and adaptable car, it won’t get you anywhere in a hurry, but it will get you there every time, never let us down, it just goes on and on and on.
Our Auris has not seen a Toyota main dealer since its 3 year warranty expired. You could add a good few hundred euro every year to your new car pot by dropping the Toyota main dealer and going to a reputable independent mechanic.

 

[Sarah Ryan]

my car is worth something now, it will be worth less and less as it gets older and has more mileage, and I suppose I’m wondering how to fund the replacement of the asset.

Every second-hand car is worth something right now, and your car could be the future classic in years to come!

Good second-hand cars in the private market hold value right now. Some people don't have access too nor do they want €80k cars around their necks.

Enjoy the car for as long as it keeps going and save in the credit union, that's your problem solved.