Are you trying to figure out how to save up for a car on your budget? A vehicle is an expensive purchase. But if you need a vehicle to get from A to B, it's an unavoidable expense.
If the thought of saving up for a car seems like climbing a mountain, it doesn't have to be. Instead, you can implement our actionable tips to build up the savings you need for a car.
Ready to learn how to save up for a car? We'll explore five key steps today.
5 Key steps for how to save up for a car
These key steps will help you save up for a car much easier. Plus, we will explore how to save for a car with low income.
1. Ask yourself: New or used?
Before you start to save up for a car, the first question to ask yourself is if you want to buy a new or used vehicle.
The difference starts in your pocketbook. The average price of a used car is about $28,000. But the average price of a new car is even higher at $47,000. Used vs new car aside, there are other factors to consider.
Here are the differences to think about when deciding on a new or used car:
Benefits of a new car
The new car smell is not the only thing that a new vehicle has to offer. A new car often comes with better gas mileage, better financing options, newer technology, and possible warranty coverage.
The cherry on top of a new car is that vehicles today are expected to last around 200,000 miles. This extended lifetime offers peace of mind for drivers that want to make the most of their vehicle's life.
Benefits of a used car
On the flip side, used cars offer more than a lower price point. Used cars also come with lower depreciation, cheaper insurance, and lower registration fees in some states.
Although many shy away from used cars on the assumption that they might not be as reliable, that's not necessarily true. As we mentioned above, new cars today can run for upwards of 200,000 miles.
With proper maintenance, a used car can still offer you many miles on the open road.
In general, buying a used car makes more sense financially. That’s especially true if you can find a safe and reliable low mileage used vehicle in your price range. But ultimately, this decision boils down to your personal preference.
Consider the pros and cons of each and deep dive into the reasons for buying a used or new car.
2. Ask yourself: Buy or lease?
Another big question to ask yourself before you start saving up for a vehicle is whether you want to buy or lease your vehicle. Here are a couple of things to think about when deciding:
Leasing a vehicle
Leasing a vehicle requires an upfront down payment followed by monthly payments. Typically, the monthly payments are lower than if you were buying a vehicle. However, you won't own the vehicle at the end of the lease term.
It's also important to keep in mind that you might have to pay mileage or damage fees. This happens if you go over the agreed-upon mileage or if the car gets damaged with use.
Buying a vehicle
On the other hand, buying a vehicle gives you the freedom to put as many miles on the vehicle as you’d like. You’ll have to make a larger upfront down payment to buy a car.
And typically, the following monthly payments are a bit higher than a lease payment. But at the end of the day, you’ll own your vehicle.
Generally, buying a used car is a more financially sound choice than leasing a vehicle. Take a closer look at the math of buying vs leasing a vehicle before deciding.
3. Research other car costs
When learning about how to save up for a car, don’t forget about the other car costs. In addition to a down payment and monthly payment, you’ll also face a suite of other expenses as a proud owner of a car.
These costs kick off with registration and license. Next, you’ll need to consider your auto insurance payments. Depending on the terms of your lease or financing agreement, you may have to spring for expensive comprehensive coverage.
Other costs include regular maintenance like oil changes and major car repairs. Make sure you leave room for these costs in your budget.
4. Set a savings goal
Determining whether you want to drive away in a new or used vehicle will help you nail down how much this venture will cost. But you still have some decisions to make before setting a savings goal.
Here are the steps to take when setting your goal:
Decide if you will pay cash or finance
Ask yourself whether you want to pay cash for your vehicle purchase or obtain financing. With the average used car price sitting at $28,000. It’s likely more realistic to save for a down payment on a car.
But if you have the time and flexibility, then paying for a vehicle in cash could be an option.
If financing, calculate your down payment
If you go the financing route, you’ll still need to save a significant amount of money for a down payment. The rule of thumb is to put down at least 10% on a used vehicle or 20% down on a new vehicle. However, it’s possible to put down less.
Calculate your goal and give it a timeline
Take some time to consider how much you want to save for a vehicle. When you set your savings goal, try to keep it realistic. Although we would all love to pay for vehicles in cash, that’s not always in the budget.
Consider a realistic down payment that you can save for your vehicle purchase. Let's say you want to save $10,000 in a year on your new car. That means you need to save about $192 a week.
Break your big goal into smaller chunks so you can achieve your savings goal.
And don’t forget to consider more affordable models as a way to minimize the debt you take on with this purchase. Making these decisions and setting a realistic savings goal is how to save for a car much easier!
5. Build your savings
Once you have your savings goal in place, it is time to start tucking funds away. Of course, this is easier said than done. But there are some helpful strategies to help you meet your savings goal efficiently.
Automate your savings
Start by setting up an automatic savings transfer from your paycheck into a dedicated savings account. Once the funds are safely tucked into your savings account, you might find less of a temptation to accidentally overspend.
After all, you'd have to transfer funds back into your checking account. And when you try to do that, you might decide that saving for your car is more important than an impulse buy.
Cut your expenses
Take a close look at your budget to see where you can cut back on expenses. Consider temporary spending cuts to your budget to increase your potential savings. For example, try meal planning or cutting out subscriptions for a few months to increase your savings.
Start a side hustle
If your current income won’t get you there fast enough, then consider starting a side hustle to boost your income. A few popular side hustles include blogging, proofreading, or becoming a virtual assistant. Some side hustles can bring in hundreds to thousands of dollars a month!
How to save for a car with low income
If you are planning to save up for a car with a low income, you’ll face a unique set of challenges. But if you have a low income, don’t let that stop you from saving for a vehicle purchase.
Instead, take it as an opportunity to get creative with your savings strategies. Here are a couple of ways how to save for a car with low income:
Find ways to boost your income
The first option is to consider additional income-earning possibilities. If you have the bandwidth, again our favorite suggestion is to start a part-time side hustle to boost your income. A few lucrative options include freelancing, tutoring, photography, and pet sitting.
If a side hustle isn't your cup of tea, then consider picking up a traditional part-time job. Or ask for overtime at work to bump up your monthly paychecks.
If you don't have extra time, then consider selling stuff from around the house to boost your savings. You might be surprised by how much you can make through a decluttering sweep around your home.
Finding ways to increase your cash flow is how to save for a car with low income.
Extend your savings goal deadline
If you don’t have the time to tackle an extra income opportunity, then consider extending the timeline on your savings goal. For example, let’s say that you want to save $2,000 for a down payment on a car.
If you wanted to meet your savings goal in six months, you’d need to save $333 per month. But if you were able to extend the timeline to a full year, you’d need to save $166 per month. That might be a more realistic number for your budget.
Don't forget to set up a sinking fund for car expenses
Regardless of how you obtain a car, the costs don’t stop when you ride off into the sunset. As any driver can attest, your car needs regular maintenance. For example, regular oil changes and tire rotations are just a part of safe driving.
But even with a spotless maintenance record, your car will need repairs at some point. According to AAA, the average auto repair bill lands between $500 to $600.
After you save up for a car, consider using a portion of those savings as a regular sinking fund for all of your car-related expenses.
Use these tips so you can save up for a car!
Now that you know how to save up for a car, it’s time to put your plan into motion. Remember to weigh the pros and cons of buying a used or new car first. Then research other expenses to ensure you will be able to afford the car you choose and set a realistic savings goal for yourself.
These tips will help you save money easier so you will be cruising in your new ride in no time!