I remember when I bought my first car, with my own money. That was quite the achievement! At the time, I remember asking myself how do I save up for a car? I wish I knew then what I know now, but lucky you, I can share my knowledge of what I did, what you should do, and shouldn’t do when you save up for a car.
So what do most people do then? They finance their cars. That means, they get a car loan and make payments towards it! I’m here to tell you that you don’t have to do that.
I made the mistake of financing my second car when I bought it. I managed to pay it off in half the time thankfully, and I’m never looking back! I always pay cash for cars now. Let me teach you how.
- Never buy a brand new car
- Figure out what kind of car you need
- So how do I start saving for a car?
- How do I save even faster?
- Final thoughts
Never buy a brand new car
For the first lesson of the day, never buy a brand new car! The average car payment for a new car is $553 per month and a term of 69.44 months. That’s a long time and a lot of money to be paying month after month on a car. The single most depreciating asset you could ever buy.
Trust me, as much as you might like the idea of that brand new car smell, and the warranty they sell you on, it will never equate to the amount of money you’ll lose as soon as you drive off the lot. Depreciation is a b*tch, and money down the drain! Don’t do it!
I know there is always an argument that people can make as to why a brand new car is a good idea, or why its an investment, but I won’t sugar coat it. You can’t ever justify a brand new car. The math doesn’t lie. If you ever want to achieve financial freedom, don’t trap yourself into buying a brand new car, worse if you finance it 🙁
Figure out what kind of car you need
So, now that we’ve decided you’re not going to get a brand new car, it’s time to figure out what kind of car you actually need. Sure, we all want the Cadillac or the Mercedes, but do you need one of those? Chances are, you don’t.
It’s important to make sure that you don’t overpay on a car you are going to get. To be honest, I own multiple Mercedes Benz, but I was smart about it! They are always at least 10 years old, I pay cash for them, and they are my dream cars. That way, I’m not getting into debt for an asset that will always cost to operate and lose value over time without fail. Thank me later.
Some things to consider when looking for a car are
- Size (2 door, sedan, or SUV)
- Fuel economy (hybrid, diesel, truck? Just depends)
- Safety features (especially if you have a family)
- Insurance costs (depending on the car and teenage drivers, insurance premiums might cost a bit more)
So how do I start saving for a car?
1. Set a goal
Once you figure out the kind of car you want, and its approximate cost, you can start saving up for it. The best way to start is to set a goal for having a specific $ amount by a specific date.
By setting a goal, it gives you something to work towards. Blindly saving is much much harder to do when you don’t know exactly where you’re headed. If you keep a journal or an excel sheet with all your other goals, add this one in there and keep it top of mind.
2. Set aside a percentage of your income
The next step is to now set aside a set amount of money every month to a savings account separate from your checking account. If you don’t look at it at all while you save, the better! Start off with 15% of your income, and revise it every few months. As time goes on, your income might increase, or you get better at budgeting and your spending decreases. You can then always allocate more of your savings to this car purchase savings.
3. Work on your budget
When it comes to money, one thing you have absolute control over is how much money you spend. That’s where a budget comes in. By budgeting, you can minimize how much money you spend every month, and in turn, get to save more and use that to save to get a car! It’s simple, the less you spend, the more you can save.
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How do I save even faster?
Now, depending on your goals, and how quickly you want to save up for a car, then the above methods might not be fast enough. You might want to be more aggressive and get the car faster! Here are a few things you can also do including the ones mentioned above!
1. Pretend you have a car payment
This one works wonders! Pretend that you actually went and bought that new car that you wanted, but you financed it. Remember, we’re pretending! Now, take that monthly payment you would have been making and instead, save it in a high-interest savings account, or invested into low-risk investments like bonds. That way, your savings rate will be much much higher, and you can save up for the car in no time.
2. Increase your income
Not only can you reduce your spending, but you can also increase your income. If you can’t get a raise at work, you can always work on a side hustle to increase your savings rate.
- Top ways to earn a passive income
- Top 10 Side Gigs that pay really well
- 20 Easy Ways to Make Extra Money In College
3. Reduce your car budget
One last ace up your sleeve is to reduce your car budget. What I simply mean by this is to look at cheaper cars instead of the more expensive cars. At the time of writing this, this exact 2007 Dodge Caliber costs $2,498!
2 grand! For a car! Now, I get it, this example isn’t for everyone, and might not be the car you’re looking for, but it’s a start and an example. A cheaper car doesn’t have to be a beater, so you can always lower your budget a bit if you’re aggressively trying to get a car fast.
When writing this article, what I wanted to get across is the importance of not buying a brand new car and avoid financing at all costs. There are loads of opinions as to when and if you should finance a car, and I wholeheartedly believe you don’t have to.
This is my most favorite car that I own. When this car came out, the starting price of this thing was over $50,000! By the time I got it, it was under $15,000! Somebody out there lost $35,000 in depreciation. 35 grand! It’s madness I tell you, madness! So instead, I bought it used, and barely felt the depreciation.
When I drive my cars and get glances, wondering how I did it, it’s simply by buying them used and owning them without debt. Cars are one of the biggest wealth killers, do don’t do it.
Cars are one of the biggest wealth killers, do don’t do it.Tweet
It takes patience, but if you follow the steps and guidelines laid out, you can too!
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