How to budget for a new car
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Saving money for a new car or a new used car doesn't have to be a source of stress. With the right planning, you can streamline the process without making huge financial sacrifices right away. Save slowly and steadily by making moderate adjustments to your spending habits, and you'll soon be able to reap the rewards of driving out of the dealership parking lot in the car you want. This is a good skill to learn and hone no matter your age or circumstance, and you can apply this method to just about any major purchase, including future cars, boats, or even homes.
Part 1 of 4: Be honest with your budget
Step 1: List Your Monthly Bills and Expenses. When it comes to bills that vary by season, such as natural gas or electricity, you can take an average monthly amount based on what you paid in the previous year.
Don't forget to include groceries and some entertainment expenses; you don't have to live like a monk to save money for either a down payment or a full car payment.
Step 2: Calculate your monthly income. Include sources outside of your job, such as alimony or child support.
Then subtract your total monthly expenses from your total monthly income. This is your disposable income. Use this number to decide how much money you can afford to put aside for a new car.
Keep in mind that you should not use all of this in case of unforeseen circumstances, such as an illness leading to missed days at work, or repairs to your current car.
Step 3: Use budgeting software. If budgeting with pencil and paper isn't your style, consider using budgeting software, many of which are available as free downloads.
Here are some of the most popular programs for calculating your budget and tracking expenses:
- BudgetPulse
- mint
- PearBudget
- Quicken
- Do you need a budget
Part 2 of 4: Determine car prices and create a savings schedule
Without an idea of how much you need to save, you can't predict how long it will take you to save money to buy a car. This means that you should do some window shopping ahead of time to get an idea of how much the car you want will end up costing.
Step 1: Look at car prices. If you're planning to buy the car right away, you can check dealerships and print and online ads to develop a savings target.
When planning to make a down payment, you will most likely end up with dealerships rather than individuals.
Also find out how much you will need to pay for your desired car taxes, first month insurance and registration fees, and add that to the total amount of money you need to save. After all, you want to drive a car after you've bought it.
Step 2. Set a reasonable timeframe to save the required amount.. Once you know roughly how much money you will need to either fully purchase a car or make a down payment, you can calculate how long it will take to accumulate the necessary funds.
Take the total amount needed for the down payment or full purchase, plus associated costs, and divide it by the calculated monthly amount you can save. This shows how many months you need to save up for your future new car.
Part 3 of 4: Stick to the Savings Plan
All your plans and research mean nothing if you don't stick to your savings schedule. There is no shortage of things that can tempt you to spend more than your budget, so you should take whatever measures are available to you that will keep you on the right track.
Step 1: Open a savings account solely for a future car purchase if you can.. This will make it harder for you to dip into your car fund when you're tempted to spend anything over your budget.
Step 2: Deposit car savings immediately. If your job allows you to pay your paycheck directly, you can even set up automatic transfers to your savings account.
If that's not an option, try to invest your car savings as soon as you get paid to minimize the risk of spending it prematurely. Then just pretend the money doesn't exist until your savings plan is over and you have the necessary funds to buy a car.
Part 4 of 4: Go shopping and make a purchase
Step 1. Repeat buying a car at the best price.. Once you've saved up enough money to buy a new car—whether by paying the down payment or paying the full amount—be aware that you may find a car cheaper than you saved.
Take the time to shop again and explore options instead of putting your savings on the first car you see.
Step 2: Explore funding options. The same principle applies to choosing a financing option if you plan to make monthly payments after making a deposit.
Interest rates vary and you want to pay as little as possible for the privilege of paying off your car gradually.
As a rule, the banking institution charges a lower percentage than the dealership itself, but this is not always the case. Check with several lenders before making a decision and signing a contract, because once you sign the dotted line, you are committed and your credit is on the line.
When all is said and done, and you have the keys to your new car in your hands, all the budgetary sacrifices you've made over the course of a few months will be worth the effort. In addition, you can use your new skills to save for future purchases or plan for retirement. You can even continue to use the same monthly amount you set aside for a new car into a savings plan now that you've adjusted to that budget.
