Saving for a car can be a daunting prospect. But with patience, discipline, and a carefully crafted budget, it’s easier than you might think!
Why Save Up For a Car?
The most compelling reason to save for a car is that you’ll either:
- Lower your monthly repayments by putting down a larger deposit; or
- You’ll be able to buy outright with the cash you’ve saved, therefore avoiding the need for finance (and interest payments) altogether.
Whichever way you slice it, putting money aside for a car will save you cash in the long run.
- Let’s say you want to buy a car that costs £5,000.
- You take finance for the full amount over 60 months with a 7% interest rate.
- The total amount you’d pay over the terms of the agreement would be £5,940, working out at roughly £99 per month.
Now, what if you save up a £1,500 deposit?
- You’d only need to borrow £3,500, not £5,000;
- The total amount repaid would shrink to £4,158 (saving you almost £1800 in total); and
- The monthly repayments would drop to roughly £69 (saving you £360 a year).
Saving for a Car? You 100% Need a Budget
How much you need to save will, of course, depend on the type of car you want to buy and how much you can afford to put away each month.
And the only way you’ll know for sure what you can afford is if you draw up a budget.
We’ve written previously about how to budget and how to manage your money, so if you’d like an in-depth look, check out those articles.
But if you want the basics when it comes to how to save up for a car, here goes:
- First, you’ll want to use a tool, like Revolut’s budget planner, to track and categorise your current spending habits.
- Next, identify opportunities to cut down or eliminate needless spending. For instance, skipping that daily latte on your way to work could mean an extra £50 a month towards your new car.
- Finally, divert the money saved (plus whatever else you can afford to put aside) into a dedicated savings pot. Better yet, use Revolut Vaults to earn interest on your savings as you pull together your deposit.
And that’s how to save for a car in a nutshell!
For the best results, stick to a budgeting rule, like the 50/30/20 rule. It works like this: allocate 50% of your take-home pay to the things you need (rent, bills, food, etc.); 30% to the things you want (cinema tickets, nights out, vacations, etc.); and 20% towards savings or debt repayment.
How to Save Money For a Car: 3 Tips for Buying a New Car
1. Sort out your “needs” vs your “wants”
If you do decide to follow the 50/30/20 rule, you might be wondering if a new car qualifies as a “need” or a “want”. Again, this depends on the type of car you’d like to buy.
The car itself is a “need” because you need it to get to and from work or school. But the heated seats, keyless ignition, and pristine leather upholstery? Those sound like “wants”.
Prioritise your budget so that it’s geared towards saving for a car (any car) within a price range you can afford — then you can think about the make and model or any of the added extras you might want.
2. Plan your purchase carefully
The best times to buy a new or used car tend to be at the end of March, June, September, and December. This is because dealership staff have targets to hit for each quarter, and as the end approaches, they can often be more willing to negotiate on price in order to achieve a sale.
3. Spend your money wisely
That new car smell. Shiny and spotless. Never been touched. It’s easy to see why so many people have their head turned by a car fresh off the production line. But it’s a well-known fact that new cars lose their value quickly — almost half within the first three years.
So, when you’re saving for a car, try not to be seduced by the latest model. Instead, shop around, test drive used cars, research, and read reviews from previous owners.
And remember to factor in those car-related expenses (repayments, fuel, servicing, insurance, etc.) and try to make sure they don’t exceed 20% of your take-home income. The last thing you’ll want is to splurge on a brand new car and then struggle to run it.
We hope this article has helped you plan and save for your next car. Want to learn more about budgeting and saving? Check out these articles:
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