Very few people have the ability to buy a new car straight off the bat; for most, buying a new car only comes after a period of saving money. Whether you are struggling to save properly or looking to speed up the process, this guide is here to help by showing you all you need to know about saving money to buy a new car.
How Much Should You Be Spending on a New Car?
The first step to saving money for a new car starts with working out how much you are going to be spending. If you are unsure about how much you should be spending on a new car, then there are some rules out there that can help.
The first rule that is worth bearing in mind is the 10% rule, which is that the total of your transportation cost should be no more than 10% of your monthly income. That means that your insurance, maintenance, fuel, and any other costs need to be below 10% of your income.
Another useful rule to bear in mind was created by Dave Ramsey; this rule suggests that the total value of all of your cars should not be more than half of your annual income. Remembering these rules can help you to specialize your saving plan to ensure it is sustainable.
Should You Take Out a Loan or Pay in Cash?
When you are saving money for a new car, it is worth considering if you should try to pay in cash or take out a car financing option. Taking out car financing can help you to more quickly and easily afford your perfect car, such as the options car finance in York can provide. However, when you are taking out car financing, there are some considerations worth bearing in mind:
- The total length of the loan
- The monthly repayments
- The interest rate
When you are taking out car finance, you should still aim to pay a down payment of 20%. This can help you to limit the cost of your repayments and the length of your loan. You should make sure that your monthly transportation costs do not exceed 10% of your net income.
How to Start Saving
Working out how much you need to save and how you are going to finance the purchase is only half of the battle; the next step is to start saving. There are many tools out there that can help you with the saving process. For example, you could use a mobile application like Acorns.
Acorns is an automated investing app that you link to your debit or credit card. The application will round up the amount you spend on a purchase to the nearest quarter of a cent. Once you have saved a total of five dollars, this money will then be invested for you. Using an application like Acorns hugely simplifies the saving process, quite simply because you don’t have to think about putting money away.
Try to find tools that work for you that make saving money simple and easy. Making small changes might seem like a lot, but over time it will pay off.
