A car is essential to getting to work and running errands. And it's essential to your social life and helping your family. If your old car has seen better days, you might be curious about how to save up for a car.
Whether you want to buy a new car or a used car, you may need to save up money for a down payment or even the entire purchase price. Here are a few tips to help you budget and save money for the car you need to get you where you need to go.
Decide How Much You Want to Spend
The first thing you need to do is decide how much you want to spend on a used or new car. If you think you can make monthly payments, it's beneficial to decide how much your monthly car payment can be and still afford your other bills. Don't forget that you need to pay sales tax when you buy the vehicles, regardless of whether it's new or used.
Once you know how much monthly payment you can afford, it's time to decide on the down payment amount. For example, if you can afford a $300 a month and you want a car that costs $20,000, you're going to need a hefty down payment to get the payment to down to $300 per month.
If you have a trade-in, you can figure that into your calculations. Just remember that you'll make more on that vehicle if you sell it privately than you will if you trade it in to a dealer.
The cost of the car may also increase and decrease based on the interest rate you qualify for on a car loan.
When you're in the planning stages of buying your next vehicle, it's a good idea to check your credit score to get an idea of your interest rate when approved for an auto loan. If you can, make improvements to your credit score. This can save money over the period of the car loan.
Consider Other Expenses for Your First Car
Remember owning a new or used car costs more than just the monthly payments. You also need to budget for costs such as gasoline, maintenance, repairs, car insurance, tags, and yearly taxes. You need to ensure that your budget not only covers your expense but provides additional funds for savings and things you want to do or buy.
Most experts encourage you to budget. This means that 50 percent of your monthly income goes to necessities — rent, utilities, food, insurance, car payments — while 30 percent goes to your wants and the remaining 20 percent is put into savings.
Car insurance can cost more for the first six months if this is your first car and first time buying car insurance. Fortunately, there are ways to save a little on your premiums. If you have homeowners or renters insurance through the same agency, they'll often give you a bundle discount.
Did you take driver's education in high school? If so, make sure the agent knows this and see if you qualify for a discount on your insurance costs. If you pay cash for your car and don't owe anything on it, you can buy just basic car insurance. However, as part of your car loan, you probably need to have full coverage, which costs more than a basic insurance policy.
Have a Savings Plan
These days, you probably don't keep cash in envelopes for various bills. But do you have a savings account? It's a good idea to open a new bank account as part of your budgeting process for a new car. If you qualify for one, a credit union is always a good option for both a checking account and savings account, since most don't charge service fees or require a minimum balance.
Opening a savings account dedicated to saving for your new car should be the first step in your savings plan. It provides you with an account where you can stash your cash and not mix it with money you need for essentials and wants. A savings account can also add a little extra money in the form of interest payments. As part of your monthly budget, it's beneficial to assign a minimum amount to transfer to the new savings account. You can even make it automatic.
If you already have already set up direct deposit to your checking account, you can arrange to move part of your salary automatically to your savings account. You can watch this account grow and more easily project when you're going to be ready to review your financing options. But how much should you assign to this account?
If you've already determined how much you can afford in monthly payments and the cost of car-related expenses, then that's the amount you can aim to put in savings each month.
Of course, you need to consider the expenses for your current car if you're already a car owner. You want the amount automatically moved to your savings account to be realistic so you don't get in the habit of dipping into the account and keep your car fund growing.
Cut Your Expenses
Are you wasting a lot of money on your "wants" instead of saving up for the type of car that you want? It's time to take a good look at where your money goes and where you can make cuts. Some common areas to cut costs include:
-and much more!
It might be time to consider cooking yourself dinner and enjoying a rented movie at home instead of going out and seeing one in the theater. There are many ways to save money. You can clip coupons and join saving programs at your favorite stores. Many times, a few small changes can make a big difference in your personal finance.
For instance, check the sales circular at your local grocery store and plan your weekly meals based on the items on sale. You don't want to pay full price for food items when you can opt to eat well and save money at the same time. Look at your cable plan and see if there are some channels you can live without if you opt for a less expensive plan.
To start cutting expenses and purchasing your next car, consider starting a journal and documenting where all your money goes -- or find one of the many apps that will track your spending for you. From a quick coffee run to Starbuck to a bag of chips at a vending machine, document where you spend money. After a few days, it becomes clear where you can cut back on expenses.
Get a Part-time Job or Side Gig
When you need more money, you have two choices, make more money or spend less. It's beneficial for your budgeting to buy a new car to do both at once. You can check Craigslist for part-time work or contractor work. Many of these side hustles allow you to work on your own schedule. If you have a recent car in good shape, try applying for work with Uber or Lyft. Another way to make cash quickly is by delivering food for a pizza joint or Chinese restaurant.
If you're a writer, you can consider working online in your spare time. There are many ways to earn a little extra cash online but do your research and make sure that you use reputable services that pay on time and for the work you do. You can even upload your grocery store receipts for a little extra money.
Continue Making Car Payments
Did you recently pay off a car? Well, instead of using that extra money to buy new shoes or to go to a concert, move your old car payment amount into your savings account and earmark it for your next vehicle. Since your budget already reflects that payment, you won't feel like you're missing out on anything.
It's amazing how fast that money grows. For example, if you've been paying $400 a month on your recently paid off account, place the monthly payment in a savings plan, and in 10 months, you have $4,000 to buy a used car or make a down payment on another vehicle. If you don't have a pressing need for a new car, then this method helps you make great strides saving for your next vehicle and saves you money in interest payments over the long run.
Clean up Your Credit Score
If you know that you need financing for your next vehicle, you want to clean up your credit as part of the savings plan. Several online websites allow you to run your credit for free. After seeing your score and accounts, you can concentrate on paying off a credit card or disputing a problem with your credit accounts. The better your credit score means the better the interest rate you receive when you go to finance your new car. This can help you lower the down payment needed and lower your monthly payments. With a better credit score, you might be able to purchase your new car with less money up front.
Set a Goal
For most people, it isn't enough to say that they're going to save money. Decide on the amount of money you want to save for your new car and the timeframe you want to buy the car within. For instance, set the goal to save up a 20 percent downpayment of $6,000 for a new car within six months. This means that you must save $1,000 each month. Once you have a goal established, set benchmarks.
You can treat yourself to an afternoon golfing or a new bag when you hit the 25 percent mark. This helps to keep you motivated, and you're less likely to feel like you're missing out on something. At the start of each month, review your goals and see if you're on track to meet it. If you feel overwhelmed saving so much each month, adjust your goals and change your timeframe as needed. In some cases, you may find that you've saved more than you planned to and can make a purchase sooner.
Sell Your Car or Trade it in
When you're close to reaching your savings goal, it's time to consider what to do with your current vehicle. If you don't need a second vehicle, you need to either sell it yourself or trade it in at the dealership. It's always less hassle for you to trade it in at the dealership but you might be losing some money in the process. Of course, it's possible to get the dealership to offer better finance options with an included trade in.
With the internet at almost everyone's fingertips, selling a car yourself has never been easier. From Facebook and CarFax to Craigslist and online yard sales, there is always a place to put your current vehicle online in just a few clicks and uploaded photos. You can even use your email instead of providing a phone number so your phone doesn't ring off the hook. This makes it easier than calling up a newspaper and placing an ad like the old days. Take your time and explore both options to see which helps you reach the goal of a new car more quickly.
When the time grows closer to buying a new or used car, use these tips for how to budget for a car to help you accomplish your goals and get behind the wheel of the car of your dreams sooner. Setting goals and opening a savings account can help keep you focused on saving. With a few budget cuts, you can save more effectively and cut the time you need to wait before making a purchase. A side hustle helps build your savings and makes the time pass quicker. Taking care of your credit score is essential for securing the best financing and interest rates possible. Following this guide for how to save up for a car can aid you in purchasing your next vehicle.