No doubt, owning a car is something to be proud of. It gives you the freedom to run errands, go to the grocery store, or visit friends and loved ones. Not to mention, you could never survive in Houston without a car! But like anything else, that convenience comes at a price.
For starters, the initial cost of buying a car is oftentimes a significant figure. In fact, some high-end luxury cars with leather upholstery and state-of-the-art infotainment cost more than most people earn in a year. Besides, you will need to consider the cost of maintenance which includes gas, insurance and repairs.
If you’re in the market but wondering “how much should I save for my first car?”, this post is for you! We discuss key things to know including the minimum amount to have and the financing options to consider if you can’t pay everything upfront.
A little disclaimer: this is not accounting advice. For informational purposes only. We are not certified accountants. Please consult your accountant for financing advice.
How Much Should I Save For My First Car?
If you plan on buying a regular car worth say $30,000, you’ll need to have at least $6,000 saved up. Most auto financing dealers allow you to deposit at least 20% of the car’s total price upfront and make monthly payments for the balance.
Before anything else, it’s important to decide whether to go with a new or used car. A few questions you need to ask yourself include:
What’s Your Average Monthly Income?
How much do you clear every month? Where does your pay come from? Does it come from tips and commissions? Is it guaranteed income? On average, how much have you made over the last 6-12 months? All these are pertinent questions that will help you determine your true buying power and your ability to repay a loan.
Do You Have Any Dependents?
If you have a spouse and children who depend on you, it’s important to know how much money is left after taking care of them. However, if you’re still living with your parents, odds are that you have more money and can make your car monthly payments comfortably. But remember, you won’t live with your parents forever!
In the next few years, there’s a good chance that you’ll want to move out and live on your own. Keep this in mind when deciding whether to buy a new or used car.
How Do Your Expenses Look Like?
Are you paying rent, utilities, or student loans? If so, you may have little money to spend on a car payment. The idea here is to be realistic about a car you can afford to buy and maintain and avoid what’s beyond you.
Saving For Your First Car: Two Money Rules To Follow
Are you finding it difficult to save for your first car? Here are two effective money-saving strategies you could use to help you hit your goal quickly.
The One-Size-Fits-All Rule
While finances differ from person to person, the one rule that seems to fit all is saving 35% (or approximately one-third) of your annual income. If you follow this rule when saving for your first car, you’re going to enjoy an array of options at the time of purchase.
For example, let’s say your annual income is just $20,000. In that case, 35% of the income translates to $7,000. From the outset, this amount appears to be little to spend on a car, but make no mistake! A budget of $7,000 is more than enough to get you a reliable used car. Indeed, at Motors on Wheels, we have a few options for you in our inventory if your budget is in that range.
On the other hand, if you earn more, say $150,000 a year, you’ll be able to save up to $52,500 with this rule. This is enough budget to get you a brand new, luxury car!
The Frugal Rule
If you’re a bit conscious about money, you can still save between 10% and 15% of your income. The frugal rule is applicable to many new car buyers.
So, if you make $25,000 a year, for example, you’ll want to save between $2,500 and $3,000 depending on how your finances and expenses look like. With the frugal rule, you can save and own a high-mileage used car. However, it’s unlikely you’ll be able to acquire a new car through a dealership.
If you earn a significant income, you could stretch a bit and save 20% (or even more) to hasten the process or get a better car.
Can I Finance My First Car with a Dealership?
Absolutely! You can finance a new or used car with a dealership. Most dealerships have systems in place to determine how much you qualify for based on your credit score.
A word of caution; don’t let anyone push you into financing a car that will burden you in the long run. Make sure you truly understand how much you can afford before signing up for any deal.
Also, as we mentioned earlier, it’s important to have saved up at least 20% of the total cost of the car you’re looking to purchase. For example, if you’d like to buy a $30,000 car, most financing services will require you to pay a minimum of $6,000 as initial cost.
Buy Your First Car at Motors on Wheels
Are you trying to save for your first car but you’re not sure if you can afford one? Contact us here at Motors on Wheels for advice and any information you may need. Apart from having a huge inventory of high-quality used cars, we also provide financing solutions on very good terms.
Call us today on 713-660-8666 or visit us for more information. We’ll help you own that dream first car you’ve been thinking of.