Owning your first car is one of the most exciting financial milestones—but it’s also a big one. I can’t believe I’m at the age where my oldest only has a few more years before she can get her driver’s license.
Whether you’re dreaming of your first set of wheels (is there a better feeling than freedom on four tires?) or upgrading from your trustworthy, slightly beaten old sedan, one thing is clear—you need to budget and save wisely.
This guide breaks down everything you need to know about budgeting and saving for a car, step by step. By the end, you’ll have a game plan to get those keys in hand without stress. (Well, without too much stress.)
Understanding Your Financial Situation
Before you can start saving, you’ve got to get honest about your money. Think of this like prepping the canvas before painting (but less artsy and more numbers-y).
Step 1: Assess Your Current Financial Health
Look closely at your income, expenses, savings, and any debt. Be brutally honest—this is a judgment-free zone, but getting the full picture is key.
- How much money do you have left after covering essentials like rent, groceries, and bills at the end of the month?
- Do you have savings you can allocate towards the car, or are we starting from scratch?
- Are there any debts (e.g., credit card balances) stealing money that should be going to YOUR car fund?
If your financial situation feels messy, no judgment—I’ve been there. You might want to start by setting up a budget binder to organize everything in one spot. (I have a step-by-step guide on how to create a budget binder that can help you get started.)
If you feel disappointed after creating a budget, consider a no-spend month. It’s amazing how much that would help us reset and meet our financial goals, when we couldn’t bring in extra income.
Step 2: Create a Realistic Car Budget
Now for the big question—how much car can you actually afford? Spoiler alert, it’s probably not the sporty convertible you saw on Instagram. (But hey, a girl can dream.)
Here’s how to figure this out:
- Decide between new and used: If your budget’s tight, a used car might make more sense. Remember, cars depreciate fast, so buying used can be a smart financial move.
- Consider all costs: Owning a car isn’t just about the price tag. Factor in insurance, fuel, maintenance, registration, and parking fees. (Yes, adulting is exhausting.)
- Set Your Total Budget: Experts recommend spending no more than 15-20% of your annual income on a car. For example, if you earn $40,000/year, aim for a car under $8,000.
Setting Your Savings Goals
Once you know how much you’re working towards—it’s time to make a plan.
Explore Different Car Financing and Purchase Options
You have a few ways to approach car buying:
- Pay in full: Ideal if you can save up for the entire cost upfront (no interest payments!). This might work best if you’re buying a less expensive, used car.
- Car Loan: Borrowing means you can buy sooner, but you’ll pay more over time because of interest. Aim for a loan term of 36-48 months and shop around for low-interest rates.
- Lease: Not planning to own the car long-term? Leasing allows for lower monthly payments but typically has mileage limits.
Pick the best option based on your timeline, financial health, and preferences.
Calculate a Down Payment
Here’s a pro tip—save for a solid down payment (at least 10-20% of the car’s price). Not only does this reduce how much you’ll borrow, but it can also lower your monthly payments and interest rates.
Need help visualizing your goal? Create a money-saving vision board with pictures of your dream car and milestones for your savings! Trust me, seeing your goals come to life actually works.
The first step is setting a clear savings goal. Look into the type of car you want and calculate a realistic down payment target based on its price. Once you’ve got the number, break it down into smaller monthly or weekly goals.
Automating the savings process can make this a breeze—set up a recurring deposit into a dedicated account so you’re building your fund without even thinking about it.
To speed things up, get creative about cutting costs. Do you really need that daily latte or subscription box you forgot you even signed up for? Redirecting those little expenses into your car fund can make a big difference.
You can also try fun savings challenges, like a no-spend weekend or tracking cash-back rewards. Every dollar adds up when there are keys to your dream car at the finish line.
Make your money work by stashing it in a high-yield savings account. These accounts offer better interest rates so your down payment grows faster while you save. It’s like giving your money a little boost on its way to achieving your goal. The key is to start now, stay consistent, and remind yourself of what you’re working toward—freedom on four wheels.
Implementing a Savings Plan
Okay, you’ve set your goal. Now, it’s time to roll up your sleeves and start saving.
Cut Unnecessary Expenses
The quickest way to boost your savings is to free up cash from your monthly budget. Here are some easy (and not-so-painful) ways to cut expenses:
- Cancel unused subscriptions: Do you really need five streaming services?
- Cook at home: Swapping takeout meals for home-cooked ones could save hundreds of dollars per month.
- Opt for no-spend challenges: Dedicate one weekend (or month if you’re feeling ambitious) to spend only on essentials.
Check out my tips on saving money bi-weekly for more genius hacks tailored to those on a bi-weekly pay schedule.
Use Financial Tools to Stay on Track
Open a separate savings account just for your car fund. Many banks will even allow you to nickname the account—because nothing motivates you quite like logging in and seeing “Future Jeep Fund.”
Look for high-yield savings accounts to earn a bit of interest on your money as it grows. And automate your savings with recurring deposits—set it and forget it!
Staying on Track and Motivated
It’s easy to start strong but lose steam once the initial excitement wears off. Here’s how to keep your eyes on the prize:
Track Your Progress and Celebrate Small Wins
Celebrate small milestones—you’ve saved your first $500? Treat yourself to a fancy latte (just the one, though). Tracking progress reinforces that you’re getting closer, even when it feels slow.
Use Visual Reminders
Keep your dream car at the forefront of your mind daily. Print a picture of it and stick it on your fridge, or make it your phone wallpaper. Think of it as a friendly nudge every time you contemplate an unnecessary splurge.
Adjust Your Plan as Needed
Life happens—unexpected expenses pop up, or your income might fluctuate. Don’t beat yourself up if things take longer than expected. Adjust your savings rate if needed, and stay flexible.
Don’t Wait—Start Your Savings Journey Today
Saving for a car is a big goal, but it’s totally achievable with the right strategy. Whether you’re 20 and buying your first car or mapping out your next dream vehicle, budgeting and saving are about patience, discipline, and a pinch of creativity.
Need help setting up a budget? Check out my guide on creating a budget binder to streamline your finances. And if staying motivated feels tough, harness the power of visualization with a money-saving vision board.
The road (pun intended) might be challenging, but your dream car and the freedom it represents are just around the corner.
You’ve got this. 🚗✨
How to Create a Budget Binder That Actually Works
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