Money Saving Tips: How to Save for Your Dream Car

When you hear the words “dream car,” images of flashy sports cars might come to mind—the kind that only billionaires can afford. But if we're talking about dreams that can actually become reality, a dream car is one that fits your lifestyle needs, not to mention your budget.

Planning to buy a dream car this year? Map out your financial plan first. Here's how to save for your dream car.

How to Save for Your Dream Car

Wondering how to afford your dream car? To make your dream car materialize, check out the best ways to save up for a car below.

✔️ Determine Your Goal

First, consider whether you'd like a brand-new car, or if you feel like a secondhand car would do just as well. Keep in mind that secondhand doesn't mean old and rattling. Plenty of used cars in the market are still in great condition—just make sure you know how to check.^[1]

Next, calculate how much you need to save every month in order to reach the downpayment or the full amount. Then think about the following: How much can you afford to set aside every payday? Do you want to buy the car as soon as possible, or can you wait just a bit more?

From there, adjust the monthly amount accordingly. Use Excel or a handy budget app to stay on track with your goal. 

✔️ Separate Your Car Fund

Excited by the idea of finally ditching your stressful daily commute and driving to work yourself? This doesn’t mean you should divert other savings toward the car. You still need your emergency fund.

Use an auto-debit arrangement to regularly deposit money to your emergency fund and long-term savings, so you don't end up prioritizing your dream car above everything else. Also, set up separate savings accounts for your car fund and your emergency fund.

✔️ Determine Lifestyle Sacrifices You Can Make

The little things make life worth living, but they can also rack up your monthly expenses considerably. You have to make a few sacrifices if you want to buy your dream car.

For instance, if you pay extra for specialty coffee, buy coffee beans and learn how to make it yourself. If you've gotten into the habit of getting food delivered daily, find cheaper alternatives nearer your place or cook your meals yourself. If you hail a taxi to go to work, learn other transportation options.

It isn't easy, but curbing your spending habits is an essential part of any car savings plan. That said, don't sacrifice any of your basic needs—such as meals and medicine—just to save for a car. 

✔️ Find Other Ways to Earn Money

If you want to know how to buy your dream car, you need to grow your savings by starting a small business. Use your talents and skills to generate more income. With two income streams, you can save money considerably quickly. 

But let's face it: not all of us have the time, energy, or resources to start a side hustle. We barely have enough free time and extra money as it is! 

Instead, open a high-interest savings account. And if possible, read up on investment options such as mutual funds and stocks so that you can make your money work for you. If you're a beginner, err on the side of caution and invest only what you can afford to lose.^[2]

✔️ Find the Right Financing

While some people prefer to buy their dream car with cash, it's possible only with the right loan most of the time. Do your research on repayment terms, interest rates, and possible freebies.

Since these will differ, weigh your priorities: lower interest rates, a year's worth of car insurance, and more. Compare these loans and keep in mind that the higher your downpayment is, the lower your monthly fees will be.

✔️ Don't Forget Miscellaneous Expenses

When saving up for a car, don't just factor in the cost of the car itself. While checking how to save for your dream car, analyze your finances to see if you can afford gas, maintenance, insurance, and other costs as well.

While those registration and parking fees might not seem much to you now, they certainly pile up over the course of a month or two. Make sure you have a buffer or just-in-case money, which should be completely different from your emergency fund.

Final Thoughts

Given how huge a financial goal buying a car is, you need to get any other major financial obligations out of the way. Pay off any other existing debts.

If you're wondering how to save for your dream car, the only real way is to have a solid financial plan and even more solid discipline and follow-through.

Sources: 

• ^[1] 7 Things to Avoid When Buying a Used Car (Investopedia, 2022)
• ^[2] How to Start Investing in 2023: A Guide for Beginners (Nerd Wallet, 2023)