According to the vehicle appraisal website Kelley Blue Book, the average cost of a new car in 2018 was more than $35,000. There’s no denying it: Cars are expensive.
Furthermore, it costs an average of $8,469 per year to keep and maintain a car. This includes fuel, car payments, maintenance, parking, and other vehicle-related expenses. Ouch.
And while there are many more affordable alternatives to vehicles, like public transportation, carpooling, and even walking, this simply isn’t realistic for everyone. If you do need a car, there are ways you can save money to purchase one, and then afford the ongoing expenses.
Here are six strategies to help you save enough money to buy a car.
Consider your budget
You probably already know that the newest and nicest cars don’t come cheap.
But this doesn’t mean you have to spend more than you can afford to get a car with a leather interior, moonroof, and other fancy bells and whistles. It’s more important that you create a budget and stick to it.
Start by considering both your income and what you can realistically afford. For instance, if you can only afford a $300 per month car payment, then don’t buy a vehicle that will cost you $600 a month.
To get an idea of how much car you can afford, check out this free calculator from Money Under 30. And, CreditDonkey suggests spending no more than 20 percent of your income on car-related expenses. Of course, the less you spend, the more money you will have for other things, including savings.
Make a list of needs versus wants
There’s no shame in wanting every luxury feature a new car has to offer. However, those additional gizmos and gadgets come at a steep cost. So, focus on keeping you priorities in check.
For instance, maybe it’s most important to have a car with a high safety rating. Whereas a red car with a hatchback seems like a great idea, that’s simply not as important as getting a safe car.
Remember, with some wise budgeting you can purchase what you really need, but you won’t ever be able to afford all of your wants. It’s all about prioritization!
Don’t forget about additional expenses
Unfortunately, the initial car purchase is only part of the cost. Gas, parking fees, insurance, and maintenance is part of the package, too. And these expenses are costly!
To save money over the long-term, gas mileage is particularly important. Fuel prices are largely uncontrollable, so by choosing a car that gets low gas mileage (or an electric car), you can save money over time. Check out this list from Carmax of 10 cars with great gas mileage.
Save for a down payment
When you go to purchase a new or used vehicle from a dealership, it will require you to make a down payment. A down payment is money you pay upfront for your purchase. After that, you’ll typically take out a loan to pay for the rest of the cost – and make monthly payments to pay off that loan. Autotrader suggests aiming to put at least 20% down on the total cost of a car.
While it may be tempting to purchase a car before you have an adequate down payment saved up, think about it this way: The more you can put down, the less you’ll pay over time in car payments in order to pay off your car loan. Plus, car loans accrue interest, and the more money you borrow, the more you will theoretically owe in interest over the lifetime of your loan.
Establish a realistic timeline
In order to save up for a car, it’s important to create a realistic savings timeline.
One easy way to estimate a timeline is to take the total cost of the vehicle you are considering. Multiply the total cost by 20%. This will show you what 20% of your total vehicle cost will be, and this will also give you an amount to save for your down payment. So, say your dream vehicle is $25,000. Then you should plan to save at least 20%, or $5,000, for a down payment.
From here, it’s time to look at your budget. If you can set aside $500 a month, you can have enough for a solid down payment in 10 months’ time. However, if you can only save $100 a month, you may find you need to look at more affordable vehicles. Of course, remember the more you save up front, the less you will owe over time.
Make your savings automatic
Now that you have your savings plan in place, you need to figure out where to put that money.
The best place to park your hard-earned cash for a short-term goal is in a specific savings account. And, Chime gives you a savings edge through its automatic savings program.
With Chime, there are two ways you can automatically save money. First off, you can download the easy-to-use Chime app and set your savings goal. Chime members can automatically transfer 10 percent of every paycheck directly into their Savings Account, allowing you to save for that new car even faster.
Secondly, Chime helps you save money every time you make a purchase with your Chime Visa® Debit Card. How? Chime’s Save When You Spend program automatically rounds up your transactions to the nearest dollar. Then, it transfers that round up amount to your Savings Account. The more you use your Chime card, the more funds you can add to your savings.
Are you ready to save up to buy a car?
This page is for informational purposes only. Chime does not provide financial, legal, or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for financial, legal or accounting advice. You should consult your own financial, legal and accounting advisors before engaging in any transaction.