5 Easy Steps To Save Money for a Car
24 June, 2021
Buying a car for the first (or second) time is a glorious moment. We’ll never forget it.
We’ll also never forget how impossible buying a car seemed - at first. For some of us, this isn’t only a luxury item but also a necessary item to get around. Instead of sinking in credit card loans, you can save money. Here are the best tips on how to save for a car.
Car sales have actually been running relatively high since 2015. Especially in smaller vehicles (subcompacts, microcars, and superminis), which account for 30% of global sales, according to McKinsey’s Automotive Industry Report 2020.
Unfortunately, the rise in sales comes hand in hand with a rise in the cost of a new vehicle. Cars are expensive. The cost of a new car in 2018 was over a whopping $35,000. Yikes.
It’s probably why the demand for second-hand cars has increased according to the Millenials and Auto Trends Report. Although, those prices are also slightly increasing due to the lower supply of global cars and people shunning public transport in light of COVID-19.
There may be alternatives to transportation out there (e.g., bikes, public transport, car-sharing), but these aren’t an option for everyone. So, what to do?
Here’s how to save for a car in 5 easy steps
If cars are so expensive (and we haven’t even dived into the cost of upkeep yet), then how can anyone afford them? We have a suggestion: save your money.
It sounds so simple – in theory. Spend less than you earn. The matter of fact is we’re all human here, and putting this in practice is a whole different ball game.
If you’re trying to save your money, you need diligence and self-control. You need to invest energy into finding the best ways to prepare for the sale and the upkeep costs thereafter.
Saving sounds like a hassle - at the start - but it pays off. By saving ahead of time, you can cover your down payment in a matter of months. And who doesn’t want that?
We at Envel know how tough it can be. So, we’ve shared 5 easy ways to save money and afford a car with low income.
1. Calculate your affordability
We’ve established that cars don’t come cheap. This doesn’t mean that you have to buy a car that will leave you financially disabled. Learning how to save for a car quickly really comes down to being realistic about what you can spend.
There are two steps to help you understand what you can afford to save on a monthly basis.
- First, calculate what you can afford by checking your income and monthly costs. This helps you understand what’s available to you each month. You don’t want to end up buying a car that costs you $500 a month when you only really spend $300.
- Second, choose a target amount to spend on a down payment based on your current savings. The higher your down payment, the better it is for you in the long run. It helps you qualify for a better loan, a lower interest rate, and more affordable monthly payments. You’ll also want to put down roughly 20% on a new car, and 10% on a used car.
Now you know what you can afford to spend per month and how much money you can put aside for your initial down payment. You’re ready to realistically compare a few models. Exciting stuff!
2. Calculate expenses
Your monthly expenses will vary according to different factors: bank loan, interest rate, type of car, insurance, ongoing costs, and so on. Before you sign on the dotted line, calculate the number of expenses you’ll have to cover with your savings.
Monthly car payments
Some people are lucky enough to pay the full cost upfront. Those won’t have a monthly car payment. But most of us will either choose to finance their car through a dealer or apply for a loan through a credit union or a bank.
If you want to determine your monthly loan, there are some handy tools out there to calculate what you need to put aside once you’ve purchased the car. The Auto Loan Calculator is great because you can customize fields for loan terms, sales tax, and trade-in values.
The type of car you choose will largely affect these monthly expenses. That’s why it’s best to separate your wants from your needs for a new car. There’s no shame in wanting those leather seats … but if they aren’t worth it if they put a dent in your bank account. The bells and whistles can wait for another day.
There are choices you can make upfront that will help you save a lot of money. We’d recommend:
- Choosing low gas mileage
- Looking for used, based model cars
- Using your old car for trade-in credit
- Compare prices at dealerships
- Compare insurance rates
Moreover, don’t forget to list the ongoing expenses of owning a car that will come on top of your monthly car payments (gas, parking fees, maintenance, insurance, etc.). It’s even best to calculate extra unforeseen costs to give yourself some wiggle room.
Once you have your expenses listed and your budget determined, there should be no more financial “surprises” coming your way. You can determine a realistic monthly payment to save for a car.
3. Determine a realistic timeline
You are geared up to your ears with possible expenses and monthly costs. If you want to afford these expenses, you need a realistic savings timeline.
If you need a car sooner than later, you will need to save more every month leading up to the purchase. It’s not worth it to be unrealistic and impatient here. If you have $6000 in your savings account and a $5000 down payment … you’re not going to be buying your car next week. Sorry.
We have a great little sequence of tips to estimate the timeline:
- Multiply the total cost of your car by 20% to determine your down payment. Now you know how much you need to save for your down payment.
- Determine how much you can set aside per month by looking at your budget. Now you know how much you can save per month.
- Calculate how many months it will take you to pay the down payment and how much you’re comfortable with having in your account to cover monthly expenses.
For example, if you can set aside $500 a month, you’ll be able to cover a down payment of $5000 in 10 months.
4. Set up a savings strategy
You have a savings plan in place. Congratulations, you’re ready to start saving!
This step is about choosing where you are going to save your money. Indisputably, the best place to park your money is in a savings account. Warning: we’re about to honk our own horn.
[Envelopes] are perfect for trying to save for a car because it doesn’t just offer a space to save your money. It makes sure you are saving effectively. You benefit from daily and weekend spending limits to help you stay on track. Plus, we have a really cool AI tech that optimizes your budgeting. Why? Because doing it on your own takes time and effort. Let’s be honest, no one has time to manage their finances anymore.
Let’s put this all into action. It’s best to start making regular and automatic contributions to your savings account right away. It takes minimal effort to make payments automatically. Envel has ensured that from the get-go with our automatic saving’s feature called Envelopes.
Since your savings are set up and automated, don’t be so hard on yourself when you overspend on items throughout the saving time period. You have a good plan in place, and you don’t need to stress over minor decisions.
If you cut down on your two Starbucks lattes per day, you can treat yourself to the occasional Pumpkin Spice goodness. Delish.
Save efficiently, invest in quality
Are you ready to buy a car? Now that you’re armed with our tips, you definitely are.
With an efficient savings plan in place, the biggest benefit is that you’ll be able to invest in a quality car with patience and budgeting. Your new Prius (or whichever brand you pick) will be yours for at least a decade.
You don’t have to pick from the bottom of the pile. You don’t have to hope the car you can afford will last at least a year. You can pick a car that will serve you well over the years.
It’s quality, not quantity, that will make every day a little more enjoyable. Start saving for a car using Envel’s savings account. You won’t regret it. Sign up.
Diederik MeeuwisRead more from Diederik Meeuwis