The process of saving money might sound easy enough: just spend less money than you bring in every month, and you’ll be on your way to a well-padded savings account! The truth is, saving is a lot harder than it sounds, particularly if you’re living paycheck to paycheck. It’s even harder when you’re trying to save up for a higher priced item, like a car. But if you’re saving for a car and trying to put aside a few thousand dollars, you may be able to do it if you can put together a savings plan and stick to it. So if you’re saving for a car, here are five steps for you to follow.
Step 1: Calculate what you can afford in monthly payments
If you’re saving for a car and planning to buy your it outright without taking a loan out, this step may not apply to you. But if you don’t think you’ll be able to pay for your car all at once, you’ll need to start by figuring out how much you can afford to pay every month.
Try not to stretch your car budget to it’s limit. You’ll want to leave some room for things like oil changes, any changes in the cost of insurance, new tires, and general maintenance. While your down payment is probably going to be the largest expense, it won’t be the only one.
Step 2: Calculate how much you need for a down payment
Similarly to step one, if you’re plan is to pay off the entirety of the car all at once, you can skip this step. But if you’re saving for a car with the intention of taking out an auto loan, there are a number of tools online that can help you figure out how much money you’ll need to pay off your car.
For example, the car loan calculator at Cars.com is a useful tool that gives you the chance to customize the terms of your loan and include things like the trade-in value of your previous car, the length of your loan, interest rates, and sales tax. This should help you get a clearer estimate of how much you’ll be paying.
Do a search online for other tool like this one and spend some time trying different ones out. Test different combinations of down payments and payment terms, and get a better understanding of what these payments will do to your monthly expenses. By the end, you should have a better idea of how expensive of a car you can actually afford.
Step 3: Determine when you need your new car
Now you should have an idea of how much you can afford to pay, what your down payment will be, and how much you’ll be paying every month for your auto loan. The last thing to do is figure out when you should pull the trigger on your purchase.
It’s important during this stage to set realistic expectations and stay patient. For example, if you bring in $3000 each month but know you’ll need to make a down payment of $5000 for the car you’ve had your eye on, you’re probably not going to be able to go home with that car by next week.
If you want to find a car that’s more in your price range, you can always look for a less expensive one, but either way, the longer you’re saving for a car, the easier it’ll be on your budget when you have to make your down payment.
Step 4: Automate your savings
This may be the most difficult part and where a lot of people stumble: making a savings plan, not deviating from that plan, and saving for a car in the timeline you initially outlined.
One of the easiest ways to hit your savings goal – whether you’re saving for a car or not – is to escape the game of trying to figure out if you’ve been saving enough and instead, automate the saving process. This becomes a lot easier once you know how much money you’re going to need to be saving.
For example, let’s say you need to put aside $4000 over the course of the next five months. If you’re paycheck is normally deposited directly into your account, see if your workplace can send $400 directly into your savings account every two weeks when they send you your usual paycheck.
This way, you don’t have to take the risk of forgetting to contribute to your savings. You should consider keeping these savings in an account that’s separate from your emergency fund.
Just make sure that whatever amount you're saving automatically, you’ve incorporated that into your budget and know that you can still afford your normal monthly expenses.
If you don’t have the option of having the money deposited directly into your account from work, you can set an automatic transfer from your checking account to your savings on the day you get paid. You can even take out your desired amount in cash on payday and put it into a special jar just for your car savings.
If your saving for a car and automating your savings, you can think of this money as a type of withholding, similar to when you put money aside for your taxes. If you can manage to live on a budget without the amount your saving, you don’t have to actively think about how you’re going to manage to come up with the necessary savings that month.
Step 5: Don’t beat yourself up during the process of saving for a car
Even if you’ve automated the process of saving for a car, the nitty gritty aspects of saving are just about to begin. During this period, it’s important for you to not be too hard on yourself when it comes to your savings habits.
You’re going to be confronted with moments where you might feel guilty or frustrated, like when you occasionally spend a little more than you should on groceries, or when you feel like you’re constantly saying no to the smaller luxuries in life. And there may be that nagging fear that you won’t be able to save enough.
While you need to stay disciplined and create a good savings plan, once that plan is set, you’ll still need to find ways to relax. If saving for a car becomes an all-consuming venture, you could seriously stress yourself out, not to mention the effect it’ll have on those around you.
So, keep in mind that while it’s great that you’ve been making your lunches for the week ahead of time, it’s okay to occasionally treat yourself to a lunch outing to keep your mood light. Saving for a car doesn’t have to make you miserable.
Try these 5 steps to start saving for a car
The concept of saving money might sound simple, but putting it into practice is easier said than done. Saving for a big item like a car can be tough, especially when you’re living paycheck to paycheck, but it’s not impossible. Keep these five steps in mind next time you want to start saving for a car, and hopefully you can be on your way to scoring that new ride!
Do you have any tips to start saving for a car? Share below!
Posted in: Lifestyle
Disclaimer: This article provides general information only and does not constitute financial, legal or other professional advice. For full details, see MoneyKey's Terms of Use.
