How to Save for a Car

Published by Mohamed Konate | Updated Jan 04, 2021
How to Save for a Car

How to Save Money for a car 

 

 

Buying the car of your dreams in 2021 might prove to be quite a daunting task. Even if you want to purchase a used car, you'll still need quite a lot of money stored aside. On top of all, the lockdown has made many people lose their jobs, so saving money has become a necessity.

 

Buying the vehicle that's just right for you starts way before the actual purchase. It all starts with clear, meticulous planning on how you're going to pay for it. Below, we'll offer you some priceless tips for saving up money for a car in Canada, all laid out in a simple, step-by-step format.

 

Tips on How to Save up Money for a Car in 2021

 

Step 1: Decide what type of car you want

For starters, you want to make sure that you'll purchase a vehicle within your price range. If you get to choose between a Lamborghini Diablo or a Toyota Land Cruiser, you should probably go for the second one. Saving up money for cars that are worth more than C$200k is a tedious process. Heck, you could buy a house for that amount.

 

Unless you are a CEO at a famous Canadian corporation or a business owner who has 4 luxury cars in the garage and wants to buy the 5th one, you should probably focus on buying the cheapest car possible. Even after the actual crisis triggered by the COVID-19 virus will come to an end, the cost of living will continue to soar, so you'll also need money for gas, car maintenance and insurance policy.

 

Look at all the features you want in a car and think of how much you want to spend. Saving over C$30k for a new car might definitely seem like a stretch. If you can find a cheaper model that accommodates your needs, go for it. Also, factor in the time it will take you to save the money for the car. We'll discuss more about this in the next step.

 

Step 2: Make a Proper Plan

Now that you know what car you want to purchase and you're well aware of how much money you need, it is time to start making a proper plan on how to save that amount. Of course, you can take into consideration several other options that can help you fund your car, so you don't have to save the entire amount.

 

For example, you may be able to sell your actual vehicle and get another C$10k in cash. You can also wait until you find a very good price. At that moment, you could take a personal loan and buy the car of your dreams. However, as much as possible, try to pay the entire amount upfront. Gaining financial stability is more important than driving an expensive car, especially during the next period of time.

 

Step 3: Plan on the Actual Saving Amount

Let's say that you've decided to invest C$20k in a new car and you're planning to buy it next year. Now, you are pretty confident that you can sell your 2010 Toyota Prius model for C$8,000, and you can also ask C$2,000 from a close friend, which is interest-free money. Basically, you only have to save C$10k over a period of 12 months.

 

Before beginning your plan, you should be well aware that you cannot know what tomorrow may bring. You may be able to stick to the plan and even save more money, or you might be able to save only 20% of that amount. However, it is crucial to lay out a plan, because having a plan in mind will encourage you to see it fulfilled.

 

To start off, you can consider the 50/30/20 rule. This budgeting rule that includes 3 categories is considered to be one of the best since it focuses on the actual cost of living. Basically, you can use 50% of your total income to pay for taxes, mortgage, gas, groceries, health insurance & utilities, another 30% on your hobbies, and send the rest 20% in your savings account.

 

Now, let's say that you spend only 30% of your income on mandatory payments, but you like to waste over 60% of your income on expensive trips, shopping, food and other perks. If that's you, then you can easily reduce the spending in the second category and add more money to the third category. On the other hand, if you spend over 50% of your income in the first category, you should only spend a maximum of 10% on your hobbies in order to save more money.

 

Let's look at an actual example. John lives in Montreal and he earns the average C$49,579 salary. After paying 22% tax, he ends up with C$38,000. Now, that's around C$3,200 a month. John pays exactly C$1,600 on taxes, mortgage, utility bills and gas. However, he spends over C$1,200 on his hobbies and he loves to visit Hawaii every single summer. John is only able to save C$400 a month, so he needs around 2 years to buy the car of his dreams. What John can do is give up some of his expenses and only spend C$800 a month. This way, he will be able to afford his dream car within just one year.

 

When planning on the actual savings amount, think of all the factors that come into your decision and try to reduce the spending from the second category, so you can save up more money for your car. The more money you are able to save, the better.

 

Step 4: Get Creative with how you save Money

Next, you should think of ways on how to save even more money for your dream car. You can look both at ways to make more money, and methods to reduce the actual expenses. If you notice that you can only afford the car you want to buy in three or more years, it becomes even more crucial to find new methods to earn money.

 

Here are some of the most creative ways to make more money in 2021 in order to save up for your car:

 

- Leverage carpooling: save on gas & maintenance while making new friends

- Cook more: cooking at home, despite being time-consuming and quite tedious, is both healthier and cheaper for you. Eating out on a daily basis could quickly consume your entire budget.

- Look for a side hustle or online business to make more money in 2021

- Try jogging or doing yoga in the park: this will help you save quite a lot of money on your gym membership

- Take food or sandwiches from home instead of going out at expensive restaurants during your lunch

- Have a quick garage sale: this can help you save even more money by making an extra thousands of $$$ getting rid of the things you don't need

- Give up subscriptions you don't use

- Do some deliveries in your free time or become a Lyft or Uber driver: this is the best way to turn your actual car into an active and start making money for a better car. Plus, you'll be able to finetune your driving skills and meet new people.

 

Step 5: Commit to your Goal

 Well done! You've now managed to set up a goal and you've begun your own journey towards buying that amazing car you always dreamed of. However, the hardest part comes from this moment on. You need to be able to stick to your plan and continually resist those impulses and cravings to spend your money on expensive things.

 

Your goal now should be to minimize the expenses in the second category, while also making more money on a monthly basis. You want to ensure that your third category, the savings one, receives at least 20% of your total income. If you can get up to 35% or even 40%, that would be amazing, because you'll be able to buy your dream car quicker.

 

Above all else, be patient and be aware that good things come in time. Do not let yourself be discouraged if you miss the target 20% during certain months. The worst thing that can happen is to buy your car several months after your initial deadline. However, if you really want to drive that gorgeous car you want to buy, you'll definitely be able to save more money and you'll find ways to set more money aside.

 

Step 6: Mind the Maintenance

After you purchase your car, you need to realize that you won't become debt-free instantly. You'll still want to continue saving money for other goals you might have in the long term. Moreover, you'll need to have a reserve fund specially dedicated to your new acquisition. The car, especially if it's used, will need maintenance, gas, oil changes, brake service, and many other expenses.

 

Final Words

 

Saving money in 2021 for a new car might seem like a daunting task, but nonetheless, it is something you can achieve if you put your mind to it. Follow the tips listed above and discover the satisfaction of being able to save money in order to purchase the vehicle of your dreams.

Author Bio

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Mohamed Konate

Mohamed Konate is a personal finance expert, blogger, and marketing consultant based out of Toronto. He is a former financial services professional who worked for many years at major Canadian financial institutions where he managed the marketing strategy around various financial products ranging from credit cards to lines of credit. Mohamed is passionate about personal finance and holds a Bachelor in Business Administration from the University of Quebec (Montreal) and a Master in International Business from the University of Sherbrooke (Quebec).He is also the author of the Canadian Credit Card Guidebook.