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Budgeting and Saving Your Money to Purchase a Car

Updated on January 14, 2011

What You Should First Consider

 The most important thing to look at before thinking about what car you would like is your budget.  If you do not have a budget set into place I would suggest you set one up now.  I have written another hub on how to do this and I will include the link below.  You need to look at your budget because you need to know in advance how much money you can set aside each month, and also how much money you can easily afford to spend each month on a car.  You do not want to jump into making a purchase only to discover you can not afford it, because by then it is too late.  Also by looking at your budget you will know what type of car you can afford, whether it can be brand new, or pre-owned.  By knowing in advance you will be able to set your sights and expectations reasonably, so you don't have the disappointment when you find out you can not afford the brand new car of your dreams that you already test drove 6 times. 

  1. Set up your budget
  2. Start saving your designated amount
  3. Start shopping once you meet your goal
  4. Make your purchase when you find your car

Saving Cash for Purchase or Down Payment

 OK, so your budget is set up and you know exactly how much money you can afford to place aside for car savings.  Now you need to look at the amount of time you have to save up the money.  You may have time to save or you may need to purchase now, I will give tips with both options.

If you need a car immediately you are going to have to settle for what is affordable with your budget right now.  You can purchase a car through a lending company but just remember to not go over your budget with the monthly payments.  I would suggest in this case to even come in slightly lower than your budget with the payments just be sure you can afford it over time.  Another options to those who can not obtain help from lending companies is a Buy Here, Pay Here or your local classifieds.  Buy Here, Pay Here companies are great because they do report to Credit Bureaus so by making your monthly payments on time you will be building your credit.  Unfortunately you usually pay slightly more for the vehicle than if you would have gone through a dealer with a loan.  Also if you do not have a down payment it may mean higher monthly payments than other routes.  Overall it is not a bad choice given the circumstances.  As far as the local classifieds, just be CAUTIOUS.  You will be dealing with the owner of the car who probably just wants to get rid of it for what ever reason.  Be sure to test drive it and also look over it thoroughly.  If you know nothing about cars ask someone who does to go along with you just to be sure you are getting what is being sold to you.  When you are dealing with a private seller you can not take it back to have repairs made once the sale is final.  If you are aware of any problems in advance you will be prepared to know if you can afford to fix it or you can just pass and move on to the next car.

If you have time to save before your purchase make sure you always place that designated amount aside.  When you have the amount you wanted to reach it is time for you to start shopping around for your car. You may just want to spend the money you saved for the entire purchase or you may wish to used the saved money as a down payment.  By using the money as a down payment it can benefit you in many ways.  You can receive lower monthly payment amounts, lower interest rates, or even a short loan term compared to if you did not have that down payment.  Since you budget is in place and has been tested you will already know an affordable monthly payment amount.  I know that just having that in your mind will make your purchase a little less stressful because you will not be thinking about the effect it will have on your pocketbook.

So, even if you have to settle on a used car do not get upset.  Just think of it in this way; atleast you have a car now, and now you can think about how you will start saving to buy or finance the car you really wanted in the future.

Life Happens

 Always keep in your mind that life happens.  You can be saving for a car or anything else for that matter and life will throw you an unexpected surprise.  You may or may not have to spend money that you were saving to get past this bump in the road of life.  DO NOT get discouraged, just continue to save and keep pushing forward to reach your goal.  You have to work hard to get what you want, and if you want it bad enough you WILL work just that hard to get it!!!

Example Budget

Monthly Income 
Monthly Expenses 
Expense Amount 
This person can afford to save or spend up to $345.00 per month.


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    • JillKostow profile image

      Jill Kostowskie 7 years ago from Pennsylvania

      Your very welcome Simone -- It is always a great idea to incorporate a savings plan in conjunction with your budget for any larger purchase. It is less stressful to make the purchase when you know you will be able to afford it!!!

    • Simone Smith profile image

      Simone Haruko Smith 7 years ago from San Francisco

      You've inspired me to start budgeting for a car! Thanks for writing the Hub - and for the helpful sample budget, too!