Car prices are more expensive than ever, but not one wants to give up their daily coffee in order to save for one. There are many ways to keep small (or large) splurges and stockpile a healthy down payment. Doing so could lead to a lower interest rate, lower monthly payments and probably lower stress levels. Whether you want to save money fast, over the long term or continuously, here are some ways to save for a car.
Set a reasonable goal
Go ahead and drink your daily coffee. Changing your entire lifestyle to be more frugal may not necessarily lead to the highest rate of money-saving success. Set a reasonable goal for how you’re going to save money as well as a reasonable goal of how much money to save.
How much should you save for a car? Depending on your situation, you probably don’t have to save up the car’s entire purchase price in cash before you can get it. The old rule is that you should save up 20% of the car’s price as a down payment, but you could do less or more as you wish, or what your potential lender requires.
A down payment of at least 10%, however, is a good way to prevent becoming “upside down” on your loan, which happens when you owe more on your car than it is worth. But even that adds up — with new car prices averaging around $37,000 and used car prices around $20,000, a 10% down payment equals $3,700 and $2,000, respectively.
How much should your car cost? Smart financial advice is to aim for a reliable used car rather than the most expensive new car you could possibly afford. Dave Ramsey, a personal finance author and radio show host, recommends capping your car price at half your annual income. So if you make about $20,000 a year, you should aim to get a car priced around $10,000.
Pay off other debt
Do you need that new car right now or could you wait? Waiting and paying off old debt before adding new debt could help in several ways. First, by paying off a debt early, you would not pay as much in interest to the lender. Second, all the money you had been putting toward that payment could go to a savings account for your new car. And third, paying off your debt could help you get better loan terms for your car — lenders favor those with lower debt-to-income ratios.
You could check out our ultimate guide to paying off debt for tips and tricks.
Use financial tools
You don’t need to sit down at the kitchen table with a pen, paper and calculator to start saving for a car. There are plenty of more high-tech tools out there that could help you meet your goals. You could also use one of our auto loan calculators to help you figure out how much car you can afford.
Budget apps. With that price point in mind, look at your budget (or set up a budget). There are several budgeting apps out there, including some free ones with good ratings, that could help you maintain and understand your spending.
Saving apps. There are free apps that could help you save by rounding up your regular purchases and putting the extra into savings. We rounded up the best money-saving apps for you to review.
Separate saving accounts. It may be helpful to have a separate savings account that is dedicated just to collect money for your new car so you can track it more easily, rather than all of your savings being lumped together. You could do this for free or very cheaply through your current bank, credit union or online lender.
Any way you want to spend less is up to you.
The big spends. You may find it easier to make a big change rather than several smaller ones. For example, getting a cheaper apartment that’s $300 less than what you normally pay a month could make a big difference — in one year, you’d save $3,600, or about enough for the 10% down payment on a new car that we discussed earlier.
The recurring costs. Look at smaller things you have to pay for monthly.
- Phone. Could you get a better (cheaper) deal on a phone plan from a different provider?
- Media. Could you split the cost of a Netflix or Hulu account with a friend?
- Exercise. Could you work out to music or exercise videos on YouTube in your own home for free rather than pay for a gym membership?
- Subscriptions. Perhaps that $25 a month dog treat subscription box isn’t the most necessary expense.
Alternatives. Look for free or cheap alternatives to things you buy. Depending on your tastes and what’s available to you, replacing a night out with a night in could help you save money.
- Get generic brands. If a generic brand has the same active ingredients as the name brand, it can do just as good of a job in many cases. Compare ingredients labels on everything from medicine to laundry detergent.
- Buy used. Buying things used or “thrifting” can be a great way to get name-brand things for not name-brand prices.
- Use public services. For example, Audible charges $14.95 a month for one audiobook a month, but your public library could have an app that lets you download up to 20 titles at a time, free.
Sales deals. Pay attention to sales and use coupons. Grocery stores still use newspaper circulars and clearance sections might have a few gems. There are also coupon apps such as Honey, Groupon, RetailMeNot and SavingStar, which are all free.
We do not recommend money laundering. Instead here are other, legal methods that you could use to save money for a car.
- Get a gig. Could you drive for Uber or Lyft? Tutor kids, take surveys or freelance? There are tons of ways to earn spare money in your spare time. Upwork and TaskRabbit might be good places to look.
- Sell your stuff. You could sell stuff you already own or make stuff to sell on sites ranging from Craigslist to Etsy.
- Use social media. If you have a passion or some serious chops in a particular subject and the inclination to share your knowledge or skills with others, consider sharing it on social media and earning potential income from it.
- Earn interest. If your money is just sitting in an account, it may as well sit there and earn more money for you in interest. There are online savings accounts, which could help you to compound your savings.
- Invest in stocks. This is perhaps a riskier move, but you might make money in stocks.