A car lets you go wherever you want, whenever you want (if you can afford it, that is). If you don’t own one yet, you may be wondering how to save money for your first car without going broke.
Even second-hand cars, which are significantly more affordable, can set you back a few thousand dollars. If you want a new car with a customized interior, upgraded rims, or a new sound system, expect to pay even more.
Whether you’re a freshman or a recent grad with your first real job, it’s probably the biggest financial step you’ve considered thus far. You want to make the best decision possible as you’re going to spend ample time in this car.
According to 2019’s Experian’s State of the Automotive Finance Market report, the average used-car loan is more than $17k, and the average new-car loan costs more than $32k.
How in the world can you ever reach that amount when you’re earning minimum wage?
Luckily, you have the luxury of planning out your car purchase ahead of time.
To help you make smart choices the whole way, this article will take you through how to save for a car.
We’ll cover how to create a savings plan, roll car costs into your budget, increase your income and cut your expenses.
Read the whole article for tips that will have you on your way to saving for your first car.
How Much Should You Save for a Car?
The first step in how to save money for your first car is figuring out how much car you can afford.
How much you should save will depend on factors like how you plan to use the car and if you want to fully or partially finance the purchase.
To answer the above question, aim to put 10 percent down on a used car and 20 percent down on a new car. According to a recent analysis by Kelley Blue Book, the average cost of a new car is $38,060.
Consider buying a used car instead of one that is brand new. There’s no denying it: The newest and nicest cars are expensive, come with higher insurance premiums, and tend to depreciate very quickly.
Check out car models that fit your budget. Smaller cars are easier to park and cheaper to insure. A sporty 2-liter Volkswagen Golf might sound great, but maintenance and insurance for the car might be expensive.
Read reviews and find out if your dream car has any historical mechanical problems. Go for brands that are considered safe, reliable, fuel-efficient, and target a car with relatively low miles.
Start a Savings Plan
A savings plan is a written plan that will guide you on your savings journey. Starting early is the key to building your savings. The idea is to stick to the plan, live within your means, and avoid overspending.
After figuring out the car you want and how much it costs, look at the different savings methods available.
If you need to achieve your goal in 24 or 36 months, you can start saving a certain percentage of your monthly salary.
By setting a realistic budget, your goal will seem much more attainable. Use this savings goal calculator to determine how much you need to save every month.
Now find a safe home for your money. Consider opening a separate, high-interest, fixed savings account. If you qualify for one, a credit union is a great option for a savings account. Most credit unions don’t require a minimum balance nor charge service fees.
It’s not enough to simply start a savings plan. You have to stick to it. This may sound simple but putting the idea to practice is another story altogether.
Automate your savings so you don’t have to think about it. This will help you focus on keeping your priorities in check. It can be easy to dip into your car funds for spring breaks and college summer events if the money is easily accessible.
Look For Ways To Save More Money
Looking for more ways on how to save money for your first car? Have you tried spending money carefully elsewhere?
Track your spending to see if you can pinpoint anything you can cut back on. A few smart moves will help you significantly accelerate your savings plan.
Many of us, I included, are all too guilty of buying stuff we don’t need all the time. You probably justify your purchases by telling yourself, “it’s just a few dollars.” Those “few dollars” add up over time. This is money you could be saving for your first car.
It’ll be very difficult to save if you’re not sure where your money goes. Jot down your monthly financial obligations on a notebook or use apps such as Mint.
Record your expenses, however small or insignificant they may seem. Review your purchases at the end of the month. This will help you identify things you can cut back on.
Devise ways to reduce your spending on unnecessary purchases. There are many ways to save money as a teenager. For example, instead of eating out, consider carrying packed lunch. If you want to buy a book, get the eBook version.
Don’t buy the newest gadgets or the latest fashions just to fit in. If you don’t need it, don’t buy it. Readdress the money you save towards saving for your car-fund.
Other ways you can save money include:
Use a water bottle
If you drink bottled water a lot, consider buying a water bottle, filling it with water at home, and carrying it around.
Switch to a more affordable phone plan
Check if your service provider has any new plans if you haven’t updated your plan in a while. You can also check if other companies can give you a better deal.
Find cheap entertainment
Do you frequent the mall and movies? You can save more money for your first car by cutting back on expensive entertainment.
Why not invite your friends over and watch a movie together? I guarantee it will be just as fun.
Buying generic goods or used goods is another great way to save up for a car. Many people sell used items in great condition at a fraction of the price on Facebook Marketplace and Craigslist.
Generic products are just as good as name brands but at a fraction of the cost.
Use coupons and student discounts
Are you thinking of purchasing something? Whether it’s a small or large item, check if there’s a coupon or discount available before you make the purchase.
To see if a coupon is available for something you plan to buy, just head to Google and search for the name of the item plus coupon.
Cancel unused memberships
When was the last time you visited the gym?
Increase Your Income
Being on a low-income shouldn’t be an excuse not to save up for a car. Think about ways to increase your income to help close any savings gaps.
If you’re business-oriented, there are many business ideas for teens.
A side hustle can accelerate your progress, but ensure it’s legit and worth your time.
Sell stuff you no longer need
Do you have clothes, or other stuff stored away in your basement, closet, or garage that you’re no longer using or don’t need anymore?
Work a second job
If you can’t work more hours in your current job, places that hire 15-year-olds can help you save up for your first car. You can mow lawns, pet sit, house-sit, etc.
Research Financing Options
Once you feel like you have the basics covered, research financing options.
Deciding how to pay for your first car is a personal choice, but you’ll save the most by paying cash for the car. However, it will take you a longer amount of time to save up enough cash to purchase a car outright.
Most people have to borrow from banks and credit unions to buy a car. A large down payment is usually a good idea as you won’t have to borrow much, and you will pay lower monthly installments.
For the best loan rates, first approach your bank. Ensure you have established personal credit history and have some form of income. If you lack a credit history, you’ll probably need your parent to cosign your loan.
Failure to pre-shop for financing is one of the biggest mistakes new car buyers make. Shop for financing as you would for a car. Terms and pricing vary among lenders—plan on having at least 3 options to compare before settling on one.
Dealer financing tends to have less favorable terms. Read all the fine print and know exactly what you’re getting into if you decide to finance at a dealership.
Try This To Eliminate A Car Loan Payment
Buy a cheap car for $2,000 and drive it for a year. Save the $500 a month that you would have been paying for a new car and you would have $6,000 at the end of the year.
Then sell your old car for $1,000 and add that to your savings and you would have $7,000 to buy a new car. This way you won’t be paying any interest to the bank, and you can upgrade this way every year until you get the car you want.
The point of this exercise is that you could have a very nice car after three years of saving and have six to ten years that you could use that $500 a month for anything you want.
Not having a car payment your whole life would give you the freedom to do other things with your money.
If you buy a new car at age 25 and continue to have a car payment for the next 30 years, you will spend about $180,000 on cars.
But if you save your money and pay cash for a used car and drive it until it falls apart, you would only spend around $30,000 on cars in your lifetime.
Buy at the Right Time
Saving up to buy your first car also means making good decisions like buying at the right time. Timing can make a huge difference when getting a good price.
Like all businesses, car dealers set sales objectives that coincide with the end of a set period. Failure to meet those objectives means they might slash sticker prices and offer great discounts.
The best time to scoop great deals is when business is slower and car dealerships are trying to achieve sale quotas.
According to experts, shop for a car at the beginning of the week (Monday to Wednesday), the last week of the month, the end of the quarter and later in the year (October-December).
Save Money on Gas and Car Insurance
Last on how to save for a car is saving money on gas and insurance. Before you purchase a car, take a realistic look at your finances.
You don’t want to find yourself purchasing a car and then lacking enough money to pay for ongoing costs. It costs approximately $8,469 per year to keep and maintain a car.
Budget for use and care of your future car, including gas, insurance, parking fees, repairs, routine maintenance, and other vehicle-related expenses.
Take time to learn how to get cheap car insurance. Get different quotes and determine which ones offer the most coverage for the best price.
Gas is another major expense you’ll have to deal with. Avoid driving aggressively to save on gas costs.
Also, be smart about where you fuel. Use an app to find the cheapest gas. Free gas apps like Gas Buddy show you gas prices at local stations. They can help you plan in advance what gas stations to use.
As you can see, there’s a lot you can do if you are wondering how to save money for your first car.
Saving for a car doesn’t happen quickly. To reach your goal, it will take hard work and self-discipline.
But remember, the best thing in life is worth the effort. Once you’re driving around in your new-to-you car, you’ll be glad your persistence paid off!