How to Save Money for Your First Car in ’22?

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First of all, congrats on deciding to own a car. But your fossil fuel burning machine should not burn a hole in your pocket. Buying a car should be rewarding and fun for the owner. It shouldn’t be the cause of sleepless nights. In this savings guide, we are going to discuss how you can save money for your first car. But this guide doesn’t limit to only saving for a car, it applies to any big purchase you make.

Before we start, we thought we need to discuss a few things beforehand.

Technically a car is a depreciating asset, which means the metal box is going to lose its value each passing year.

Until or unless you are going to buy the car under the name of your company in which case, you can strike off some company taxes showing the car receipt as a business expense.

Your car is NOT AN INVESTMENT, it is a consumer expense for you.

In most people’s lives, a car is the 2nd most expensive purchase after a house. But while a house goes up in value over time, the value of a car runs in the opposite direction over time.

Most probably a car is the most expensive thing you will ever buy which will go down in value over time.

And just so you know, a brand new car loses 10% of its value the moment you drive it away from the dealer’s lot. And typically this percentage is higher with luxury cars.

And in 5 Years, it loses 50 to 60% of its value.

In just 4 to 5 years, a car that originally cost $50,000, now has a value of not more than $25,000.

A sane person will not “Invest” in an investment vehicle that loses more than 50% of its value by 60 months, but people do treat buying a car as an “investment”.

When it comes to EMI vs Paying Cash, that’s a whole other story.

Just to make the long story short – In case you have taken a 5 years car loan, you will be paying for the amount which the product is not worth anymore.

But you are here because you have decided to pay for your car using cash so let us start with the ways you can save for a car.

1. How Much Should You Spend On a Car?

Your car should not cost more than 50% of your annual take-home income. If you are buying a car that cost more than 50% of your annual take-home income, then you are buying “too much car”.

This can make you what is called “car poor”.

You might be driving the latest BMW and keeping up with the jones, but you might be up to your eyeballs in debt.

Let us understand this through an example –

If your annual take-home income is $100,000, then the brand new car you are going to buy should not cost more than $50,000.

And every other expenditure that comes with owning a car like insurance cost, maintenance, taxes, registrations, fuel cost etc should be included in this budget.

And if you are buying a car that cost $70,000 to $80,000 with a $100,000 monthly take-home income, then you are buying ‘too much car’.

After you have calculated how much your car should cost. Now surf the internet to look for a car within your budget. But remember, the cost that most of the websites shows is the off-road price, and the cost doesn’t include all the extra charges you will be paying over the cost of the car.

Now that you have a specific amount to work with, let us see how you can save for your first car.

2. How to Save Money for Your First Car?

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Tips on How to Save Money for Your First Car.

  1. Budgeting – Every savings for a particular goal starts with budgeting your own expenses.
    As we know here, the cost of a car should be half of what you earn annually. You need to save 50% of your earnings to buy that car within 12 months.

    Increasing the time frame makes it somewhat easy to save.

    But don’t make the 12 months to a 60 months time frame.

    At such a huge time difference, inflation kicks in. The $50,000 car won’t cost $50,000 after 5 years and now a new car with the same features will cost more than what you have saved.
  2. Paying Your Self First – At the beginning of the month, the moment you get the notification on your phone from your bank that “your salary has been credited”, you should immediately put aside the amount you want to save in a high-interest saving account.

    Or you might use a Liquid Fund to accumulate the savings amount.

    Though Liquid Funds are debt funds and are mostly used for parking very short term money, Liquid Funds provide a bit higher interest on the balance than a high-interest saving account.

    Still, we would suggest you go with a high-interest saving account rather than a Liquid Fund because –

    A. The interest amount you are going to earn from the Liquid Fund isn’t going to make or break the deal of you buying a car.

    B. If the interest earned is not a major factor in you buying a car, then why take the risks associated with debt funds!

    And if you have 50% less money than usual for the month, then you will automatically spend 50% less than usual.

    And if you think you will touch the savings account balance at the end of the month. Then we would suggest, you open up a Recurring Deposit within the high-interest saving account for at least 12 months. So that the amount you are saving for your car is safe from your relentless spending.

    Think of these monthly savings as if you are paying the EMI of your car loan. But in this case, you will be paying it to yourself. And you will be earning interest rather than paying interest to a bank over the loan amount.
  3. Downsize Unwanted Expenses – As a person who is surfing the internet for tips on how to save money for buying a car, you are most probably not living paycheck to paycheck.

    So to save for your first car, your aim should be to complete the goal within 12 to 18 months. And in order to do so, you have to cut down all the unnecessary expenses you have at the moment.

    Subscriptions are the worst. The monthly subscription amount looks so small but if we add up all the Magazines, OTTs, Online Shopping Websites, etc we have subscribed to and multiply that amount by 12 months, we can see these small subscription amounts take away a massive chunk of our hard-earned money.

    Slowly and without us realizing. So, cut away the unwanted ones.

    Cut on the ridesharing app you regularly use for your commute.

    Most Tier 1 and Tier 2 cities have good public transportation. Air Conditioned public buses are available in most cities.

    Some cities have excellent Metro Rail service.

    Though using public transportation during the pandemic is not the best idea. But if you can manage to get on a bus during the off-hours, then use it.

    You have to remember, if you want to buy the car you have chosen, by the end of the year, then you have to save a minimum of 50% of your paycheck.

    More is better.
  4. Pay off High-Interest Debts – To stop the outflow of cash from your monthly salary, pay off the high interest “bad debts” like Credit Card and Personal Loans. Using the Debt Snowball Method devised by Dave Ramsay. Start paying off bad debts starting from the small loan amount first.

    People argue that why not pay off the bigger size loans as they take away a large chunk of your earnings in the form of interest payments.

    To answer that –

    You need to understand that, it is about the mindset and not mathematics.

    If the person taking the bad debts were good at maths, he/she would have not taken those debts in the first place.

    When you start paying off the smaller loan sizes, it creates momentum. It builds confidence that you can pay off all these dreadful loans.

    And the less cash goes out of your pocket, the more you can save for your car.
  5. Having Control Over Your Impulses – Just like eating whatever you see can make your body unhealthy. Spending money on whatever you feel like makes you financially unhealthy.

    That $12 Sandwich is no different from that $25 Sandwich.

    Every whole wheat flour from a reputed brand is made the same way.

    If your smartphone phone cover is capable of protecting your device then you don’t need the latest armoured cover for your phone.

    If you have enough clothes for your needs then you don’t need to participate in every discount window these online shopping websites start.

    You don’t need to change your one and a half-year-old smartphone until or unless it has started failing you.

    Have control over your impulses! Stop being addicted to “instant gratification”.

    If you want to build wealth or in this case save for your first car, you cannot be just another sheep in the herd of consumers.

    Every penny you save from not buying unnecessary things will contribute towards your goal of saving for a new car.

    If you are buying unnecessary things today for fun, you will be selling necessary things tomorrow to live.

How to Build a Habit of Saving Money?

If you have never saved money for a particular goal before, then the process might feel daunting. And in this case, the sum is not small. A big sum like the cost of a car will make anyone, nervous.

To slowly ease into the process and build up a habit of saving money, START SMALL.

Start with a small goal first, like saving money to buy gold.

If you have a monthly earning of $10,000, then try to achieve the goal of buying 50 Grams of Gold in 3 Months.

You ask, how hard will it be. We say, let us calculate.

As of 19th April 2022, 1 Gram of Gold in the USA cost $63.68.

Compressed Gold Price as of April 2022 in USA

So to buy 50 Grams of Gold in the US, you will need –

$63.68 x 50 = $3,184

So in order for you to buy 50 Grams of Gold, you will need a cash amount of $3,200. And you need to achieve this goal within a period of 3 months.

You can try to follow this example or you might choose a different investment product.

It doesn’t matter, the point of this whole exercise is to make a habit of setting aside money for something within a set period.

Money Premier is a financial website, so we choose an investment product like buying gold (technically buying gold is not an investment, but that is a topic for another day).

You might choose to save for the latest flagship smartphone or a brand new refrigerator maybe.

You might set a goal of buying a whole Class A Berkshire Hathaway Share.

The Goal Doesn’t Matter – The Journey Does.

It is about building up a habit of saving money. So start today and take action in order to reach the goal.

Points to Remember When You are Saving for a New Car

Points to Remember

  1. Have a Well Defined and Quantifiable Goal – Having a proper goal helps you reach the finish line easily.

    In this case, if you know exactly which car you are going to buy, it will not only help in estimating the cost of the car, but it will also help you in budgeting your expenses as you will have an exact figure back in your head that you need to save each month.

    If you start saving aimlessly without having a Quantifiable Goal, like most people, you and your destination will get lost in the middle of the journey.

    So before you start saving, calculate how much you should spend on a new car, and after that, select one or two cars within your affordable range, and then start saving for a car.
  2. Always Choose Cash over Credit – As the saying goes, Cash is King. Here it is applicable too.

    By paying the price of your car in cash, you not only save a lot of money but the money saved on the car loan helps you get ready for your next car or purchase of a similar size, within years.

    As of April 2022, Bank of America is charging an interest rate of 3.59% on their Auto Loans.

    If you take a loan of $50,000 for 3 Years or 36 Months at an interest rate of 3.59%, you will be paying the bank an extra $2,800 as interest.

    And if you cannot buy something outright with cash, then most probably “You Cannot Afford It“.
  3. Don’t Disclose to the Dealership that You will be Paying in Cash – If you have managed to save enough to buy your first car with cash, don’t just go to a dealership and say that you want to buy a particular car in cash.

    Dealerships make most of their money through financing. And at the beginning of the negotiation process when you say that you will be paying in cash, that cuts out their profit margin heavily.

    The perfect time to disclose that you will be paying in cash is at the very end. When you have haggled over the price and everything is in writing.

    If you say that you will be paying in cash at the very beginning, that means you have shown all your cards and the dealership will offer a very high price, near to the MSRP for the car.

    But don’t lie when the salesperson asks you, how would you like to pay. There is a difference between ‘not telling the whole truth” and ‘lying’.


To finalize the whole article, you don’t have to be frugal in order to save money for your first car. You just need to be careful with your cash outflow.

Saving money is more about mindset and mentality than maths. Habits make you either spend or save money.

That thousand dollar you are spending on food home delivery monthly can definitely help you reach the goal of owning a car with cash. But only if you stop the habit of ordering food when you feel like and cook a fresh meal for yourself.

And it is never late to start. So, your saving for a new car starts today.

Calculate how much should a car cost for you and surf around a few websites to see which cars are available in that price range. And after you have selected a car or two, start a budget on how to save half of your earnings and “STICK TO THAT BUDGET“.

Not for a month or two. But stick to that budget for the whole period. And by sticking to your budget and saving each month you will finally reach your goal of buying a car with cash.

We hope you liked the whole article, and if this article was somehow able to help or motivate you in saving money for your dream car then please do give us a like down below.

And if your friends or family is having a similar question then do share this with them.

To finish off, Goodbye and Good Luck Saving Money. 😊

Disclaimer: The views, investment tips, presumptions, and calculations expressed on are not of the website or its management. This article is for Educational Purposes only. advises users to check with certified experts before making any financial decisions.

What do you think?

Written by Sayantan Chakraborty

I have been investing in the Indian stock market for more than 11 years. I have invested in the Indian Stock Market via Mutual Funds, ETFs, and Direct Stocks. I have seen multiple markets cycle, and from my experience, all I can say is persistence is the key to success in the Indian Stock Market as an investor.
I also love reading financial books and company results and reports.
You can ask me anything on Twitter by clicking on the button below.


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