Money Talks, So Should You

Q&A: How much should I save before buying a car?

Rob Oliver
by Rob Oliver, The Garrett Network  (@OliverPlanning)

Like so many personal finance questions, it depends on your situation.

Let’s first assume that you don’t have a reliable car and you need one to get from A to B. Furthermore, let’s assume that the main place you need to get to is school or work and you can’t get there via public transportation.

If this is your situation, then you need a car so that you can make income now (work) or in the future (school). Contact local banks and credit unions to find the best deal you can with whatever you have saved. Some may not even require a down payment. Keep your ongoing costs as low as possible by researching insurance, maintenance, and fuel costs for the cars you are considering before you buy.

READ: What questions should I ask when buying a car?

If you can wait to buy the car while you save, then I recommend saving at least 20% of the car’s cost before buying. Doing so will, 1) give you the flexibility to buy a new or used car, and 2) help you avoid being upside-down on the loan the minute you take ownership of the car (due to rapid depreciation of the vehicle). Keep in mind that you can also use the trade-in value of an existing car as a down payment, although you would likely get more value from the car by selling it on your own.

In an ideal world, I would advise you to save the entire cost of the car before you buy it. You can do so by saving a monthly car payment into a separate savings account until you have enough to purchase the car. It’s a great feeling to negotiate with cash and to drive off the lot debt-free.


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Rob Oliver is the founder and principal of Oliver Financial Planning, LLC, a Fee-Only financial planning and Registered Investment Advisory firm based in Ann Arbor, Michigan. He earned Masters of Business Administration and Bachelor of Arts degrees from the University of Michigan.