How Much To Save For A Car


If you are planning on buying a vehicle, the overall process can be overwhelming for most people. You are likely about to sink at least a couple thousand dollars into this purchase and for a lot of people a car can be one of the most expensive things that they own. You have two options when purchasing a vehicle, paying out of pocket for all expenses or financing the car. The amount of cash that you should have on hand will vary depending on how you plan to pay for the car. 

If you are planning on buying a car outright, you will want to have at least $5,500 in cash when you head out to buy the car. For that amount you won’t be buying anything close to new but you should be able to purchase a car that runs and be able to pay for its registration and insurance costs. If you intend on financing your vehicle, you will need to put down between 10% and 20% of the purchase price depending on if you are buying the vehicle new or used. New vehicles you can expect to put down closer to 20%. 

Picking A Vehicle For Your Budget

As we are all aware, you can spend hundreds of thousands of dollars on an extreme luxury vehicle. For most of us, we’d like to spend under $20,000 purchasing a car. Buying a car doesn’t come cheap and it’s important to consider what your financial situation is before jumping into your car search. 

As a general rule of thumb, if you are planning on financing a vehicle, you should never spend more than 20% of your monthly income on a car payment. If you are planning on financing anything you should also be sure to have a 6 month emergency slush fund in savings should your monthly income ever become interrupted. 

What we’re saying here is don’t sign on to pay $800 a month in car payments if you can only afford to spend $350. Hope for the best for your financial situation but be prepared for the worst including being out of work for 6 months and even up to a year. 

If you aren’t sure what you can afford, feel free to use this Car Affordability Calculator from Money Under 30 to help you decide what type of car is in your budget. 

Financial Rules For Buying A Car

Different people want to spend their money in different ways. Find the spending habits you align with, but be sure that it does fit in your budget. The last thing anyone needs is to spend more money than they should on a vehicle only to realize they can’t afford it. 

The Frugal Individual: Don’t spend more than 10% of your annual income buying a car

The Realist: Don’t spend more than 20% of your annual income buying a car 

The Splurger: Don’t spend more than 35% of your annual income buying a car

When Is It Okay To Spend More?

I know what you are thinking: “Man these people are CHEAP! I’ll never be able to buy the car that I want if I follow all of these rules.” If you are new to cautious spending, know that while it is gratifying spending cash on a car, this is a depreciating asset. Appreciating assets are things like houses that tend to go up in value when you buy them. Cars don’t go up in value over the years, they lose their value as soon as you drive them off the lot and steadily continue this trend on the daily the older they get and the more they are driven. 

If you are someone who values their car over all other possessions, it may be okay for you to spend a little more on a vehicle than the 20% of your income that we recommend. This is only when you live a lifestyle that keeps your other expenses low however. If you pay less than you should on your rent or mortgage, maybe you can consider splurging a bit in the car department. Evaluate your budget and see what you can do. 

Just remember that our society has turned flashy personal belongings like cars and boats into status symbols. From a responsible adulting standpoint, it is much more admirable to put that money into savings, retirement and investment accounts. 

Picking A Vehicle Based On Your Needs

We all have different needs for a vehicle. If you are a lawyer picking up clients and chauffeuring them around town then you’ll likely need a luxury brand car with a nicer interior. If you are a soccer mom picking up your kids and their sweaty gear filled gym bags, you likely want something easy to clean that has a lot of cargo room for piling in to go to games. 

Whatever your situation it is important to be realistic about what your needs are. I said needs, not wants. Wants come after needs when deciding what car to buy. Here are some things to consider

Vehicle Needs To Consider

  • Tow capacity. Will you be needing your car for hauling trailers of livestock, boats or potentially even a Uhaul moving trailer?
  • Passenger capacity: do you need three rows of seats or excess cargo room?
  • Safety features: if you are using this car to transport your family it is important to consider the safety features you need in your car. 
  • Drivetrain: if you plan on taking this vehicle off road you need to consider if you will need all wheel drive to get where you are going. 
  • Gas Mileage: how much are you willing to budget for gas every month, will the car you are considering get you where you need to go within that fuel budget?

Picking a Vehicle Based On Your Wants

There is nothing wrong with wanting the latest and greatest features in a car as long as you are honest with yourself about what will and won’t fit into your budget. Be reasonable about the upgrades that you are looking for in a car and prioritize which of these options are most important to you.  Pick your 5 most important features

Vehicle Wants To Consider:

  • Advanced safety features: 
  • Interior trim packages: Evaluate your budget and see if you can afford the leather seats and sunroof that you’ve been dreaming of. 
  • Technology: you may want a vehicle with bluetooth speakers, a back-up camera etc. 
  • Horsepower: some vehicles are more fun to drive than others and this is usually a combination of engine power and handling

Remember Your Additional Expenses

In addition to the purchase price of the car, know that if you buy from a dealership you will also have to pay dealership fees. No matter who you buy from, you will also have to pay taxes on the vehicle as well as account for the cost of getting a new license plate for the car, registration fees through your state etc. 

If you don’t have a license yet, you’ll need to be fully insured before you can get that drivers test taken care of. If you have your license already and are upgrading cars (value wise) know that you’ll need to budget for higher monthly insurance premiums to cover your new wheels. 

Let’s not forget planning to budget for maintenance and unexpected repairs, especially when buying a used vehicle. We have an entire article on how much to budget for maintenance which you can find Here. 

If You’re Not Financially Prepared Yet, Make A Realistic Plan

If you are looking for a new car but don’t absolutely need one yet, make an actionable plan for yourself to carry out over the next few months. If you are hoping to buy a car that is $20,000 and are planning to finance that vehicle, you will need to save at least $4,000 for a down payment. We got this number by finding 20% of the purchase price or just multiplying .2 and your desired car loan amount. 

Remember if you have an existing vehicle that you can trade in the value of that car towards your down payment or just sell that car for cash to put up for the down payment. Get an estimate on your car and set that number aside for later. 

Now make a plan. If you want to buy your new car in 5 months and you need $4,000 then you need to put aside $800 per month to save for your new car. If you can get money for your existing car on top of that, great! We recommend still saving as much money as possible for when you buy your car so put away as much as you can. 

Once You Have A Savings Plan

Now it is time for action. Whatever you have decided is realistic, you need to start transferring that money into a separate savings account. Let’s say you’ve decided to save 25% of your paycheck for a car over the next few months. Set a date every pay period to put that 25% into savings so that you aren’t tempted to spend that money. 

You can even consider making an automatic transfer of a certain amount once a month or biweekly. 

Limit Unnecessary Spending And Put That Money Into Savings Too

On those nights that you are tempted to order takeout food, or the lunch breaks that you’ve decided to online shop “but you’re just going to put what you want in the shopping cart and delete it”. Ask yourself if you really need to spend that money. If you decide the answer is no, go ahead and put whatever you were planning on spending on unnecessary purchases directly into a savings account. 

If you thrive on instant gratification this can be so fulfilling watching your savings account go up every time you decide to be fiscally responsible. 

Eliminate Monthly Subscriptions To Save More Money

If you’re still looking to put more money away per month towards a car, consider getting rid of some of those monthly subscriptions. Yes I know you have them!

Personally, I have 5 or 6 subscriptions that I pay for on a monthly basis, and after I finish this article I’m going to go and evaluate which of these that I really don’t need. I implore you to do the same. The average American spends almost $80 per month. That means over half of you reading this spend more than that!!!

Imagine how much more quickly you could save for your next car by eliminating these costs from your budget. I’m not expecting you to get rid of ALL your subscriptions (yes you can keep your Netflix account), but see what you can do to get rid of some of them and put that extra $50- 100 per month towards your savings account. 

Get A Part Time Job

If you are still desperately trying to find room in your budget to save for a car, consider getting a part time job. Even if you are waiting tables just one night out of the week, you can make an extra $300-800 per month depending on the restaurant and the night of the week that you work. If you can spend your Sunday mowing your neighbors yards, start a small part time business. 

There is plenty of money in this world, all you have to do is be creative about going out and earning it. If you have something that you are passionate about, see if you can make some extra dollars on the side doing what you love. Even if you aren’t passionate, you can do this side hustle temporarily while you save for your car. I’ve had neighbors pay me to pick up their dog poop filled yards. If you want it, go get it. 

Protect My Car provides consumers with extended auto warranty plans that have real coverage for vehicles that are no longer covered by their manufacturer’s warranty. Whether your vehicle was purchased new or used, if your manufacturer’s warranty is about to expire, or has already expired, an extended auto warranty plan can save you thousands of dollars in repair bills. Since the majority of vehicle repairs happen 3-5 years after the original purchase date, which many times is outside of the manufacturer’s warranty coverage period, leaving you responsible for paying the full repair bill. However, when you purchase a policy from Protect My Car, you could pay as little as $100.00 for your major repairs. That’s a lot of savings!


About Protect My Car

Protect My Car is an extended auto warranty company. Our goal here at Protect My Car is to eliminate your worry of being financially responsible for an expensive mechanical breakdown. With our extended auto warranty, you don’t have to worry about being fully burdened with the cost of a covered repair.