Buying a car in cash is a great option! When you buy a car in cash, you don’t have to worry about fitting another monthly payment into your budget. Plus, you end up saving thousands of dollars in the long run because you don’t end up paying interest on a loan.
We know that buying a car in cash is no small feat. And sometimes, you don’t have the luxury of saving for months and months before you buy. But if you have the time to wait before you make the purchase, then here are some things to consider in figuring out how much to save.
Consider the kind of car you need
Generally speaking, vehicles cost more the larger they are, the newer they are, and the more features they have. So in order to know how much you need to save, you have to get a general idea of what kind of car you need (and don’t need).
A good place to start is by considering where you’ll need to go, how often you’ll need to go there, and who will be in the car with you. Knowing who else might be in the car with you will help you decide how big of a vehicle you might need. If you’re planning to get a car primarily to take you to and from work, then maybe you can look for a smaller (and therefore, less expensive) car since it’ll just be transporting one person. On the other hand, if you’re planning on taking the car on road trips with lots of family members, then you might need something a little larger.
How frequently you’ll use the car is also a factor in the kind of car you’ll need to buy. If those family road trips happen only once a year, it might not make sense to invest in a super new or highly decked-out vehicle. Instead, you might consider an older vehicle that doesn’t have all the bells and whistles, but will still get you and your family from point A to point B safely.
As you consider your needs, now’s also a good time to talk about alternative forms of transportation. More and more people are demanding cleaner, more environmentally friendly modes of transportation, and there are lots of great options out there.
If reducing your carbon footprint is important to you, it’s worth considering if walking, biking, or public transit could satisfy your transportation needs. These options don’t make sense to everyone or every situation, but they are ideal for some people, like those who live in metro areas where life is a little more condensed. They also work well for folks who live in areas where parking is tough. So if you live a few miles from work and hate the idea of having to look for parking, consider getting a bike or a metro pass. Both of those options are much less expensive than a vehicle and are also great for the environment.
But while options like biking and public transit are great for some folks, they won’t work for everyone. If you’re still hoping to reduce your footprint but still think a more traditional vehicle makes sense, consider electric or hybrid models. Often, these kinds of cars are more expensive at the dealership (which means you might need to save more), but you may be eligible for tax credits if you buy a new one, and you’ll also save on gas over time.
Consider new vs. used
We know that new cars generally cost more. Obviously, buying a used Mercedes will likely cost more than a new Nissan Versa, but you get the point. Be sure to consider how much you can save each month and how long it’ll take you to save before committing to an idea.
But the sticker price of the car isn’t the only factor to consider when deciding to buy a new or used car. It’s also important to evaluate the cost of things like maintenance. You can definitely get a reliable used car that won’t cost an arm and a leg in maintenance right away, but if you go that route, you might also want to set aside more money each month for maintenance than you would if you were buying a brand spanking new car. Some new cars come with warranties or specials that might help you save on oil changes or tire rotations for a period of time, but they do still need work done, so even if you choose to buy a new car, it’s still important to save for general maintenance and upkeep.
Another consideration is depreciation. Are you thinking you might re-sell your car some time in the future? Kelley Blue Book says that new cars lose 20% of their value after just one year, and then another 60% within the following four years. That’s a lot! Used cars, conversely, hold their value a bit more mostly because their lower value has already been accounted for in the sale price. What does this mean? Well, it means that you’ll lose more money if you were to buy a new car now and sell it in a few years than you would if you were to buy a used car that you then sell in a few years. Bottom line, you pay more for a new car just because it’s new.
Find your target
Now that you have an idea of what kind of car you’ll need, it’s time to start getting some quotes. Or, if you plan to buy from a private seller, get up to speed on the Kelly Blue Book value of cars you’re interested in. Either way, by looking online or around town, you should be able to get an idea of how much you’ll need to save up.
Don’t forget to pad your car fund with enough to cover taxes and registration costs. In the US, each state collects these kinds of costs differently, and the amount they charge will vary as well. Take a look at the rules and tax rates in your state so you know how much you’ll be expected to pay. Countries outside of the US will also have different rules and tax rates for car sales, so spend some time researching your area so you know how much you’ll need to save.
Tip: If you find that the vehicles you’re interested in are too expensive, try reconsidering your needs (are there things you’d be willing to give up?) or your savings plan (can you save more or over a longer period of time?).
Create your Goal Envelope and start saving!
When you know how much you’ll need to save for your new car, create a Goal Envelope for it in Goodbudget. You can opt to add money to the Envelope automatically each time you get paid, so that you’re saving without even thinking. Or, you can fill it as you get income. Either way, watch your Envelope’s balance grow little by little.
Until then, see how you can prepare your budget for the ongoing costs of owning a car.