How To Save Money For A Car In 2023
Buying a vehicle is a significant investment and it often requires planning, saving, and budgeting months before you commit to a purchase. It’s smart to save money for a car now, so you're ready when you find the right one.
By managing your money, using budgeting apps, and making smart purchases and investments, you'll be better prepared for unexpected expenses, including buying a new car when you need one.
Establishing Your Budget
To establish your budget, you must first know what kind of car you want and whether you'll lease or finance the vehicle. A quick note—leasing can seem cheaper upfront, but you don’t own the car and may have additional charges if you exceed the mileage limit.
Part of knowing how much money to save for a car is understanding that you’re not just saving for up-front costs like the down payment or purchase price. You’ll also need to consider additional expenses like car insurance, gasoline, and regular vehicle maintenance.
Even if you can afford the down payment, if you can’t afford gas every month or a broken tail light, you might need to buy a cheaper vehicle.
When determining how much you’ll need to save and how long it'll take to save that amount, it’s important to be realistic. If you’re also paying for rent, child care, groceries, health insurance, or other expenses, you won’t be able to put your entire monthly paycheck towards car payments.
Figuring Out Your Expenses
When calculating your overall monthly costs, examine all the expenses in your life, big and small. Big ticket items like rent and health insurance are no-brainers but also consider less-obvious expenses like paying for parking meters, babysitters, and take-out food. Gym memberships, utilities, and cable bills would also go on that list, as would any credit card or student loan debt you may be paying off.
Once you determine your total monthly expenses, deduct that amount from what you take home after taxes each month. You have to work with the amount left over, but it’s crucial to understand that this isn't your monthly car budget. Remember, you’ll also need to pay for gas, car maintenance, car insurance, and personal expenses from that amount.
If you get sick or injured and miss work, you may have to rely on savings to cover some expenses while you’re out. You may also have other unexpected expenses like date nights, birthday parties, home repairs, and new clothing or shoes. As such, you don’t want your entire take-home pay tied up in a car payment because you won’t have money to pay for other necessities.
Calculating The Down Payment And Monthly Costs
The general rule for how much money to put down is 10% for a used car and 20% for a new car. If you’re eyeing a used car that costs $12,000, that means you should put down at least $1,200. For a new car that costs $25,000, plan to pay at least $5,000 upfront.
Any amount left over after your down payment will be broken down over monthly payments. An auto loan calculator can help you estimate these monthly payments since they vary based on sales tax, interest rates, and the trade-in value of your old car.
It’s possible to buy a car with bad credit, but if you have a low credit score, know that it may be harder to get a good deal on a loan. Borrowers with higher credit scores usually receive better loan terms, such as smaller down payments or lower interest rates.
You can still buy a car with bad credit—you may just have to save more in advance or budget more for your monthly payments. If this is the case, reviewing financing options and determining a savings strategy is also important.
Easy Ways To Save Money For A Car
Now that you know how much money you should save before buying a car, let’s talk about ways to save money for a car. Since it can be tough to save money when you’re on a tight budget, we'll focus on tips for saving up for a car with a low income.
- Pick up extra shifts at work: In some instances, specific shifts (like weekend/overnight shifts) pay more, so by taking these on, you can bank even more money.
- Find a side hustle: Side hustles like babysitting, housekeeping, and tutoring are traditional options, but you can also use apps like TaskRabbit or Fiverr to find side gigs like website development, graphic design, furniture assembly, and basic home repair.
- Buy items on sale: Even without clipping coupons, you can save a lot of money by checking the clearance racks at department and home goods stores and buying what’s on sale in the supermarket.
- Eat at home: Restaurants and coffee shops are expensive, so if you’re serious about saving, it’s best to avoid them.
- Cancel unnecessary memberships: Are you paying for a gym membership you never use? What about cable television or multiple streaming services? Forgoing these memberships could save you hundreds, even thousands, per year.
- Take public transportation: If you rely on Uber or Lyft to get around, look into local buses and trains to see if you can switch over.
- Open a savings account: No matter how much money you have in a checking account (or hidden in a shoebox), it can be tempting to spend it, so set up a dedicated savings account to stash away money for your car.
Knowing how to save money for a car and how much it costs to maintain it can help you find a vehicle faster and get out of debt sooner.
If you enjoyed reading this post, why not check out our car payment calculator and use it to help you plan your next car purchase!