These days, saving money takes time and self-discipline. With rent prices soaring back to pre-pandemic levels and mounting insurance costs, it takes a regimented person to save enough for life’s bigger expenses. For example, if the time has come to invest in a new car, you could find yourself pitted with worry. The good news is how much money you should save for a new car isn’t as much as you think.
How much money should you save for a car?
bought a new car today in full! i’ve been saving for years for a new car, but it still made me a little queasy when i saw that much money leave my savings account tho pic.twitter.com/KtemZ7FXGH
— asspen (@okkasspen) August 3, 2020
Depending on your annual income, the amount you should save for a car will vary. It could take you years, but saving effectively has some serious benefits. Most retailers would suggest spending 10% to 50% of your gross income. But a good rule of thumb is 10% for used cars and 20% for new.
Ways to cut back on how much money you should save for a car
Money doesn’t always come easy, but there are ways to limit the amount you have to come up with. Our first recommendation: buy used. There are plenty of advantages to buying a used vehicle, but mostly it will save you money. In fact, buying a brand new vehicle is always going to result in you throwing money away, since the depreciation will hit the moment you drive off the lot.
Secondly, paying cash is another great way to lessen the financial punch. While saving up enough money for a solid down payment for a lease might feel like an accomplishment, you’ll be saving yourself thousands by buying and paying up front. Even knocking off just a few years of car payments will help get you closer to owning your new car in the future.
That said, we know cash is not always at our beck and call. If you do need to apply for an auto loan, make sure to shop wisely. Don’t let high interest rates and pricey down payments put you in financial ruin. Choose a make and model that is safe, reliable, and within your price range. Most buyers get into trouble once they put all their money into their dream car without thinking about the financial burden.
Other factors to keep in mind
Car buying is a personal decision at the end of the day. If you have the means to pay all cash for your next ride then by all means. However, the reality of most car buyers is that financing or savings are needed. Here are some important factors to pay attention to as well.
- What’s your credit score?
- Do you have a car to trade-in?
- How much of your savings are you willing to part with?
These factors, along with finance offers and interest rates, will play a major role in how much of your savings you’ll have to use. However, we’d recommend that savvy buyers invest without wiping yourself out. Keep your purchase relative to your income, and you’ll avoid living beyond your means. Try using Carvana’s auto loan calculator to help figure out the exact amount of savings you’ll have to budget for.