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After a house, a new car may be one of the biggest purchases you make in your life. Unfortunately, even used cars can end up costing you a pretty penny, and it can take quite some time to save up enough to purchase a vehicle, especially when considering factors like car insurance and a potential auto loan.
That being said, if you’re realistic, patient, and are willing to find the discipline to save, you’ll be able to successfully make a car purchase.
Keep reading to learn how to save up for a car and find out some strategies that will help you save money in all aspects of your life.
5 Tips to Save Up for a Car
1. Figure out how much you can afford
First, you have to set a price and, if you’re financing, a down car payment. Ask yourself these questions:
- Do you want a new vehicle or an old car? Can you afford a new car?
- What’s the “newest” used car you would be able to afford?
- Can you afford to pay the entire purchase price of the car in cash, or will you be pursuing financing options?
The way you answer these questions will determine what type of car you can afford and what kind of payment plan you should get. If you don’t have enough cash to pay the entire price of the car you want and don’t want to wait to save, then financing is probably your best option.
Financing a car requires you to take out a car loan and repay it over a period of time. Some dealerships offer financing with no down payment, but this is rarely a beneficial option for someone looking to save money on a car.
Saving up for a down payment allows you to:
- Reduce your monthly payment – The more your down payment is up front, the less you’ll have to pay every month.
- Reduce interest payments – As mentioned, the bigger your down payment, the less you pay every month. This also means that you’ll pay less interest every month. As a bonus, if your down payment is large enough, you may be able to benefit from a lower interest rate.
If you choose to finance a new car, shop around for the best rates before committing to a car dealer. Make sure you have a good credit score, or else you may end up paying a lot of interest.
2. Set a goal
Once you know how much you can afford, and whether or not you’ll be financing, you can set a goal for either the price of the car or the down payment. Your goal should be attainable and be reached within a reasonable amount of time. There is no limit to the size of your down payment, but most lenders like to see a minimum of 10% to 20%.
If your ideal car is not within your budget, you’ll need to save a substantial down payment. Not only should you have a goal, but you should also create a plan at this point to help you reach it.
3. Reduce monthly expenses
Whenever you want to save money, one of the first things you should do is take a look at your current expenses. If you have a monthly budget, check if you have been overspending in certain areas. If you don’t have a budget, now is the time to create one.
Expenses that you may consider changing include:
- Get rid of unnecessary subscriptions
- Cutting cable and streaming services
- Drive less and take public transit more
- Switching from name brand to a generic brand
By taking a closer look at your spending, you may discover that there are areas where you can save hundreds of dollars, which is money that could be redirected toward your saving goal.
4. Increase your income
If you’re having trouble reducing your monthly expenses or finding that it isn’t enough, your next option is to make more money.
You may have more options when it comes to increasing your income than you might think. Working more hours or getting a second job are both popular strategies, but there’s more that you can do to bring in more money.
Here are some ways that you can increase your income:
- Ask for a raise
- Find a job that pays more than your current one
- Work a second job or side gig
- Work overtime
- Start a side hustle
- Sell personal items you no longer need
All of these strategies will boost your income and savings, helping you reach your car goals.
5. Use the right savings account
Having a savings account is the first step toward your journey of saving up for a car, but some savings accounts are better than others.
The best place to put your vehicle down payment money is in a high-interest savings account. These accounts offer a higher savings rate while keeping your money safe and accessible. Compared to traditional savings accounts that give you pennies, a high-interest savings account can give you anywhere from 1.25% to 3% on your money.
Another savings strategy is to automate your savings. Setting up an automatic deposit ensures you are always moving money to your savings account every pay period, and it eliminates the temptation to spend that money on other things.
How to Save Up for a Car – Be Patient
Unless you’re suddenly gifted a large sum of money, you will most likely need time to save up the proper amount for a car, whether it be for a down payment or the entire purchase price. By switching up your spending habits, increasing your income, and amplifying your savings, it may be possible to save up for your dream car in a reasonable amount of time.
No matter the case, it’s always best to wait it out a little bit and save rather than rush into something that you can’t afford, and there’s nothing for which this is truer than for cars.