How to Budget for a Car
While putting money aside for a car can feel unnerving, saving a little bit here and there can help make the process go smoothly. Buying a car is a worthy investment, and if you plan on financing a vehicle, it helps to save extra cash to put towards a larger down payment. Finding a budgeting system that’s right for you is a great way to keep track of your funds and start saving. Keep reading to learn how to save for a car by creating a budget and doing your research.
How to Make a Budget
A budget is a financial plan that tracks how you spend and save money. Budgeting takes a little extra work and commitment, but it can reduce stress and make you more aware of your spending habits. Finding a budgeting plan that’s right for you is the first step towards saving for a car.
Different Budgeting Plans
There are many different schools of thought when it comes to budgeting, so explore all your options and see what sticks.
The 50/30/20 Budgeting System
One of the most popular budgeting methods is the 50/30/20 method. This method promotes spending 50% of your income on things you need, 30% on things you want, and putting 20% into savings. Necessities are things you require to live and work, while “wants” are indulgences that improve your quality of life. While using this budget, if your needs exceed 50% of your income, you might need to dip into the “wants” category temporarily. The remaining 20% of your income can go into your savings account (for a new car) or be put towards debts.
The Envelope Budgeting System
This system makes it easy to cut down on superfluous spending without creating a plan for every dollar you earn. To try it, set a spending limit for your monthly expenses and fill designated envelopes with the allotted amounts in cash. For example, estimate your monthly grocery budget and put the cash amount into an appropriately labeled envelope. Take money out of the envelope before you hit the store, and once the envelope is empty, try not to spend any more on groceries during that month. The tactile sensation of cash gives you a better idea of how much you’re saving, as opposed to using something less tangible like a credit card.
The Pay Yourself First Budgeting System
If your primary financial goal is to save enough money for a car, then this budgeting system may be a good fit for you. The pay yourself first plan, also known as the “reverse” budget, prioritizes savings over current expenses. To try this system, designate a monthly amount to be deducted from your paycheck and put straight into your savings account. Spend the rest of your income on monthly expenses and additional purchases. This budgeting system works for people who prioritize one area of their finances instead of budgeting for every expense.
The Zero-Based Budgeting System
This budget is perfect for meticulous planners who want to account for every dollar they make. With this system, spend or save all the money in your monthly paycheck mindfully until there are zero dollars left. This involves logging every expense using pen and paper or a budgeting app, such as YNAB or EveryDollar. Pay for necessities, like bills and groceries, then set money aside for future purchases or savings.
How to Save for a Car
Now that you’ve decided on a budgeting system, it’s time to start putting money aside for your car.
Calculate Your Down Payment
Decide how much you want to put towards your future down payment. Paying a larger down payment upfront will lower your auto loan and subsequent monthly payments. Fewer monthly payments mean fewer interest payments and more savings over time.
Explore different vehicles you’re interested in with financing options that meet your monthly budget. Compare different models to see if your down payment budget is realistic. Once you’ve established a price range, you’re ready to calculate your down payment. Aim for a 20% down payment on a new car and a 10% down on a used car.
Create a Budget
Choose a budgeting plan and try to stick to it, even if it means saving more and spending less. Don’t forget to budget for things like fuel, car payments, insurance, and maintenance costs. Experts suggest that the sum of your car-related expenses shouldn’t exceed 20% of your total income.
Start Putting Money Aside
Creating a specific car-savings fund makes it easier to track your progress towards your down payment, and it makes it harder to dip into those savings for unrelated purchases. You can automate your savings so a portion of your paycheck is allocated to your account every month.
Sell or Trade Your Car
If you’re saving to replace your vehicle, now is a great time to sell or trade it in and put the money towards your new car. Estimating your car’s value using online appraisal tools will give you an idea of how much savings you’ll have after the sale.
Shop Around for Affordable Insurance
If you’re looking for an affordable policy for your new vehicle, The General has a policy for you. We’ve specialized in affordable car insurance for over 60 years, and we recognize that drivers with imperfect credit and driving records still deserve quality coverage they can afford. Read some of our five-star reviews to see how we put our customers first or read more about finance on our blog.
