Budgeting For A Car: 10 Tips To Help You Save And Pay Cash

By Zach Buchenau

Last Updated: January 11, 2020

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Last year, my wife and I spent months budgeting for a car, and it paid off! Because, after all our hard work and patience, we were able to pay cash for our new family vehicle. Though, looking back on the process, I realize there were a few things we did well, and a few things I wish we would have done differently.

So, with the experience still fresh in my memory, here are 10 simple tips to help you budget, save, and pay cash for your next car. (Too bad I can’t travel back in time and give myself this golden advice.)

#1 – Define Your Budget

Budgeting for a car step 1: define your budget | BeTheBudget

When budgeting for a car, you should plan to spend no more than 20% of your annual gross income. For example, a person making $100,000 per year shouldn’t spend more than $20,000. You should also give yourself a minimum of 12-24 months to budget and save for a car.

By budgeting well in advance, you will put less strain on your monthly cash flow, and leave more room for normal life expenses and fun.

It is also important to remember that purchasing a car comes with the risk of surprise repairs. So, when you are budgeting for a car, be sure to save a couple thousand dollars extra to prepare for the unexpected costs that often come with car ownership. Remember, the only thing worse than buying a car and having to pay for repairs, is not having the money to pay for them. So, don’t forget about your car emergency fund.

For more information on how to set up a budget the right way, check out this post!

#2 – Cut Expenses and Start Saving Now

budgeting for a car step 2: cut expenses and start saving now | BeTheBudget

Now that you have your car budget laid out, it’s time to start beefing up your savings; and the best day to start is today. (Actually, the best day to start was like a year ago, but, what can you do?) There is no point wasting time, because the longer you wait to save, the longer you will have to wait for your new set of wheels.

Remember, saving for a car takes time, and while cutting a few small expenses here and there might not seem like a big deal, it is. Over the course of time, small amounts of extra savings add up to big results.

Think of it this way: if you want to save an extra $1,000 this year, all you have to do is save $2.74 more than you’re currently saving every day. That isn’t difficult at all. Cut out your daily coffee run. Pack a lunch. Turn off a few lights. Cut your 30 minute shower down to 5 minutes every day. Side note, $2.74 is basically a gallon of gas at the time I’m writing this, so get out your freakin’ bike and save a little money today.

You will thank yourself this time next year when you’re riding in style in your paid-for car.

#3 – Give Yourself Ample Time

budgeting for a car step 3: give yourself ample time | BetheBudget

If you are budgeting for a car, time should be your friend, not your enemy. So, give yourself enough time.

It is stressful enough to cut expenses and squeeze every dollar for all its worth. Don’t put unnecessary stress on yourself by setting an unrealistic timeline.

In fact, the longer the better. If you are going to need a new car in 2 years, don’t wait a year and a half to start saving.

Related Post: Buying A High-Mileage Car: 10 Practical Tips

#4 – Finish Saving Before Car Shopping

budgeting for a car step 4: finish saving before car shopping

This is critical. Don’t let yourself walk into a dealership, or contact a private seller until you have saved up your targeted amount of money. There is nothing worse for a car budget than walking in and being tempted to make the purchase before you are actually ready.

If you really want to take this to the next level, avoid car listing, and dealership websites just the same. Emotions are a powerful thing, and the more temptation you put in front of you, the harder it will be to stick to your budget.

budgeting for a car step 5: narrow your search | BeTheBudget

Narrowing your search consists of 4 steps: identifying your needs, broad research, model selection, and price assignment. Let’s break them down.

Identify Your Needs

  • This might seem a little obvious, but in order to start car shopping, you should have a list of the absolute necessities you need in a car. Try to keep this centered on function, not form. For example, if you have a family with 4 kids, you don’t need a car to be red. What you need is safety. If you spend a ton of time on the road for work, you don’t need a car that your friends will admire; what you need is a car that is comfortable, reliable, and gets great gas mileage. Be realistic, and honest about your needs.

Broad Research

  • Once you have all the money saved up for your car purchase, and you have identified your vehicular needs, it’s time to start researching every car under the sun. Don’t let your mind focus on a single model of car just because you think it looks cool. There are tons of options out there, and you should start off open to every model that meets your basic needs.
  • Read as many reviews as possible–especially the negative ones. If you read enough negative reviews, you will start to identify trends. If a bunch of people are complaining about the same issue on a car, take note of it. If 10 different people say their transmission went out early, that is a bad trend, and you probably want to stay away from that model of car. Negative reviews should be a major part of your research for this exact reason.

Model Selection

  • After you have completed your research, and identified negative trends, it’s time to narrow your search down to 3 different car models. These models should be the cream of the crop when it comes to your needs. I mean, what was the point of all that research, if you don’t actually use it to identify the best possible cars. Limiting yourself to 3 different models will help you avoid car buyers’ remorse.

Price Assignment

  • Now that you have identified 3 different car models you are willing to buy, you need to assign a max-price you are willing to pay for each one. Remember, just because you saved money for a car, doesn’t mean you have to spend it all. Your max-price should be reserved for your #1 choice. If you are going to spend your entire budget, that car better be awesome. For your second and third options, you should spend less.

#6 – Pump The Brakes

budgeting for a car step 6: pump the brakes | BeTheBudget

By this point you are probably chomping at the bit to drop some cash on a new ride, which is why you need to put your car purchase on hold for an entire week. What? You heard me right.

This is where everything can go very wrong, because this is the stage of car buying where your excitement can cloud your decision-making and lead you astray.

You have worked so hard, and you have done everything right. Don’t blow it by making a decision in haste. If you can force yourself to press pause for one week, your emotions and excitement will die down enough for patience to take over. And nearly every good decision starts with patience.

#7 – Restrict Your Access To “Extra” Money

Budgeting for a car step 7: restrict your access to extra money | BeTheBudget

If you want to ensure you won’t overspend on a car, don’t allow yourself easy access to extra funds. The whole point of budgeting for a car was to make sure you didn’t overspend and cause harm to your finances. So, do whatever you need to do to restrict your access. In fact, I suggest opening a separate checking account for your car fund and putting all the money you have saved in it. This way, if you want to pay extra money beyond your budgeted amount, you will have to make 2 separate transactions, and in that moment, you will feel extreme shame for betraying yourself and your car budget.

#8 – Involve An Unbiased Friend

Budgeting for a car step 8: involve an unbiased friend | BeTheBudget

When it’s time to hit the sales floor, or talk to a private seller about buying a car, I highly suggest you involve a close, trustworthy friend. Tell this friend the maximum amount of money you are willing to spend, and tell them to hold you to it.

Accountability, and positive peer pressure are a killer combination. And when it comes to spending large amounts of money, involving a friend that will help you stick to your budget is a very smart choice.

#9 – Know Your ‘Out-The-Door’ Price

Budgeting for a car step 9: know your out-the-door price | BeTheBudget

This is one of the best pieces of advice I have ever received when it comes to buying a car. Your ‘out-the-door’ price, is the exact amount of money you will pay for a car, including all taxes and fees, and you need to know it before you walk into a dealership.

You could also call this your ‘I’m out’ price, because if they go over this price, you are out. You will walk away–negotiation over–because you won’t be pushed around. This is your money; you worked hard for it; and you shouldn’t spend a penny more than you want. If that doesn’t work for them, you can walk “out the door”. (Boom, see what I did there?)

#10 – Stand Your Ground

Budgeting for a car: step 10 stand your ground | BeTheBudget

This is one of the hardest parts of buying a car, but it is the most important. You know your out-the-door price, but now need to stick to it. It’s easier said than done; especially at a dealership.

After all this time and hard work, budgeting for a car ends with a negotiation, and while compromise is normally a good thing, now is not the time for it. You need to be rigid. You need to have resolve. And you need to be extremely self-assured. Your number one goal is not to buy a car; it’s to buy an awesome car within your budget. Period.

So, when the salesperson drags out the process of buying your car, bring snacks, and have extreme patience. When the sales manager comes out to try and squeeze you for more money, threaten to walk away from the deal, and be willing to do it. Don’t be pushed around. You have been budgeting for a car for far too long to let somebody swoop in and ruin it.

To paraphrase a quote from the movie Home Alone, “This is your budget, and you have to defend it!”

How much should I budget for car maintenance?

You should plan to budget between $75 and $150 per month for car maintenance, depending on the age and condition of your vehicle. This budget should be enough cover routine maintenance like: oil changes, tire rotations, new windshield wipers, air filter replacements, and engine fluids.

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Zach Buchenau

About The Author:

Zach Buchenau is a self-proclaimed personal finance nerd. When he isn't writing about budgeting, getting out of debt, making extra money, and living a frugal life, you can find him building furniture, fly fishing, or developing websites. He is the co-founder of BeTheBudget, and Chipotle's most loyal customer.

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