How to Save Money to Buy Your Car
What’s the best way to save money to buy a car? Well, the “best” way could be different for everyone. You could buy a car with cash or get car financing. It all depends on your financial situation. However, there are a number of tips that you can use to save money for your car purchase. Here are some of the steps you can take.
Prepare for Your Down Payment
It’s always a good idea to calculate how much you’ll pay for the down payment. To start, know the target amount you want to set aside for it and then check the makes and models you like to see if they fit your budget. This way, you’ll be able to make a shortlist of the cars within the price range that you can afford.
The goal is to be able to pay a 20% down payment if it’s a brand new vehicle. For used cars, aim for at least 10%. But if you can spend more on the down payment, the better your deal. Higher down payments usually help you qualify for car finance with a good interest rate. This can make your monthly repayment amount more affordable. And if you are borrowing less then you will pay less interest overall.
As for financing, shop around to get the best deals and make use of car finance calculators to know how much you need to prepare. Over and above the price of the car, you also need to be ready for road tax, insurance and other fees when buying a car. The more prepared you are, the better your chances at saving enough money ready for all the costs.
Be Ready for Other Car-related Expenses
There’s a good rule on budgeting that you might want to try. It’s the 50/30/20 rule which suggests that you allocate 50% of your income to the necessities, 30% to your wants, and then 20% to your savings and repayments on loans and debts.
You may choose to put car-related expenses under “needs” or “wants.” For example, repairs and maintenance of your vehicle will be included in your “needs” budget. But upgrades, car accessories, and other modifications will be under the “wants” category.
If you finance a car, the repayment will be an ongoing cost for the length of the term of the loan. Along with that are the costs of fuel, insurance, tax, repairs, and maintenance so you will need to set aside money for these car-related expenses.
Limit Your Unnecessary Spending
To save up money more quickly so you can buy a car, you may want to review the things on your “want” list. Some of those things could be removed so you can save more money faster.
Think of your entertainment subscriptions, the frequency of eating out or other things you don’t really need. You won’t have to give them all up completely but it would help a great deal if you can limit unnecessary spending so you can put more into your car fund.
Open a Savings Account
At this point, you’ve already done your homework on finding out how much money you need for the down payment and other car-related expenses. Now you know how much to save and how to adapt your budget. This is an important step. Even pro boxer Anthony Joshua saved £1,500 for his first-ever car before he drove those fancy cars that are now in his collection!
The next thing to do is to open a savings account so you can keep your car fund there without having to worry about getting it mixed with your other funds. You can also automate your savings so you don’t forget about putting money into your car savings account. Simply set up automatic transfers from your main account into your car fund so you don’t have to think about this step. You just have to check it every now and then to see how much you’ve saved so far.
Trade or Sell Your Old Car
If you’re buying your second car, you might want to sell your old car or trade it in. Depending on the condition of your vehicle and if you got a good deal, it’s possible that you won’t have to pay the down payment or you only have to add a bit.
Selling the car yourself will usually allow you to get more money out of it but this is only good if you’re willing to wait. In case you want to make things quicker, trading in your old car would be the better option.
Not sure if your monthly income at your current job is enough? Consider getting a part-time job to help you save money to buy a car. If you’ve got skills like web development, coding, or graphic designing, you can be a freelancer and work during your free time.
The money you earn from your side hustle can all go to your car fund, this way, you don’t have to worry about your car savings eating into your monthly earnings from your main job. You don’t have to hustle all the time and forever. When you’ve had enough money saved up, you have the option to stop, take a break, and enjoy a road trip on your new set of wheels.
Saving for a car is easier if you know how much you need. Shop around and make a shortlist of the cars you like, compare prices and deals, and know other car-related expenses. Once you know the numbers, it will be easy to determine when you’ve reached your goal for your car fund. 👍