It’s time to buy a car, and they are not cheap at all! Being a savvy penny-pincher, you want to save that money without too many compromises. Well, we’ve got some tips for you.
Let’s look at how to save for a car, how to budget efficiently, and how to make some extra cash to round things up.
How to Save Money for a Car
Start by choosing how much you want to spend on your car, then scout for new or used vehicles that would make the cut.
We suggest that you finance the car purchase. This will put less strain on your savings while allowing for some flexibility with your expenses. It will also help you establish a credit history.
Pro tip: Due to significant microchip shortages caused by COVID-19, car prices have surged and will not go back to normal soon. Aim to buy a used yet serviceable vehicle for now and save up money for when the market gets stable again.
Plan your down payment
An essential point of any car savings plan is to put down enough money to secure a loan with a low interest rate. Aim to put 10% down for a used vehicle and 20% for a brand new one. Since a new car costs $42,258 on average, you’ll be paying about $8,500 up-front, while for a used vehicle, at an average price of $29,000, you’ll be putting down $2,900.
If you’re looking for a straightforward budget plan, employ the 50/30/20 rule. In that case, 50% of your income is spent on necessities, 30% on goods you want but don’t necessarily need, and the remaining 20% goes straight into your savings. This approach will help with saving money for a car. Therefore, you can put aside enough for the down payment and the loan installments.
Cut unnecessary spending
Cutting down spending on anything unnecessary ties well with our previous point. When saving up for a car, it would be best to buy the things you really need. This also gives you an excellent reason to break some of your bad habits, such as eating unhealthy food or smoking cigarettes.
Sell your old car or trade it in
Unless you need your old car, sell it or trade it for a new one. While the prior is preferable since it will get you more cash, the latter is a quicker, hassle-free alternative.
Pick up a side job
Saving for a car will be much quicker with some additional income. If you’re a decent writer, an amateur handyman, or willing to take time to learn a new trade, getting a side hustle is a great idea. Check out these hobbies that make money to get a feel of what your options are.
1. How to Save for a Car Quickly
You can take steps to save quickly and efficiently. It won’t be easy, but the best bet would be to lower your expenses while growing your income.
It takes time to save up for a car, at least for a decent down payment of around $6,000.
Used cars—especially refurbished ones—are generally almost as good as new ones, and they’ll save you a lot of cash. Don’t get fixated on a specific model or manufacturer, and be ready to jump on the best possible deal.
While looking for a car, post your used car for sale online. Advertise it on Facebook and Instagram, and you may receive some decent offers.
Finally, double down on a side gig. The extra money will help you save up for a down payment more quickly.
2. How Much Should I Spend on a Car?
A rule of thumb is not to spend more than 35% of your annual income on a car, be it to repay a loan for vehicle maintenance, insurance, or any other related payment. As such, the actual sum you could potentially spend is relative to your income.
In 2021, the average car cost $42,258, which was significantly more than the $29,000 needed to buy a used one. Use these figures as a reference point and aim higher or lower depending on your situation.
How Much to Save for a Car?
You should save as much money as possible for either a down payment or to pay the car’s total price in cash. Each situation comes with pros and cons, and deciding which one is the better option is up to you.
As we mentioned, however, to get a low-interest loan, you’ll need to put down 20% of the total cost of a new car or 10% for a used one.
3. How to Save Money on Car Insurance
You can take these steps to save money on car insurance.
Compare costs before you buy a car
Insurance costs depend on the car itself. Insurers keep track of a vehicle’s repair costs, safety ratings, and the likelihood of theft. Search for a model that suits your needs and has low average insurance costs.
Consider more options
Research your alternatives. Different companies will have different prices, decide which option suits you best.
Maintain a solid credit history
A good credit record will lower your insurance costs. Make sure you pay attention to it and take the necessary measures to improve your credit score.
Raise your deductible
A higher deductible leads to lower premiums. If you can afford to pay a higher sum when you have a claim, we suggest doing that.
4. How to Save Money on Car Rental
You can save on your car rental with a couple of simple steps.
The more you wait, the more you’ll pay. Companies make great efforts to estimate demand and keep just enough cars to maximize their profits. That leaves fewer options available to latecomers, especially during the peak travel season.
If you know for sure that you’ll need a rental car, you should call in early to avoid overpaying or not finding a car at all.
Don’t book at airports
Don’t rent your car directly at the airport. You’ll find yourself buried under extra fees and premiums, which could result in paying 25% more than at a regular rental car depot. Find a way to get to a depot yourself and take a car from there. As with saving up for a car, extra efforts go a long way.
Use specialized websites
Save time and money through platforms like AutoSlash by applying discounts and comparing prices to find the best deals. It’s also a lot more efficient than researching everything yourself.
Check for high cancellation fees
When booking early, if you don’t pay attention, you might sign up for excessive cancellation fees. If you’re not sure you’ll be able to make it, consider choosing a slightly more expensive option that offers cheaper cancellation fees.
Watch out for pre-existing damage
Before driving off the depot, check your car for any dents or other pre-existing damage. If you spot something, take a photo and immediately notify the rental service. That might save you tens or hundreds of dollars.
5. How to Save Money Buying a Car
Are you the ultimate penny-pincher? Let’s look at more ways to save when buying a car.
Pay in full
If you’re not worried about establishing a credit history, you could skip financing your car purchase. Using cash will keep you from paying interest, and some dealerships might also throw in a discount if you choose to pay in full.
Always haggle for a better price. A dealership will never want to see you go and buy from another dealer, even if it means offering a discount to keep you as a customer. Don’t be easily persuaded and always try to get a better price on a car.
Don’t rush it
Take your time to do some proper research and compare prices. Unless you’re sure you won’t get a better deal, take it easy and keep searching. Saving money for a car comes with huge benefits but takes time. Rushing it might leave you with a bad experience.
Pick a used car
If you’re strapped for cash, choose a used vehicle instead of a new one. It will come with some wear and tear, but this will not bother you if you learn to take proper care of your car.
6. How to Save Money for a Car as a Teenager
Saving for your first car can be challenging when you’re a teenager. Let’s see how to make the whole ordeal much easier.
Set a goal
The first step in your savings plan is to set a reasonable yet motivating goal. Do some research to understand your preferred price range. If you’re on a strict budget, stick with used cars but never compromise on reliability and safety, or you’ll risk getting in a sticky situation.
Find a part-time job
The best way to save money for a car as a teenager is to secure a steady income stream. Depending on your skills and available time, you could opt for a traditional part-time job or try out freelancing. For example, many teenagers worldwide have turned to Amazon dropshipping instead of choosing to work at more traditional, brick-and-mortar businesses.
Open a savings account
Once you have money coming in, especially if it’s your first steady income, it’s easy to spend it all on useless stuff. Opening a savings account will keep a portion of your money stored away, which will stop you from overspending.
Every dollar is a step closer to your end goal. Use a bare minimum of your income for immediate expenses and put the rest into your savings account. Keep being frugal, and you’ll be done saving for a new car much more quickly.
Sell your old stuff
Sell any stuff that you’re not using. Don’t let valuable things, such as PCs, video game consoles, clothes, shoes, and jewelry, gather dust. Selling them online or to people you know is an excellent way to speed up your savings.
7. How Long Does It Take to Save for a Car?
It depends on your income, how good you are at budgeting, and how much money you want to put aside.
If you’re looking for a sustainable, slow-paced plan, employ the 50/30/20 budgeting rule until you save enough for a down payment or to pay the price in full. It would take longer for your car savings plan to bear fruit, but you would avoid the stress that comes with a tight budget.
We suggest saving 35% of your monthly income until you have enough for a decent down payment. After that, aim to allocate no more than 10% of your pay to financing the car.
Try this savings calculator to estimate how long saving for a new car would take.
8. Should I Buy a Nice Car or Save My Money?
Don’t overspend on useless luxury cars. They serve no real purpose apart from earning you bragging privileges.
Your car is a depreciating asset. It loses value constantly. Plain and simple, buying an expensive car is a wrong financial decision. Keep the money you’ll save by purchasing a cost-effective car and invest it in a growing market. In the online retail industry, for example.