Saving tens of thousands of dollars can appear to be a daunting task, especially if you just got your license and you are looking to purchase your first car. How in the world can you ever save that much money when you’re earning minimum wage?
Not to worry. We here at Instamotor have your back. We’ll show you how to save up the money you need for your first car, and we promise it won’t cut into your social life. Follow the steps below and you’ll be well on your way to saving for your first set of wheels.
First figure out what your goal is. Do you want to buy a new car? You’ll need to save a whole lot. Most financing requires at least 20% down. So if you are buying an average car at around $30,000, you’ll need to come up with at least $6,000. That’s also just based on sticker price. Don’t forget when buying a new car you’ll also need to come up with dealer fees which can rapidly approach another $1,000 if you aren’t careful, as well as taxes and delivery fees and a number of other fees. You can’t just go off of what is marked on the window sticker, or online.
What about a new-to-you car? You can purchase a used car for a lot less. Typically brand new cars lose about 19-25% of their worth the moment you drive them off the lot. Say you are looking at a $33,600 car (the average price of a new car today is actually $33,666 according to Kelley Blue Book). That means that the second you drive it off the lot, you lose $6,733. That is a whole lot of cash whether you are just starting out or making a ton of money. That seems like a bad way to invest your hard earned cash, doesn’t it?
There’s no question that you can save money by buying a used car—the question is how much. As Autobytel points out—it’s kind of a mushy science. Depending on the year, make and model you are looking at, as well as the state that it the car is in, and how desperate the seller is (whether you’re heading to a dealer or looking at buying a car privately) can determine just how good of a deal you get. One thing to take into consideration is the fact that buying a used car may mean that you don’t get much of a warranty. As the story over at Autobytel points out, that can be an issue and it’s certainly something to take into consideration. If you buy from a dealer you’ll still need to pay taxes and title fees, documentation fees, compliance fees, emissions fees, and other fees —
and there are a lot. If you buy from a private party or through Instamotor, you’ll still have to take care of the government fees (taxes, title and registration) but you won’t have to worry about being nickeled and dimed for other fees.
We put together a primer on buying your first car, here. We also put together a giant glossary of terms you should know (or at least know where to find). Just get comfortable with the terms and the process—after all knowing is usually half the battle, right?
Once you feel like you have the basics covered, figure out your budget. Can you afford monthly payments? If so how much can you afford? And yes, you can finance a used car, too. In fact a recent report by Experian shows that more and more people (and those with good credit no less!) are financing their used cars. Edmunds has a great calculator to help you figure out how much car you can afford. Check it out here. Be sure to add in some wiggle room for things like maintenance, gas, and insurance costs. Cars.com has a great calculator that can show you how big of a loan you might need for your dream car. Bank of America also has a good calculator that lets you see what the payment will be based on how much of a loan you take out.
Also, know what your options are for financing. We have a few blog posts to help you out. First check out our story on the difference between financing at a big bank or a small credit union. It pays to shop around for rates, but be sure that you protect your credit while you’re at it. Here’s how. You should know that all of these financing options are available whether you’re thinking about buying a new or used car. Dealers also offer financing but be wary of them as they are often instruments for big dealerships to sneak additional fees into the cost of your car. If you do decide to finance at a dealership know exactly what you are getting into and read all the fine print.
The trick to building a nest egg is to start early. It doesn’t make sense to buy a car before you are of legal driving age so if you can start before you hit sixteen, you’ll be in the green. Say you have a part time job and make $8 an hour, just above the minimum wage. If you work 20 hours a week, you need to set aside just 10 hours of wages over two years to save about $6,000. That’s enough for a downpayment on a new car, and plenty to get a great used car. If you are saving up over the long term, be sure that you take inflation into account. The average car price has been creeping up over time, by roughly $500 per year on average. If you plan to buy a car in two years, be sure you tack on another $1,000 to your needed savings just to be safe. Don’t forget to include things like the cost of insurance, gas, and maintenance in your savings as well.
Once you’ve nailed down the what, when, and how much for your new or used car, saving becomes a matter of a change of behavior. Instead of going out every night of the weekend, spend a night at home and save up the money you’d have spent, towards that new or new-to-you car. The best way to save is to make it automatic. Say for every $1,000 you deposit into your account, you save $100 in another account. The easiest way to do this is to use your company’s direct deposit feature to split that $100 off into another account as soon as it is deposited. You never “see” it in your main account, so you’re less tempted to spend it. If you don’t have direct deposit or are saving up cash, use a jar to put your saved-up money into or make a trip to the bank every time you get paid to deposit your set amount into an account. If you do this regularly you’ll see your savings grow rather quickly. The good news about starting this behavior before you buy a car is that it will also teach you to be disciplined about paying your car payment on time. Think of it as a dry run for your future car, if you decide to take out a loan.
Saving is not an easy thing to do. Everyone struggles with it because it means that we have to delay gratification. If you follow these simple steps it will get easier to save for your very own set wheels and get the car of your dreams. For more on how to save for, finance, or choose your next new-to-you car, check back here at the Instamotor Blog on the regular.
Not your typical used car salesman. Our team is here to provide honest and transparent advice about car buying and selling.