Tips for Saving for a New Car & When to Buy One
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BIG expenses, like a buying and saving for a new car (or new to you vehicle), can be difficult to save for on a tight budget. But it’s even WORSE when you HAVE to purchase a car NOW because yours is irreparable. Yep – that’s how our holiday season went one year!
We drove from Iowa to Chicago to visit family one winter, and literally couldn’t get back home until we had purchased another vehicle. Our van died and would have cost thousands to repair our older vehicle. Thankfully we pre-planned so it wasn’t a total hit to our budget but if you are in need a new vehicle unexpectedly it can be devastating to your budget!
I bet some of you are cringing right now just thinking how your finances would be if you HAD to buy another vehicle right now! I wanted to cover both Saving for a New Car and Knowing When to Buy a New Car in this post. You can also read our very helpful article, 10 Things to Think About when Buying a New Car. And by “new” car I mean “new” to you – whether it’s brand new or used.
Saving for a new car takes some serious pre-planning. Unless you have a good paying job with a large amount of cash available to you it is absolutely imperative to pre-plan as far in advance as you can for a new vehicle. It is also VERY helpful if you do not need a car loan! No loan means no payments! With that being said there are several ways in which you can save for a new vehicle. Here are a few helpful ideas that our family did which may work for yours.
Tips for Saving for a New Car:
1. Sign up for a separate savings account at a bank. This is by far the BEST choice we have ever made. I made an online only account with Capital One so there was no actual bank to walk into, everything is done online. (You can use whatever bank suits your best.) I use this account for anything I am saving for “long-term”, or more than 1 year.
For example, every 5 years we plan a vacation trip – my savings go in my Capital One account. Need a new car down the road? My savings go in my Capital One account. I use this for everything I don’t need immediate money from. It’s an “out of sight out of mind” type of banking that has really helped me hone in on building my savings accounts. It also makes it easier for me to automatically transfer money into the savings account each month as well.
2. Use your tax returns. If you are on a low-medium income like our family chances are you get some sort of a tax return every year. This is the PERFECT time to set money aside! You can transfer it right into your savings account! I’m betting that tax return money helps to get you through the rest of the year – I totally understand that.
Sit down and prioritize what you need your tax return for, not what you want it for. For us it was our car insurance, a fund for unexpected house repairs, school and Christmas costs, etc. Even if you can only put $100, $200, or $600 away for another car every penny counts no matter how small!
3. Use a cash envelope. We tried this for a while and always ended up spending it but this system works great for some families! Keep an envelope in the house, clearly marked CAR FUND, and add any extra cash you have throughout the year to it. Have an extra $2 or $10 in your wallet? Put it in the CAR FUND and don’t touch it! You can also move your envelope cash into a savings account as well.
4. Pick up a side job. Even if only temporarily pick up some extra earnings for the SOLE purpose of saving it for a car. This is one area that we utilized which really helped. It was hard to squeeze in the extra time but when the time came to purchase a vehicle I was very thankful I had busted my butt doing some extra work to earn money. This can be anything from tutoring, writing and selling content online, selling items on eBay or even going down to your local coffee shop and applying for a weekend or night job!
5. Set up an automatic transfer. Whether it’s $10 a week, $50 a month, or even more – automatically set your bank accounts up to transfer a set amount of money each month into a savings account. You won’t see it and you’ll quickly be adjusted to having that much less to spend each month.
Can’t afford $10 a week? Start with $5 a week. Even when we were at our poorest we could have squeezed $5 out a week if we had to, then work on increasing that amount. You won’t be able to buy a new car off $5 a week but it will certainly add up and help offset your total car cost a few thousands dollars or more! This is also how we afford vacations! Read how we afford to travel to learn more.
Sometimes knowing when to buy a new car is easier than other times, and unfortunately sometimes you have to purchase one even if you can’t afford it. Pre-planning here is definitely key! So when should you buy a new car? That question is answered differently for every family of course but here are a few tips that we abide by when deciding whether or not to purchase a new vehicle.
- Ask yourself – “WHY do I want a new car?”. If it’s not a really necessary reason like “my other car is dying” then you might want to rethink your choice!
- Weigh the cost of fixing your current vehicle over purchasing a new one. If your car is pushing 200,000 miles like our van was and it is going to cost thousands of dollars to fix like ours was, you’re definitely better off purchasing another vehicle. Our rule of thumb is if our current vehicle has a LOT of miles on it, usually almost 200K+ then we won’t repair it for anything more than $200-$300. Major fixes like transmission, suspension, etc. aren’t worth the cost of replacing on an old vehicle with high mileage.
- Don’t wait until your current vehicle completely dies. Not only will your trade in be pretty much worthless but you might have to pay to tow your car in which would be a waste of money. On top of that it is much smarter to have the ability (if possible of course) to shop around for another vehicle for a few weeks than to HAVE to buy one NOW and be stuck with whatever vehicle you can find. The more time that you have to look around and search for a good price the more money you have the potential of saving.
- Plan for the end of the year! If at all possible, which I know is sometimes impossible to control, plan to purchase your new vehicle at the end of the year! New models are coming in which means dealers are looking to clear out their inventory.
Do you have any TIPS on saving for a new vehicle?