How to Save for a Car When You Need Your Own Ride ASAP
Saving is possible with any financial situation. The key to saving is going in with a well-defined goal and a clear plan to reach that goal. Saving for a car purchase is no different.
Saving for and purchasing a car can seem daunting, but it doesn’t have to be. Like saving for any purchase, if it’s approached realistically and with a set plan in place, purchasing and affording a car within your budget is very achievable.
Below are some tried and true steps to follow when planning for your car purchase.
1. Decide how much car you can or want to afford
The decision to buy a car has been made, but now comes the important first step – deciding how much car you can or want to afford.
If you’re not purchasing the car in full, a monthly car payment is inevitably in your future. You need to decide how much you can comfortably and responsibly fit into your monthly budget before making the leap into a new loan commitment.
At this point, you’ll want to take a close look at your monthly bills to get a good idea on how much money is not already allocated. Bear in mind that owning a car also means car maintenance. Make sure to leave room in your budget for things like oil changes.
It’s recommended to consider insurance costs for your car, as well. This will be another monthly commitment to expect, and costs can greatly vary depending on the car you choose, the insurance company and their rates, and your driving record. When you have a particular car in mind, a quick call to an insurance company can provide you with a quote to give you an idea of what your costs will be.
2. Calculate your down payment
Once the car budget and monthly payment is decided on, calculating how much of a down payment is necessary or required is your next step.
The car price, loan APR, and how much money you plan to put down on the car together ultimately decide what your monthly loan payment will be. The higher your down payment, the less you have to finance, making your monthly payments lower.
Auto loan calculators are available online and can be useful tools when configuring how much money will be required down. Often, your bank or financial institution will have one you can use.
3. Pick a due date
After calculating car affordability and down payment requirements, you’ll need to decide on the time frame you plan or need to have the car purchased. How quickly you need to purchase the car directly influences your savings plan for the car.
For instance, if you previously calculated your required down payment to be $3,000 and you need to purchase the car in 8 months, you’ll need to save $375 per month to meet this goal. The $375 will need to be a firm savings commitment each month that can’t be missed.
Make a habit out of your monthly savings goal by taking your designated savings amount out with each paycheck and setting it aside. Or, if it’s easier for you “out of sight, out of mind”, often employers will give you the option of having a set amount automatically sent to your savings account each pay period.
4. Save, save, save
Limiting unnecessary spending is important for every day financial health, but when you have a particular savings goal it becomes even more important.
Things like choosing to cook at home instead of eating out, or brewing your own coffee instead of buying it, can add up to substantial monthly savings. Checking with your phone or cable company (or cutting cable all together) for potential savings can also be a savings opportunity.
5. Confidently make your purchase
You carefully planned and saved for your car. Now, you can confidently walk into the car dealer and make your purchase. Going into the car buying process while knowing how much you can realistically afford and with an appropriate down payment makes all the difference and will make for a positive experience.