You have a dream car. You’ve read all the reviews and looked at countless trims and specs. You’ve thought about whether you want a used car in good condition or if you'll spring for new. You can see yourself driving down an open road in your new car without a single worry about it breaking down on you. There’s only one thing holding you back - the dreaded price tag. You will need to save up for a down payment and also make sure the monthly payments will fit into your budget.

money habits

We won’t try to claim this is the most exciting part of car shopping, but we can help you take the right steps to be ready to buy your next car. In order to start planning for this large purchase, it’s important to understand the psychology behind creating good saving habits. We'll share how your mindset and habits can get you closer to your car purchase. We'll also help you determine how much you’ll need to save for your dream car and show you some simple and realistic saving hacks you can start acting on today.

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The Psychology of Saving 

girl thinking about saving for a car

Humans are creatures of habit which means behavior change is pretty hard for most of us. Unfortunately, many Americans struggle with bad saving habits. A survey by Bankrate shows just how bad we are at saving money. According to the survey, 20% of participants reported that they are not saving anything. 47% are saving 1-10% and only 27% are saving 11% of their income or more. What is the reason we aren't saving? 1 out of every 6 participants said they weren’t saving because they just “haven’t gotten around to it.” What we can learn from this response is that just being mindful about how much you spend and save is a good place to start if you're one of the many Americans that are saving little or nothing at all. 

Habit Formation

the habit loop

According to Psychology Today, habit formation is the process when new behaviors become repetitive and automatic. Just like old habits are formed through repetition to become ingrained in us, we can use repetition to replace old bad habits with new and better ones. This is achieved by consciously remembering and repeating the good behavior. The trick is, we really have to want to change. If our motivation to form a good habit is stronger than the desire to keep the old one, we’re more likely to succeed. So if you’re truly motivated by getting a new car, you’ll be more likely to stick with your new saving habits.

In turn, creating good saving habits allows us to save up for that dream car (or anything else we set as our goal). When first setting out to change a behavior or habit, it’s recommended to focus on one goal at a time and make it specific. For example, say you do the math and find you need to save about $317 per month for 6 months for a car down payment. You can now identify the steps you’ll need to take, write them down and start taking specific actions to accomplish this goal. We’ll share some examples of how to get started to help inspire you.

Tips to Make Saving for a Car a Habit

Visualize the Goal

That dream car etched in your mind will be the key to help you save. We recommend finding pictures of this car and posting them in highly visible places around your home and devices. Make it your phone background, your computer wallpaper or plaster it above your bed. You get the picture. Your friends will think you’re a car geek, but we would just take that as a compliment. When you're about to spend money on something else unnecessarily, seeing the dream car will remind you how important the goal is and will make you reconsider.

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Visualize the Process

While visualizing the goal is important, it can actually work against you if you don't also visualize how you will achieve the goal. According to if you simply visualize your goal, you may trick your brain into thinking you already achieved it and you won't be as motivated to take action. So, unfortunately, it's not as simple as just visualizing your dream car. You also need to visualize the steps you need to take in order to save up for the car. The following are some action items you can use in the process.

  • Use Cash Instead of Credit 

Besides being creatures of habit, we’re also creatures that really hate losing stuff. Loss aversion is the main driver for our decisions. In fact, the pain we feel when we lose something far outweighs the happiness of gaining the same amount. The idea behind using cash instead of credit or debit cards is simple. Paying with cash is a tangible loss and will cause us more psychological pain when parting with it. While pain may not sound like a good thing, it serves an important purpose here. The idea of losing cash will make you less likely to overspend and will get you that much closer to your new car. Credit cards, while undeniably convenient, are not your friend if you’re trying to spend less money to put towards a new car. The amount you put on your credit card doesn’t feel as real as cash and you only have to worry about it when your statement comes in the future. Try using only cash for a week and compare it to your spending when using credit. You’ll probably be surprised.

  • Pay Yourself First 

There are people out there that are great at following strict budgets. They can allocate a specific amount of money each month for things like groceries and entertainment and actually stick with it. Then there are the rest of us who would never be able to follow a rigid plan like this. If you’re very detail oriented and describe yourself as “Type A”, strict budgets may work well for you. If you’re more of a big picture person, strict budgeting will likely fail. Paying yourself first is another method of saving and it’s a much more flexible and realistic strategy. Instead of dictating how much you can spend for each category, you simply put a chunk of money into savings every month (pay yourself) and then use the rest as you wish.

  • The S.M.A.R.T. Way to Measure Your Success 

You may have heard the concept of a "S.M.A.R.T." goal, but like most of us, you don't remember what that means exactly. S.M.A.R.T stands for Specific, Measurable, Achievable, Realistic and Timebound. When saving for a car, you should hold yourself accountable by being specific with the amount you need to save, how you’ll track progress and a timeframe for when you’ll be able to make the down payment. It's also important to focus on a goal that is realistic. If a car is way out of your price range or you need more time to save up for it than you're giving yourself, don't fool yourself into something unachievable. 

When setting your goal, simply saying “I will now start saving for a car” will not work as well as a S.M.A.R.T goal like: “I will save $317 each month for 6 months. I'll achieve this by cutting back on entertainment and canceling my subscriptions so I can buy that 2015 Toyota RAV4.”

Determine How Much to Save for Your Car 

Determine how much to save for a car

In order to create a specific goal for how much you’ll need to save each month, it’s necessary to have a good idea of which car will work for your needs and will also work with your budget. You’ll have to decide to go with new or used as well as the make, model, and trim. You’ll want to know the price range for all the options you’re interested in and then determine what the down payment will look like.

Our first recommendation is to start researching cars early. You may have one car in mind initially, but after doing some research, you find that there are other models that fit your needs and are more affordable. You might have your heart set on a new car but then find a used one with low miles and a lower price tag will be a more practical solution. It's also important to consider the upfront costs for new and used cars. A 10% down payment for used cars is common, while a 20% down payment is more realistic for new cars. Going with used means you’re more likely to get better loan terms with less money up front.

How Much to Save for a Car

Get Some Numbers

Having an idea of how much your dream car will cost you will give you a benchmark for the down payment and what your monthly payments will be. Even if you’re not ready to pull the trigger just yet, you can request a quote for a new car online or search for used car listing prices. This will give you a more accurate amount to calculate the potential down payment and future monthly payments.

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For example, say you find a great looking 2015 Toyota RAV4 for $19,000 online. As the infographic above demonstrates, if you put 10% as a downpayment, you’ll need to save up $1,900. Let’s assume you have nothing saved up to start. If your goal is to buy a car in 6 months, you’ll need to save about $317 per month. While this may sound like a daunting task, it can be surprisingly achievable. We’ll share some practical tips to reduce your spending and watch the savings add up.

Practical Ways to Save in Your Everyday Life 

Saving For a Car Lifestyle Infographic

As with almost everything you want to achieve in life, getting started and making the new habit part of your lifestyle is the hardest part. So to help inspire you to reach your goal (visualize that shiny RAV4 again) we’ve gathered a few simple ideas for lifestyle changes you can make right away. These are specifically selected using the down payment numbers from the used RAV4 example to help you save up in 6 months. Making these lifestyle changes early on will also help you develop the saving habits needed for the monthly payments on the car after your purchase.

We know everyone has different spending habits so the following examples are intended to demonstrate how quickly savings can add up from any of the small changes you make. You may not have the expense of a gym membership, but maybe you have a Netflix subscription (it's ok, a Netflix marathon is our kind of marathon too).The following examples are meant to get you thinking about all the unnecessary expenses you have in your life that you can cut back on or find an alternative while you save up for that dream car.

Make Your Coffee

scooping coffee grounds into gold filter

Coffee shops are great for meeting up with friends or an afternoon work break. Unfortunately, they aren’t wallet friendly. Coffeeshop coffee has one of the highest markups out of all the products you buy. When buying coffee from coffee shops, you’re paying a markup of up to 300%. We recommend swapping your daily cup of joe with a homemade alternative. Buying locally roasted beans and spending an extra 5-10 minutes each day to homebrew your coffee can save you around $42 per month. With a little practice, we think you can make it taste as good or better than the expensive coffee shop java. 

Brown Bag Your Lunch

brown bag lunch on cutting board

If you’ve gotten used to buying lunch out every day, it may be time to start brown bagging it. With an average restaurant lunch price tag of $10, making your lunch instead of buying it will get you closer to your car down payment fast. You can make a lunch for as little as $4/day and save $182/month. If you need inspiration, we found Budget Bytes (a blog about cooking on a budget) to be both helpful and delicious. There are countless recipes to try that list out the cost of all the ingredients. 

Reconsider Your Weekly Entertainment

free movies in the park

While it's important to socialize with your network of friends and family, your weekly night out for dinner, drinks or the movies can add up over the course of a month. Instead of expensive nights out, try planning a game night at your place or a friend's. Bankrate suggests several other frugal entertainment ideas like checking out local community events, parks and museum free days. If you normally spend about $25 per week on a night out and you swap it for a free alternative, you'll be putting $100 into savings each month.

Skip the Gym

african american woman doing crunches on green swiss ball at home

Memberships can add up faster than you think and can set you back from your goal. Make sure you evaluate all your recurring memberships and subscriptions to see if they’re absolutely necessary. Since the weather is finally warming up across the country, you can consider replacing your pricey gym membership with daily walks, runs or bike rides outside - all free! There are also many helpful and free fitness apps you can download to get started. Here's a list of apps from Refinery29.

This change will save you anywhere from $20-$100 per month. 

In Total

hand placing coin in glass money jar with plant

Although they don't sound groundbreaking on their own, all of these ideas add up to at least $375 in savings per month which easily covers the amount needed for the downpayment in our RAV4 example! By understanding how to create good saving habits, knowing how much you'll need to save up for the car you want and rethinking your day to day expenses, you'll have all the tools you need to pull the trigger on your dream car before you know it.

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