Whether you’re buying used or new, replacing your current vehicle is often an expensive decision. Saving money for your car purchase can reduce the amount of financing you might need. You’ll also be able to save money for unexpected costs related to your new car.
Learn how to save up for your next car by following these tips.
Decide What You Can Afford
The first big decision when buying a new car is to see how much you can afford. Take a look at your monthly income, expenses, and savings to see how much money you can put towards a car. Remember to think about how much time you have to save for your new car. If you need a new car in a few months, you probably won’t be able to save as much as you could if you have longer.
Choose whether you want to buy new or purchase a used car. New cars are generally more expensive, but you’ll likely spend less on upkeep in the first few years of ownership. Used cars may cost less upfront but may come with existing issues that need repairs. Consider taking a used car to a mechanic for an inspection before buying to avoid buying a car with major problems.
You’ll also need to choose if you want to finance your car or buy it with cash. Each option has pros and cons that could help you make a decision:
Taking a Loan
- You won’t need to save as much money for the initial cost of the car.
- You might qualify for a low monthly payment that leaves room in your budget for other expenses.
- You’ll probably end up paying more than the value of the car because of interest charges.
- You often need a good credit score to get the best interest rate on a loan.
- You won’t actually own the car until it’s paid off.
Buying with Cash
- You’ll own your car outright.
- You won’t have any monthly payments or interest charges.
- Your upfront costs will probably be higher than financing the vehicle.
- You may not have money left over to pay for other car costs like insurance or routine maintenance.
Calculate Other Car Costs
The purchase price of your car is only the start of car ownership costs. Even if you get a great deal on a new car, you’ll have ongoing expenses to keep it in good condition. Be ready for the expected — and unexpected — costs of owning a car by making a list of expenses with an estimated cost for each. Be sure to include:
- Car insurance
- Regular maintenance like oil changes or tune ups.
- Long-term maintenance such as new tires or alignment services.
- Unexpected repairs
- Fuel costs
Create a Car Fund
You’ve got a savings goal, a timeline, and are clear on whether you’re going to take out a loan or buy your car in cash. Now you need to start saving. An easy way to help you stay disciplined while saving for a car is to open a separate savings account. You can use this account as a car fund where all of your car savings go. This helps limit the temptation to use your car savings for other things as well as cutting down on accidental spending.
Automate Your Savings
The first thing you should do after opening a new savings account is to set up automatic transfers into the account. Talk with your employer and ask if you can set up partial direct deposit into your new account. This would let you put a percentage or dollar amount from each paycheck into your car fund. The best part is that the money won’t reach your regular bank account — meaning you won’t be tempted to spend it on something else.
Spend Less Money
An easy way to save more is simply by spending less than you usually do. There are lots of ways to reduce your spending or knock down debt in order to save more. Start by thinking about why you buy, such as emotional triggers that make you pull out your wallet. You might be surprised to learn all the different reasons you spend money. For example, you might be tempted to spend more money when you’re stressed from work or family obligations.
You can also try these other tips for spending less money:
- Ask about discounts for expenses like car insurance or cell phone plans.
- Reduce ordering takeout, going out to eat, or grabbing snacks at the convenience store. These small expenditures add up over time.
- Look for the lowest unit price when shopping for groceries and other needs. For example, a pack of four toilet paper rolls might cost less than the pack of 10 rolls. When you break down the price per roll, however, you could find that the 10-pack is a better value.
- Only pay with cash and keep a set amount of money in your wallet.
- Wait 24 hours before making a purchase. This lowers the chance of you making an impulse, emotional purchase.
Stick to Your Goals
It’s a smart idea to create a savings plan when you decide to buy a new car. Calculate what you can afford and start researching what your budget can buy in your area. Remember to factor other car-related expenses like insurance or maintenance costs into your budget. Then you can calculate a timeline for saving to reach your goal and buy your new car.
Having a savings plan in place will help you stick to your goals and reach them by the time you’re ready to buy your next car.