How To Save Money For A Car: Proven Tips For You

Buying a car is a considerable expense, and you should plan accordingly. Only a few Americans can afford to walk into a dealership and pay cash for one. The rest need to save up for a down payment and finance the balance. Or save the total purchase price. Whatever the case, a lot of planning and budget adjustment will go into it.

The following is a guide on how to save money for a car. But first, why save up for a car?

Saving Vs Relying On A Loan

It is not advisable to buy a depreciating asset using a loan. The minute you drive from the dealership, the loan amount will be more than the car is worth. But financing your vehicle means you pay a deposit upfront which reduces the monthly payments. The higher the deposit, the lower the monthly payments will be. It also shrinks the interest charges over the life of the loan.

1. Choose A Budget

Before you even begin saving, the first step is to decide how much you can comfortably spend on the car. Shop around for the models you are interested in and confirm the price range. According to the KBB website, the average price for a new car is $43,072, while a used one is $27,633 as of 2022. Your down payment is dependent on whether you are paying cash, financing, or leasing.

Experts advise you to put up a 20% deposit for a new car and 10% for a used one. It’s much better to go higher since a high down payment translates to reduced monthly payments. You also get better deals. Monthly payments will be lowest for leased cars and highest if you pay cash. But buying has more advantages than leasing.

2. Include Car-Related Expenses

Remember to include additional expenses such as sales tax and fees when calculating your down payment. Your car also comes with other ongoing costs such as insurance payments, gas, and maintenance. Your age, driving record, and credit score are factors that influence insurance premiums. Shop around before commiting to find the best deals. Or bundle your homeowner’s or renter’s insurance to your auto policy to save more money.

Sometimes it may be challenging to decide whether a car is a want or need. But regardless, the total monthly car-related expenses should be less than 20% of your take-home pay.

3. Open A Separate Saving Account

To ensure you do not dip into your car saving fund, open a separate saving account. If saving for a car is a long-term goal, you can look for a high-interest account or a mutual fund. The interest you earn will help you speed up the process. Some online accounts may pay higher interests than traditional banks.

4. Opt For Autosave

Moving money from your checking account into your savings account is an excellent way to save a regular amount every week or month. You may also decide to save a certain percentage of every deposit. Banks make this move very easy. If you are not saving in a bank account, third-party apps help you achieve the same goal with online saving accounts.

5. Cut Non-Essential Expenses From Your Budget

To achieve success in your savings, you have to strictly adhere to your monthly budget. Follow the 50–30–20 budgeting rule to determine what you can eliminate. The rules dictate you spend 50% of your salary on needs, 30% on wants, and 20% on saving and paying debts.

Wants include things like entertainment and eating out. Eliminate some of them or reduce your spending on them. You should deposit all the money you save into your car savings account. Also, use any windfall that comes your way to boost your car savings fund, such as birthday gifts, end-of-year bonuses, etc.

6. Trade-In Or Sell Your Old Car

Ensure you are not getting a raw deal by appraising your car. You can use available resources such as the Kelly Blue Book. Any amount you get will boost your savings significantly. Selling your car will give you more money than trading it in, but it requires more time and effort. Trading it in is as easy as driving into a lot and walking out with cash.

7. Start A Side Hustle

The extra income from a side hustle will help you close the savings gaps. You can do many things such as freelance writing, selling stuff online like old books, toys, and games, ride-sharing, or becoming a virtual assistant.

Take Away On How To Save For A Car

Saving for a car is a significant expense that you should carefully plan. Do due diligence to ensure you get the best deals on financing and insurance. Once you choose a model and have a price for it, calculate the down payment and monthly payments, including all the car-related expenses. All you need after that is to save until you reach your target.