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If you’re trying to get a car, budgeting to get that car is probably something you’re working on figuring out. How does it all work?
There are a few things to think about before car shopping like: How much you’ll put down on the car, how much you need for insurance, and how much you need for regular maintenance.
Sure, there are deals that may allow for a low down payment, but that will likely increase your monthly payments so be careful.
Saving for the actual car is just one part of the picture. Having money for the other financial responsibilities that come with car ownership is important as well. Otherwise, you could find yourself struggling to keep up financially after buying. We don’t want that to happen, right?
In this post, we share tips to budget for a car.
The Down Payment
The down payment is the large upfront cost. Saving a lump sum can be a challenge, but it is completely doable. Start by writing down how much you have and how much more you want to save.
Then divide your car savings goal by the amount of time that you have to save. So if you want to save $3,000 for a down payment, divide that by maybe six months if you want to buy a car in six months.
In this case, you would need to save $500 over six months or $250 per biweekly paycheck.
Schedule automatic payments from your checking to a savings account in the amount that you need to save incrementally. This is key for planning especially for people who aren’t the best at saving. Don’t rely on yourself to stop spending money on everything else to save for a car.
Make the savings automatic by setting up automatic transfers with your bank.
Where exactly is this money going to come from?
Grab your budget. If you don’t have one, pull out your checking account and credit card statements. Comb through your statements to see what you’re currently spending money on.
Circle spending that you can cut down on so you can put more savings towards your car down payment. Commit to spending less on excess stuff over the next several months before your purchase.
There are also many tools you can use to help you save. Digit is a cool app that uses an algorithm to scan your checking account to see what money you have to spare after withdrawals. It automatically transfers excess money (sometimes a few cents or several dollars) into a separate account. Learn more about how Digit works here.
If you’re not bringing in enough income, it’s time to start thinking about ways to earn extra money. Can you ask for more hours at work? Is it time to ask for a raise? Can you sell a product or service on the side? Check out 20 low-stress side hustles you can start here.
Figuring out how much you can afford monthly
Being realistic with your car purchase is SO important. Buying a car that has a monthly payment that stretches your budget can put you in a serious bind.
Use an auto loan calculator to flesh out the numbers. Google has an awesome auto loan payment calculator. To use it, just search auto loan calculator in the search bar. This will come up.
Put in the monthly payment you can afford and the average interest rate available for your credit. You can check what the average interest rate is for your credit score here. Working on your credit score can improve your interest rate leading to some savings. (In this post, we share 25 things to do to increase your credit score.)
Play around with the numbers in this loan calculator to see the amount of loan you can afford based on the monthly payments. This will help you determine the price range for your car.
Think about the extras
When deciding your monthly budget, take into account your potential insurance.
Shop around for insurance rates to see what you qualify for. According to ValuePenguin, the average annual cost for insurance is $941.65 or $78 per month. The amount you pay will depend on many factors like your driving history and state. You can get an estimate of insurance costs by state here.
The amount you need to keep on hand for maintenance will depend on the type of car you have. A foreign car could cost more money on maintenance. In that case, you could need a few thousand dollars for emergencies and oil changes.
For U.S. economy cars, you could need a few hundred dollars quarterly for maintenance. Make sure you’re putting aside some money so you don’t have to scramble to pay for surprise car costs.
Slow and Steady Wins the Race
Saving for a car takes time, but the longer you search and prepare for the purchase the better. Taking on a car note is a financial responsibility that you want to take on with both eyes open.
Take time to save for an ample down payment because that will make for affordable monthly payments. Review your insurance and maintenance costs to make sure all of the costs associated with the car are ones you can manage.
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