Buying a car is a fun process, but it can be difficult when you don’t have the money to buy one. Sure, you can get a car loan, but you’ll still need some money for a down payment. However, if you save more money, you can even pay for a car in full. Here are some tips on how to save money to buy a car or at least pay a large down payment.
Calculate how much down payment you need
If you are considering financing a new or used car, you must first calculate how much down payment you will need. The people at NerdWallet suggest that a good rule of thumb is “20% down payment for a new car and 10% down payment for a used car”. If you need help calculating the price of a car you can afford, there are plenty of affordability calculators online to help you figure it out.
Budget for car-related expenses using the 50/30/20 method
If you really want to get to the bottom of it saving money for a car, you can use the “50/30/20” method. The method is to allocate 50% of your monthly income to your needs, 30% of your monthly income to your wants, and the remaining 20% to savings and debt repayment. It’s up to you which part of this equation will be used to save for a car, but it’s a good idea that car-related expenses don’t exceed 20% of your monthly income.
Create a savings account and automate your savings
Once you figure out how much you need to save and how to save it, the next step is to automate your savings, so you don’t have to think about it. One tip is to open a separate savings account, so you’re not tempted to dip into your car savings. Then you can set up a direct deposit from your paycheck or an automatic deposit from your checking account to access that savings account.
Sell or trade in your current car
If you have a car that you intend to replace with a new one, you may consider selling it or trading it in for the newer one. This will help you cover the cost of your new car or at least the down payment.
Increase your income
One of the best ways to save money for a car is to make more money. Consider taking on another job or side hustle to supplement your current income.
Be realistic in your search
Finally, remember to be realistic in your car search. For example, a used BMW may cost the same as a new Honda Civic, but that doesn’t mean buying a BMW is the most financially responsible decision. Buying a used luxury car may cost you more in maintenance, repairs, and insurance, while a new Japanese car won’t cost as much.
Also, even if you can stretch your dollar and afford a monthly payment of $500, but you know that a payment of $300 is more comfortable, go with the latter. You may not be able to afford a car as much, but you can at least drive a cheaper car for a while and then buy a better one later.
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