Buying a new car is a big decision. There’s a ton of different considerations you have to keep in mind. Does your car need to be large enough for a family of five? Or do you need one small enough to fit in tight city parking spaces? There are plenty of models available on the market, and you’ll have to take into account both your personal needs and your budget requirements before you go shopping.
Whether you’re already in the market to buy a new vehicle or you’re planning for another car purchase, there’s one question that must be on top of your mind: How to save for a car?
When you are able to save for a car, it minimizes the amount that you need to borrow. This can put you in a stronger position at the car dealership, and can allow you to save thousands of dollars in interest. Saving does require some discipline, but if you follow a few steps, you should be able to save most of your down payment within months. Here are our top tips on how to save money for a car:
Set up a Down Payment Goal
The first step in the process is settling on an amount that you can spend and chalking out an estimate of how much to save for a car. Next, compare a few makes and models to find out which ones fit into this budget.
Once you are able to choose a model that fits both your needs and your budget, you’ll be faced with the question of a down payment. It’s important to remember that the more money you are able to pay as a down payment, the more likely it is that you will walk away with a better deal. This is because you will be financing less and typically securing a lower rate of interest, which will ultimately mean lower monthly payments. A separate amount should be saved for the additional cost of sales tax and fees which may prove to be significant.
Budget Like a Boss
Now that you’ve decided on the down payment, a proper game plan can be put together. At this point, you’ll need to set up a budget for your overall finances—if you don’t have one arranged already. A budget can support your finances just like a foundation supports your house. It provides you with a basis to start making your car buying plan and you can modify it accordingly.
There are a steps tips that you must keep in mind when creating a budget:
- Gather all your financial statements .
- Record each of your sources of income.
- Create a list of monthly expenses.
- Break this list into categories: fixed and variable.
- Sum up your monthly income and expenses.
- Make adjustments where you can in expenses.
- Review your budget monthly.
For best results, it’s good to stick to a budgeting rule, like the 50/30/20 rule. Allocate 50% of your monthly income to the things that you need such as rents, bills, food, etc. 30% should go to the things that you want such as cinema tickets, vacations, and nights out, whereas 20% should go toward your savings.
Limit Unnecessary Spending
Possibly the best way to save for a car is to limit all unnecessary spending. Purchasing a car is one of the most significant investments of your life. While saving up for this major purchase, it is important to limit unnecessary spending on smaller things. You may want to consider temporarily slashing spending on “wants” and finding creative ways to reduce current necessary expenses. You can then redirect this saved money toward your car fund.
Cutting expenses is never fun, but consider this: you are making little sacrifices for a bigger payoff. Those extra, unnecessary purchases can really add up to a huge amount at the end of the month. They may add up to the equivalent of a car payment by the end of the year. Every time you are about to make a non-essential purchase, step back, and reconsider if you really need it. Ask yourself: is it more important to watch that movie in the cinema, or to get a new car in the next few months?
Formulate a Saving Strategy
This is the step where you can do some actual savings. There are different ways of formulating a saving strategy:
- Establish a separate account for savings: This may sound simple, but establishing a separate account for all your savings can go a long way towards keeping those savings intact. A separate account will help ensure that the money is focused on your ultimate goal—getting a new car.
- Automate savings: Having a savings account can be very beneficial, but only if you are actually putting something into it. The best option is to create automated savings. You can accomplish this by asking your employer to split up your direct deposit allocations, or by asking your bank to do that directly.
- Invest your savings: If you are working hard to put money away, it’s a good idea to invest it. Find a low-risk investment solution that works best for you so that the money you save has a chance to grow on its own.
Build Some ‘New Car Cash Flow’
Saving money to buy a car is important, but you shouldn’t overlook opportunities to generate extra income as well. There are several different options to look into. The first could be selling your current vehicle or other assets. Selling your old car or trading it in can generate funds for your next car.
A second option for increasing your cash flow would be a re-evaluation of your market value. Are you being paid the median salary for your current role? If not, then it is time to ask for a raise or look for a better job opportunity. It’s important to remember that the more you make, the more you can save.
Another possible route is to save your bonus. If you receive a bonus from work, avoid spending it, and instead consider it as extra savings. Simply add it to the car fund. The same is true of extra income earned from promotions. If your salary gets a raise, consider how much you can save by continuing to live off of the amount that you previously made. Add the extra money made each month to your savings for a car.
Take on a Side Gig
As previously mentioned, a good way to set aside more money for your savings is to take on ways to make more money in the first place. Look for simple ways to boost your bottom line and create a side hustle. Ensure that any side gig is legitimate and worth your time by reviewing experiences of other workers online.
If you’re a very detail-oriented person or if you like reading, then starting a proofreading side hustle might be perfect for you. There are countless blogs, websites, and businesses who are in need of proofreaders and are ready to pay well for your services.
If you need something more local, think about the skills that you have that you may be able to market as a teacher. If you’re a musician, consider giving lessons to people in your area. If you’re an athlete, consider being a part-time personal trainer. Side gigs are all about finding an area where you have an advantage and making the most of it.
Consider Buying a Used Car
You may be put off by the idea of a used car initially, but in reality, a gently used car may prove to be a better bet in the long run—at least financially. When it comes to saving money fast with a car purchase, aiming for a more inexpensive car is a logical way to save money faster. By saving up for a used car instead of one that has never been driven off the lot, you will be able to make huge initial strides towards a final purchase.
One of the best methods for saving money for a dream car is to wait a year or two for the car you want, then purchase it second-hand. The car will still be new to you, but you won’t have to save nearly as much.
Settle Your Debt With CreditAssociates
A car is no doubt a very significant purchase. But saving up for a car is no easy task, especially if you’re struggling to save money as you pay off debts. If debts are becoming a major obstacle to your ability to save for your new car, you may want to consider settling your debts before you invest in the purchase.
CreditAssociates negotiates with creditors on our clients’ behalfs to greatly reduce the total amount of debt owed. If you think debt settlement might be for you, our debt relief experts can work with you to resolve debts in as little as 24 to 36 months. Contact us today to learn more!