3 Simple Steps To Saving For A Car

Posted by Simon Moore on July 9
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If you want to save for a car, here's how you do it.

Step 1 - Work Out What You Need To Spend

First off, you need to know your savings target. Here that means the cost of the car you need. Let's assume you want to save for Britain's most popular car, the Ford Fiesta. If you get a nearly new one that's a year old with around 10,000 miles on it that can cost you about £10,000.

Generally buying nearly new cars can make sense because cars lose a lot of their value in the first year after you buy them. Rather than pay that cost yourself while you own the car and watch it fall in value, why not wait and save some money owning a car that's very close to being new anyway? Depending on the make and model that plan can typically save you between a quarter and a third off the purchase price.

Step 2 - Determine Your Savings Plan

Now, knowing what your target means that you can plan how to get there. Moola has a forecasting tool where you can see what different saving amounts may achieve over the coming years. Here we see that saving £175 a month over five years should be enough to get you to that Ford Fiesta. Of course, if the markets do well and you get there sooner, you can buy the car sooner. It's also possible that if the markets perform really poorly, it could take longer.

Step 3 - Get Going

The challenge with saving is that it's all too easy to delay. Every month you wait is a month later to get your car. So set up your savings plan today. As you do it make sure to work out what risk level is right for you and whether you'd prefer to save ethically.

As you tweak these assumptions such as how much you save, your numbers will change too. If you invest cautiously it may take longer to reach your goal, but the path can also be a bit smoother. If you're more aggressive you may get to your goal faster, but the swings along the way may be disconcerting.

 

Written by Simon Moore

Simon is responsible for investing and related content at Moola. He was previously CIO of FutureAdvisor, a US digital advisor. His most recent book Digital Wealth, explains automated investing. He studied economics at Oxford, and completed his MBA at the Kellogg School of Management.

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