Saving money never sounds hard(unless you’re trying to save money on a tight budget). Simply spend less than what you need to put some money in the bank. But the reality is often tricky. Creating and sticking to a budget is one of the toughest challenges this life has to offer, so when you decide that you need a new car (or a used one) it’s time to put your money where your mouth is and save money for a car.
But how much money do you need to save for a car? That’s an important question that you need to answer before we can really begin. Getting these numbers down is going to set the bar for the level of saving that are going to have to achieve. So let’s get started.
Figure Out Your Monthly Payment
(If you don’t want to have a monthly payment then skip this step)
How much are you willing to pay a month? If you are like most people then financing is a very appealing option, but you need to figure out not just what you’re willing to pay, but also what is realistic, when you are trying to save money for a car.
They estimate that car expenses should never go over 20% of you total monthly income. So if you are only making 1,000 dollars a month, your payments would need to be somewhere around the $80 mark.
Wait 1,000 X .2 = 200 (What gives?)
If that doesn’t sound right, that’s because you aren’t considering the rest of the factors that go in buying a car. You are forgetting that if you finance a car then insurance which would cover the entire cost of the vehicle is mandatory, so you can’t just get away with Personal Liability insurance. Cheap insurance is still going to cost around $80, which brings us up to $160. Then you also have to consider gas and maintenance expenses, which at the bare minimum are going to run you around $40 dollars a month. This brings us to the grand total of $200.
Just remember to keep insurance, gas, and maintenance costs in mind when you are considering how much you can afford to make on monthly payments and you’ll be fine.
There are plenty of Ways to Save Money on Car Insurance too, make sure to check out that aritle if you’re interested.
Figure Out How Much You Need to Pay Down
Figuring out you down payment for a car is a little more complicated to do.
Here’s how to do it:
Though, because of the difficulty, Cars.com has developed a tool which helps you to do just that. Use the auto loan calculator on Cars.com
I went ahead and did this estimate for you:
As you can see at 750 dollars down you could afford a vehicle worth $4,000 at $80 dollars a month. That is if the rest of those numbers are correct for you though.
If that’s what you are shooting for, then you would need to save a down payment of 750 dollars in order to have those payments.
Figure Out When You Need the Car
Now that we’ve done the math you have exactly how much you need to save up. The next step is to determine just how long you can wait to get the car.
Keep in mind that the sooner you want to be rolling around in your new ride, the faster you are going to have to save money in order to make it happen.
Try to be realistic here, you obviously can’t save more money a month than you make, and if you push yourself too hard it’s going to affect the rest of your life too.
However it’s completely understandable if you need the car soon. If you have to have a vehicle for a new job that you are taking, then you might not be able to wait so long. But if you truly can’t wait longer than it will take to save the money, then you may have to go for a cheaper option. It might not be what you want, but it’s what you need.
Save Money for a Car By Setting Up a Budget
Now we get to the hard part, creating a budget and sticking to it, in the required time-frame. This is the kind of thing that most people try their whole lives without succeeding at, so you have to take this part seriously, otherwise you are bound to fail.
So let’s assume that you were going to save what you would be paying for the car. In our example that would be 200 dollars. In order to pay off 750 dollars it would take nearly 4 months to save the money for the down payment.
Doing things this way is a good rule of thumb, because it gives you a sample of what life is going to be like as if you were making the payments. If you find that you are unable to make it work, then you will have to adjust either how much you are willing to pay for a car, or you will need to save for longer in order to make a bigger down payment. On the other hand, if you find that this amount is easy to do, then you can crank up the savings, and choose between a better car, getting it faster, or making a bigger down payment. Lucky you!
What’s a good budget?
Splitting your pay into 50 percent towards needs, 30 percent toward wants, and 20 percent toward saving and investment is generally considered a good budget.
The difficulty here is in the fact that you have to determine whether or not the car is part of your wants or needs. It may even be both. If that’s the case, then it may be reasonable to split the budgetary difference and call it 10 percent on needs and 10 percent on wants. The answer here is up to your own discretion, but make sure that you choose wisely.
Always remember to budget a little extra each month, it may only be 20 dollars, but keep that money stashed away, because you never know when something unforeseen is going to pop up. All it takes is one nail in the road, and you need a new tire. So plan ahead, because stuff like tends to happen more often than you might think.
Start a Savings Account
Since you now know just how much you need, and how you are going to save it, now is a good time to figure out where you are going to store it. Opening a new savings account is a good idea, it will reduce your temptation to spend the money if it’s a little harder to get to.
If it’s going to be a while before you can save up the amount of money that you want, like if you are a high-school student and this is a long-term goal of yours, then make sure to invest the money correctly. Putting the funds into a high yield savings account, or certificates of deposit will put interest on the money, giving you even more when the time comes to make your purchase. But if you want to save money for a car then make sure to leave that money alone! You don’t want to waste it before you get your new car.
Make the Process Automatic
If are getting a regular paycheck, then set it up for automatic deposits. With this in place many banks will allow you to have the money automatically transferred to your new savings account with no further effort on your behalf. There are even apps which will make the deposits for you if that’s the route you want to take.
Don’t Trade-In Your Old Car
If you goal is to replace an aging, expensive, or unreliable vehicle that you already have, then try selling your car yourself. Once you figure out how much a dealership would offer for your car, then you can sell the one you have for more.
Chances are you will be able to get more money for your car on the open market, so it’s a great tactic when you are trying to save money for a car.
Carmax will even appraise your car for free if you are looking to sell it. So it takes a lot of the guesswork out.
If you need help finding more money in your wallet, but earning more is off the table then read our article: How to Save Money
Find Other Ways to Earn Money
If you still have a gap in your savings then you are probably wondering what the best ways to make money are. And the truth is that there are plenty of ways to earn money out there, even if you are working full-time then you can do some stuff to earn money on the side, and you can always sell your old stuff for a bit of cash. You just have keep your eyes open and be willing to put in a little work, and you’ll be able to save money for a car.
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