How to Save Money for Buying a Car

Understand How Much Car You Can Afford

Before you start out on the road to a new vehicle, you need to ask yourself some questions:

• Will you buy new or used (or certified pre-owned, as some dealerships call it)?
• Do you already have budget line items for car insurance and maintenance—and if you do, will those amounts go up, down, or stay the same?
• How much can you sell or trade in your current car for if you have one?

Once you have this information, you can start calculating how much you can afford to save every month for both your down payment and insurance and maintenance and how long you’ll have to save for your car before you can head to the dealership.

A commonly heard rule of thumb is that your monthly car payment shouldn’t be more than 15% of your monthly income. If you can afford to put that much away toward saving for your car, start there and calculate no further! If you can’t, that number can help you understand both what you can put away every month and what your new (or new-to-you) car can cost.

Have that final cost in mind? Good. If that’s for a new car, aim to save 20% of that price before heading to the lot for test drives. A used car in your sights? A 10% down payment should suffice. Just remember that the more you save and bring to the bargaining table the better rates you’ll be able to negotiate.

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Create a Car-Related Savings Account or Savings Bucket

“Out of sight, out of mind” may not exactly apply when it comes to your money, but making it harder so spend your car savings will make your new purchase possible faster. Open up a new savings account at your bank, or browse for a savings account elsewhere to see if you can take advantage of new-account bonuses or better interest rates to grow your savings even faster.

Some banks offer bucket savings features with their savings accounts. If your bank does this, you may not need to open a separate savings account for saving for your car—you may just need to create a car-related bucket in your existing account.

Look for Automated Saving Options for Your Automobile

Saving gets easier when you can set it and forget it. After You’ve figured out how much you can afford to set aside while saving for your car and its maintenance and insurance, consider having that amount deposited directly into your car-savings account—either from your employer or via an automated transfer from the account where your paychecks are deposited.

Other options for automating saving for a car might include:

• Engaging a popular debit card option that rounds up purchases to the nearest dollar and deposits those extra cents into your savings account.
• Cancelling subscriptions you don’t use—streaming, magazines, fan boxes—and setting up an automatic savings account deposit to send those newly freed dollars to your car savings account automatically each month.

Capture Extra Income Where You Can

Cents make dollars, and every little bit helps. Some things you can try to top off your car savings account might include:

• Selling your current car. If you can arrange to sell your car yourself, you’ll make more money, but it’ll take more time. There’s nothing wrong with getting trade-in cash from the car dealership, but that old car might do you better as cold hard cash earning interest in your car savings account.
• Saving unexpected windfalls. Cash rebates, tax refunds, money from family around holidays, and bonuses from work well done are all examples of financial windfalls that you likely haven’t earmarked elsewhere in your budget—so put them aside and forget about them until it’s time for test drives.
• Consider a side hustle. Depending on how much free time you might have or hobbies you enjoy, you may find that you can earn a little extra savings income by selling crafts or baked goods, doing deliveries, tutoring, walking dogs, or something else helpful for your community or that you enjoy.

With a clear picture of how to save for a car, you set yourself up for car buying success. Keep track of your growing car savings by keeping a budget, either with a helpful Excel budget template or convenient phone app—you’ll arrive at your car purchasing destination in no time.