Creating a plan about how much money to save for a new car isn’t exactly easy. Well, it’s always better say than done. There are so many contributing factors that you need to consider when you plan out, such as your budget and whether you want to buy or lease the vehicle. The decision about budgeting alone requires detailed planning and arrangement, such as how much can you afford for the down payment, how much you can afford for the monthly expenses related to the vehicle, what to do next when you want to save, and such things alike. So, before everything is becoming complicated and you are wondering about your own saving, here’re some crucial things to do.
Pre-Purchasing Decision Make
The decision about how much money to save for a new car depends on this initial approach: How much money you have to buy the car of your dream. You need to remember that buying a car is one of the biggest expenses you can have in your life. The standard price tag of a new vehicle is around $40,000, with monthly payment of around $500 – $700 a month.
That’s a lot of money. If you don’t want to be burdened with monthly bills, it would be a good idea to save up money for the down payment. When you put more money on the down payment, you can lower the monthly payments – which also mean that you will owe less interest.
Determine how much monthly payment you can afford, along with regular expenses, such as utilities and housing. Some people are able to afford high payments on the monthly basis, but they turn out forgetting other expenses, which cause them to struggle hard until the car can be paid off completely. It’s true that they have short auto loan, but if you are also struggling while doing it, then what’s the point?
There’s a rule of thumb that the payment for your new car shouldn’t be more than 15% of your monthly earning. It shouldn’t be more than 10% if you lease or you buy a pre-owned type.
Regular Vehicle Expenses
People tend to forget other expenses when it’s related to buying a new car. They focus too much on how much money to save for a new car and they forget about the extra expenses. Many people can afford buying new car, but they can’t really afford the extra expenses, such as gas, insurance, and maintenance.
Auto insurance is often mandatory, depending on the state you are living in. Even if your state doesn’t require you to buy the insurance, it’s still great to have because you never know what’s going to happen on the road. Even a simple fender bender can cost you hundreds, and it may jeopardize your financial stability.
Don’t forget about the car maintenance and car. In order to function well, your ride should be regularly checked, cared for, and maintained. If you buy a new ride, you may be able to enjoy one free maintenance service within the price of the car. Never abandon the importance of caring for the ride. A well-maintained car can last longer, helping you achieve the greatest productivity and function in your daily life.
Gas is another extra spending that you should consider. In California, for instance, a gallon would cost you around $6. Sure, you may think that you can always buy a new car offering efficient gas mileage, but the cost for such a vehicle may be more than $30,000. So, again, be wise about your spending. Don’t forget to factor in the price of the gas when you are calculating the planning on how much money to save for a new car.
In fact, it would be much wiser if you can consider setting up a regular (make it monthly) saving that can take care of your auto extra expenses. With this particular saving, you won’t have to worry about ‘bothering’ your finance when your car is damaged or in a need of a service or a tune up. If you can set aside this particular auto saving, you are free to access the funds whenever there is a need related to your car. But then again, you need to consider whether you are able to afford setting aside some money for the car.
The Importance of a Down Payment
Some people can’t see the importance of a down payment. They don’t see it relevant to their purpose and spending. You need to know the overall facts about how much money to save for a new car, including for the down payment. As it was mentioned before, the more you can have for the down payment, the less your auto loan would be and the less interest you will have to deal with. With lower (monthly) payments, you can set aside more money for other expenses or saving, like your mortgage, credit card debt, student loans, and others. You can even set aside extra money for your car’s rainy day, such as gas, repair, or service.
Moreover, you should calculate the monthly payments that you should afford. If you have limited income but with bigger payment, you will be dealing with hardship when (financial) emergency happens. It may ‘force’ you to skip paying for your car. If it happens, you will fall behind the auto loan, which may lead to the loan default. You may end up with repossession. Not only you will have to deal with the fact that you lose the car, but your credit may be hurt. It affects your ability to take loans out – especially in the future.
Of course, if you can afford cash, you won’t have to deal with such a fuss and complication. But then again, not everyone can afford cash. That’s why, it’s advisable that you are financially aware and conscious about your own financial condition. Taking out a loan is fine, but you need to have a solid financial planning. And you need to be discipline to execute the plan.
How to Save Money to Buy a (New) Car
Saving money to buy a new ride is basically just the same as saving up in general. Setting up a solid plan is crucial, especially if you want your plan to be successful. Here are some things that can help you out in the overall planning.
- Set up a Budget
Knowing what car to afford (and how much money to save for a new car), would be difficult if you don’t really know what to expect. Let alone if you don’t really know your expenses would be. You should start by going over your income and then lay out your overall monthly obligations. Don’t forget to include all the must-do payments, including all loans. Don’t leave out utility bills, student loans, credit card debts, mortgage or rent payment, gas, and such things alike. You may need to jot down all of your regular expenses, including groceries. Even the expenses that you need to have for fun, such as shopping, eating out, or entertainment, you need to include everything down.
Once everything is noted down, you can calculate the exact spending for the car. It should include extra details, such as down payment, monthly saving, and monthly payment. Remember, if you buy a new car, it shouldn’t be more than 15% of your monthly income. Let’s say you have monthly income of $5,500 a month, then your monthly auto budget shouldn’t be more than $850 a month.
- Manage Automatic Save
After you find out about how much money to save for a new car, you should have a saving account – provided that you haven’t had any. Try to browse and explore around for a saving account that is considered a high-yield account. It means that the account can offer low fees and competitive (if not affordable) interest rates.
It would be much wiser to have a separate checking account and saving account, so you can manage your finance easily and within a different mechanism. If you only rely on your checking account (only one account), then it would be difficult to track the incoming and outgoing money. Moreover, you can manage automatic withdrawal on the savings account. Whenever you get paid or have money in your checking account, a certain sum of money would be automatically transferred to the saving account. It would make it easier for you to save up, so the money won’t be misused. Not to mention that it also helps you track your earning and spending. Not only you should have clearer image of your spending, but you can also manage your finance in a better mechanism.
- Cut out Extra (and Unimportant) Expenses
Another solution on how much money to save for a new car is to cut off the unimportant expenses. This is where you can implement the concept of ‘need over want.’ It only makes sense if you try cut off the unnecessary spending, especially for the stuff that aren’t exactly crucial. For instance, if you haven’t used your gym membership for a long time, then why not cancel it? Or if you do have a gym membership, maybe you can consider free exercises instead (walking or jogging around the neighborhood, or exercise at home) that can save you quite a lot of hundreds of dollars.
If you like eating out, maybe it’s time to limit it to only three to four times a month. Try cooking more; not only because it is going to save you more money, but it can actually be fun! If you like watching movies and going to the cinema, try considering having your own movie watching night at home. You don’t have to spend extra for the soda, popcorns, and tickets, and isn’t it more convenient to snuggle down on the sofa watching your favorite movie?
- A Side Job
In the event you feel that your current job only affords for your current expenses, you may want to consider having an extra job on the side. Not only the extra job can give you extra money, but you can also save up for your upcoming expenses related to the car. The extra job doesn’t have to be all officials. You can start online. You can become a virtual assistant, selling stuff online, delivering packages or groceries, moonlighting as Uber or Lyft driver, and others. Getting extra cash is fun as long as you have the extra time (and energy) to do so. Make sure that you won’t be overwhelmed by the side job. If your current work (and schedule) doesn’t allow you to have extra work, then this one may not be the perfect solution for you. But it is worth considering, though.
In the end, saving up to own your own car doesn’t have to be difficult or complicated. You don’t have to suffer for doing it either. Get the basic of knowing how much money to save for a new car and then proceed further; little by little.