Last Updated on May 29, 2022
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Need A Car? Here Is How to Save Money for It
There comes a time in your life when having a car is no longer a want but a need, like when you finish college. Commuting to work or college can trigger this need. If you don’t know how to save money for a car, you’re in the right place.
The good news is that there are different methods to start saving money for a vehicle. The not than good news is that it might take a while before buying a car. Being able to buy a car depends on how much you can afford to put aside, your budget, and your monthly expenses.
How to Save Money for a Car Down Payment
If you want to buy a car, there are two ways to go about it. One is to put aside the money you need and buy it once you’ve gathered the entire amount. That is ideal and will keep debts at bay. Yet, it might take a while. If you need a car fast, you may not be able to wait that long. The remaining option is to get a car loan. For this, it is wise to make a down payment.
The first step is calculating how much the payment will be. It’s hard to pinpoint an approximate amount without a bit of research. Here is what you should do to calculate your down payment:
- Calculate your monthly income.
- Figure out how much you can budget each month for a car.
- Determine the approximate amount you can spend on a car based on the monthly payment.
- Start looking for car models within that range.
- After choosing a car model, start saving money each month for the down payment.
The more you save, the lower your loan and interest. Are you wondering how much you should have available to buy a car? You need around 20% of the price of a new car and at least 10% for a second-hand car.
To save money for a car down payment, you can rely on several solutions. Here are some of the most popular ways to save money for a car:
- Start a savings account
- Cut down on other expenses
- Get an extra job
- Use budgeting methods and budgeting apps such as Mvelopes or YNAB
How to Buy a Car and Save Money at the Same Time
Here is where strategic budgeting fits. Is your spending hectic? Do you usually reach the end of the month with little money in your bank account? If yes, you should start reconsidering how you spend money if your goal is to buy a car. To put money aside each month, you have to budget. Budgeting means spending every dollar intentionally while saving money for a car.
There are different budgeting methods to help you out. For example, if your dilemma is how to save money for a car, your goal is to leave money available for your car down payment fund. For that reason, your monthly budget plan needs to include savings.
To budget like a pro, you first need to determine your monthly income. Then, divide it according to your expenses. It can be more challenging if you’re a freelancer or your earnings fluctuate. Make sure to update your income as it becomes available to ensure your budget remains accurate. Once you establish the amount, make a list of your expenses, then start allocating the amounts you deem necessary.
One of the easiest ways is to use the 50-30-20 budgeting method. With this budgeting strategy, you allocate 50% of your budget to needs, 30% of your budget to wants, and 20% of your budget to savings.
The 20% from your savings account can help you gather the down payment fast. You might even put aside more than 20% of the car’s price and create an emergency fund.
Summing up, budgeting involves three steps:
- Calculate your income.
- Assign your money to specific expenses, including saving.
- Stick to the plan without transferring funds from one expense category to another.
Open a Savings Account
Once you start saving money for a car, stick to the habit. Be consistent and put aside the established amount for this goal every month.
Where and how you keep this money is essential. Keeping it in cash is not a problem if you’re sure you won’t dip into these savings. There should not be a reason for you to use the money in this fund, not even for insignificant expenses like food delivery. Otherwise, you might realize you’re still far from reaching your goal in a few months.
Account | Purpose |
Checking Account | Monthly Budget Expenses |
Savings Account | Emergency Fund and Car Saving |
For this reason, setting up a savings account is a safer method. You can do this automatically from your internet banking account. Check with your bank to see the best options in terms of interest. Also, you might want to block this account and limit when you can withdraw money. This way, you’ll avoid temptations.
To save money in this account:
- Opt for automatic payments. You can make these payments with digital banking tools.
- Consider choosing the date when you expect to receive your income; the bank will transfer the money to savings before you have a chance to spend it.
- Set up an automatic, recurrent transfer from your current to your savings account.
Avoid Relying on a Credit Card
Is credit card debt one of the reasons why you can’t save money? You’re not alone, but this problem needs to disappear if you want to buy a car. You can tackle it by avoiding more debt. Make it your goal to pay off all your credit card debts. Then, without financial obligations, you can start anew and save money for a car.
To avoid incurring new credit card debt, you could:
- Freeze access to your credit card funds
- Give up on these cards once and for all
- Use cash whenever possible
The last method might be the best if you plan on getting a car loan. Closing your credit cards can pull your credit score down. Leaving them open with zero debt will have the opposite effect. Decide how to handle your credit cards and stick to it.
To make this more manageable and save money for a car, you can use the budgeting envelope system. Using envelopes is one of the most popular budgeting strategies. It involves using an envelope for each expense in your budget. Then, you place the corresponding monthly amount in each. When spending, be careful and use funds from the correct envelope for each expense.
Cut Down on Expenses
Cutting down on your monthly expenses might not be easy, in particular, if you’re used to living a comfortable life and have habits that drain your budget. To reduce your spending without sacrificing your comfort, you should look for alternatives.
First, write down the practices that take a considerable share of your budget. Then, make a list of those that are dispensable. Next to each, write an alternative. You will have a clear overview of how much you can save and what expenses you can cut. Some common expenses you might be able to reduce include eating out, going to the cinema or concerts, nights out with friends, vacations, clothes, unessential gadgets, and memberships.
The easiest solution to put more money aside for your car is to cut down on your wants, but this could have a negative emotional impact. It might give you the impression you can no longer enjoy life. Always try to find reasonable alternatives that allow you to enjoy the things you no longer spend on. For example, instead of going out with friends, invite them over for a drink or dinner.
Cut Down on Utility Bills
You can reduce utility bills cost by consuming less. Stick to new habits such as:
- Keep the lights off if you’re not in the room.
- Turn the TV off when you’re not watching.
- Minimizing appliance usage.
- Use less water (e.g., turn faucets off when brushing your teeth).
- Unplug all the devices/appliances you don’t use.
- Switch to economic light bulbs.
The half payment method is another way to save money on electricity bills. It can help you be more financially responsible and save for a car.
Get a Side Hustle
Having a side job can help you save money for a car fast. You can explore different options based on your skills. For example, if you’re tech-savvy or have specific skills, you could try freelance work, such as graphic design or photo editing.
There are other potential side gigs. Writing articles or reviews for money, teaching online, selling products, and working in a restaurant or as a dog walker are more ideas. Even as little as $100 extra per week can make a significant difference at the end of the year.
Invest in Stocks or Bonds
Bonds and stocks are different investment types. By buying stocks, you invest in the issuing company. Stocks represent the company’s shares. In other words, the division of its ownership.
Bonds are debt securities. Companies or governments issue them to raise money. Investors who buy bonds lend money to the issuer. They receive their amounts back, plus interest, over a certain period. As a result, bonds are more stable investments than stocks, yet, they also yield lower profits.
You could invest the money you put aside for a car in one of the two and enjoy a return. The decision depends on how comfortable you feel taking risks. Stocks can be volatile, but they can also increase your return faster.
If you don’t know how to save money to buy a car by investing, these are the two safest assets to consider. Other investment avenues, such as cryptocurrency, entail even higher risks due to increased volatility.
How to Save Money for a Car When You Already Have One
If this is your case, you’re in a good position. Although your current car represents a monthly expense, it’s an asset. When you want to buy a new one, you can sell it or trade it in. You’ll have enough money for a down payment and hopefully even more. If you need this car for another family member and can’t afford to sell it, try minimizing costs.
Drive less to avoid overspending on gas. For example, run different errands on a single trip. Also, take care of car maintenance. Fixing your car can be expensive. Do your best to prevent issues rather than wait for something to go wrong.
FAQ
How to Save Money Fast for a Car?
To save money faster, you should follow these three basic steps:
- Calculate your monthly income and expenses.
- Allocate a strict amount to each expense category and stick to it.
- Put money aside separately as savings for a new car and never dip into this fund.
How to Fix Your Credit Before Getting a Car Loan?
To fix your credit as fast as you can, always pay your monthly debts in time. Then, create a budget, stick to it, and steer clear of new loans.
How Much Do I Have to Save to Buy a New Car?
It depends on the car you want to buy. Consider 20% a solid amount for the down payment. Then, calculate how much per month you can save and how many months it will take to gather this amount.
Steps | Action |
Step 1 | Start budgeting and open a savings account |
Step 2 | Look for cars within your budget range |
Step 3 | Set a savings objective and deadline for gathering the car down payment |
Step 4 | Save each month a fixed amount for the down payment in the savings account |
What to Do to Afford Buying a New Car?
You either need to increase your income or save money from your current one. For the first, you could try to get promoted, work extra hours, or get a side gig. The latter involves careful budgeting. Here is a quick action plan that might help you save money for a new car.