Back a month ago I was driving home from work an noticed something was wrong with my truck. Not sure what the problem was I decided to have my mechanic take a look at it. The result, my transmission was going out. Luckily, it didn’t need to be rebuilt and only ran me $500.
However as result of this incident it got me thinking about how long my truck was really going to last me. At this point I’ve owned my truck for over 10 years and have over 200,000 miles on it. As a result I’ve decide to start saving for a newer vehicle and in this article I’m going to show you the steps I went though on how to save money for a car.
Step 1 – Pre Planning Questions
Before we can begin to save even one cent for this new vehicle we need to do a little pre planning. By doing this we can gain a better understanding of what we’re going to buy. So here are 3 questions that you need to answer first.
- What kind of car do you want? Knowing what you want will help us get a general idea about the cost we can expect to pay. In my case I’m looking to get a Chevy Malibu not any older than 5 years.
- What are you willing to spend? Next you need to decide how much money you are willing to spend on this vehicle. In my case I’m looking to save around $15,000.
- What is your time frame? Finally, the last question you need to decide is the amount of time you will need to save for this new vehicle. In my case I’m looking to save up for this purchase over a 10 year period. This isn’t a hard rule for me but just a general guideline.
Step 2 – Where To Save
Now that we have the type of car figured out, how much we’re willing to spend and what kind of time frame we have to save for the new car we need to have a place to save the extra money. Below are a few places you may want look into.
- Certificate Of Deposit. The first place to look into is a certificate of deposit. CD’s offer a great way to save for your car while offering a decent return. They’re also great to use because unlike your checking or saving account it won’t tempt you to spend the money either.
- Online Savings Accounts. The second place to consider is an online savings account such as the ING DIRECT USA – High Yield Savings with the Orange Savings Account℠.. These accounts earn some great returns typically around 1% and since they are online based it will be a bit harder to access the money as well.
- Money Market Fund. The final place to consider would be a money market account. These accounts invest your money in safe security’s such as treasury bills and TIPS. In fact some of them even have a check writing feature.
Step 3 – Determine How Much You Need To Save
Finally, in the last step we need to determine how much money we need to save on a monthly basis, and with all the information we’ve uncovered above this shouldn’t be to hard to figure out.
In order to save $15000 over a 10 year period we are going to have save $1500 a year, and if we divide that by 12 we will need to save in the ballpark range of $125 a month.
Now if that sounds like to much divide it over a weekly basis. By dividing $1500 by 52 weeks a year you would need to save roughly $29 a week. When you look at it that way it’s not that much to save.
In the end this simple 3 step plan can be the best way to save money for a car. On top of that it also means you won’t have to take out a loan or lease with can be costly considering the interest on loans and the restrictions on car leases.
So what do you do? Is their something you do differently to save your next car or do you not save anything at all? Feel free to share your thoughts, comments, and questions below.