7 Smart Ways to Save Money for Your Dream Car

Saving up for a new car often feels like an uphill battle when you’re also budgeting for the household.

It becomes particularly frustrating when your car savings fail to grow because you often dip into it to meet your family’s needs.

In this article, I’ll share seven practical ways to help you save money for a car. You’ll learn how to adjust your financial strategies to boost your funds efficiently!

1. Open a Dedicated Savings Account for Your Car Fund

One of the smartest moves you can make when saving for a new car is to open a dedicated savings account just for your car fund.

This helps you keep track of exactly how much you’ve saved and prevents you from accidentally spending your car money on other things.

In addition, it makes your financial goals clearer and helps you stay disciplined about saving.

You can see your progress every time you check your balance, which keeps you motivated.

Pro Tip: Set up automatic transfers to this account right after each payday.

I’ve been doing this for years, and it helped me avoid the stress of scrambling to find money when it’s time to buy or replace a car.

2. Spend Less on Stuff You Don’t Really Need

A big part of saving up for a car is learning to spend less on things you don’t need. Yes, cutting down on impulse purchases can boost your car fund!

Start by avoiding shopping sprees and sticking to your shopping list when you’re at the store.

This means skipping those extra goodies that catch your eye at the checkout.

You can also unsubscribe from marketing emails that tempt you to buy things just because they’re on sale.

Another good tip is to wait 24 hours before buying anything over $50. Often, you’ll find you didn’t really need it as much as you thought.

From personal experience, setting a monthly budget for discretionary spending like clothes, gadgets, and eating out has worked wonders.

One time, just by limiting our family’s restaurant visits to once a week, we saved enough to boost our car savings by an extra $100 every month.

3. Sell Items You No Longer Need for Extra Cash

Turning clutter into cash is an excellent way to boost your car savings fund.

Start by sorting through your home for things you haven’t used in over a year — think old electronics, books, or toys.

For clothes and accessories, platforms like Poshmark or ThredUp can be especially useful.

Don’t forget about old furniture or home decor items, which can go to local consignment shops or be sold at garage sales.

Last spring, we did a major clean-out and sold an old bike, a coffee machine, and some garden tools we no longer use.

It was surprisingly easy, and we added a nice chunk of about $300 to our car fund.

4. Pick Up a Side Job or Freelance Work

Adding a side job or picking up freelance work can really increase your savings for a new car.

Common side hustles include driving for rideshare apps like Uber or Lyft, delivering food or groceries, or doing freelance work related to your skills.

As for me, I started freelance blogging on topics I’m passionate about!

But if you’re not into blogging or even vlogging, you could also consider weekend or evening jobs in retail or hospitality. 

These often have flexible hours that won’t interfere with a regular full-time job.

5. Avoid Using Credit Cards for Unnecessary Purchases

When saving up for a car, use credit cards wisely.

While maintaining a good credit score is important, avoiding unnecessary debt is also key to your financial health.

Instead of reaching for your credit card for every purchase, try to use cash or a debit card.

This prevents you from spending money you don’t actually have and helps keep your debt load manageable.

Pro Tip: If you already have credit card debt, focus on paying off the cards with the highest interest rates first.

This will reduce the amount you pay in interest and free up more money for your car savings.

When we were saving for our last car, we put a temporary freeze on using our credit cards for anything other than absolute necessities.

6. Always Look for Discounts

Always hunting for discounts can make a big difference when you’re saving up for your dream car.

Specifically, using cashback apps and clipping coupons on your everyday spending might seem small, but it all adds up to substantial savings over time.

Pro Tip: A great tool to maximize your savings is Rakuten!

When you sign up as a new user, you can snag a $10 welcome bonus right off the bat.

With offers available at over 2,500 online stores, Rakuten also allows you to activate savings before you shop.

You can even save on in-store purchases, which makes it easier to keep more money in your car fund.

7. Track Spending and Cut Back

Keeping a close eye on every dollar you spend is essential to saving up for a new car.

To get started, list all your expenses in categories like groceries, entertainment, and utilities.

Then, see what you can reduce or eliminate! Every little bit you save can be redirected into your car fund.

Pro Tip: A fantastic tool to help you manage your budget is You Need a Budget (YNAB)!

In fact, YNAB totally changed the game for our family. It has apps for tablets, phones, and smartwatches and even works with Alexa.

Further, it automatically tracks our expenses by connecting to our bank and credit cards and gives us clear visuals of our spending habits.

This has helped us pinpoint exactly where we can trim our budget so we can boost our car savings faster.

How Much Should You Save to Buy a Car?

The golden rule is to save as much as you can. This way, you’ll need less money from a loan and pay lesser interest payments.

Let’s break it down with a simple example:

If you want a car that costs $20,000 and you save $5,000, you only need to borrow $15,000.

But if you can save $10,000, then you only borrow $10,000, and you pay less in interest over time.

Here’s a quick table to help you see how saving more affects your loan:

Pro Tip: Keep your total monthly expenses for any cars under 8% of what you earn before taxes.

This way, you’ll still have enough money for other important things like house expenses, savings, and fun activities with the kids.

What Additional Costs Should You Consider When Saving for a Car?

When saving up for a new car, it’s easy to just think about the price tag. But there are other costs that can sneak up on you if you’re not careful.

First, there’s the sales tax, which can be a lot depending on where you live.

Then, you have the registration, title, and license fees, which everyone has to pay to make it all official.

Don’t forget about the dealership fees, which can include charges for paperwork and preparing the car for sale.

Insurance is a big one, too. Depending on the type of car and your driving history, your monthly insurance payment can be quite high.

Note: Newer or more expensive cars often cost more to insure.

Moreover, there’s maintenance. All cars need oil changes, new tires, and other regular check-ups to keep running smoothly.

Most importantly, don’t overlook gas! The more you drive, the more you’ll spend on fuel.

Is It Better to Buy a New or Used Car?

Deciding whether to buy a new or used car is a big decision, and it really depends on how long you plan to keep your car.

A new car loses its value fast, which is what experts call depreciation. However, it usually costs less in maintenance compared to an older car.

Meanwhile, used cars don’t lose their value as quickly after you buy them.

They might need more repairs, but these costs are often less than the rapid loss in value of a new car.

Personally, I found a sweet spot with cars. Buying a car that’s about 2 to 3 years old and has less than 35,000 miles on it can be a good deal.

These cars have already taken the biggest hit in depreciation but are usually still in great shape.

Pro Tip: My strategy is to drive these cars until they reach around 90,000 miles. This way, I avoid the big drop in market value that happens when a car hits 100,000 miles.

Hopefully, these tips have sparked some new ideas for how you can save up for your next car without feeling the financial strain.

If you’ve got other strategies that work, or if you have questions about the tips shared here, don’t hesitate to leave a comment below!