How to save and buy a car 'guilt free'
By Andrew Willink
17 September 2008
Whether you’re buying your first car, or looking at purchasing a new one, saving money for this purpose always seems to be difficult. Many take out loans, which they struggle for years to repay, and are only debt-free when it is time to upgrade their car again. So, we’re going to help you out by giving you some general savings tips that should hopefully result in you being able to purchase that new ‘guilt-free’ car.
1. Start with the basics
Put some money away each week. Setting up a scheduled payment from your account to another can help to separate the money, and also to prevent you from ‘forgetting’ to transfer the funds. Whether it is a large sum of money, or a small portion each week – it will all add up in the end, and you will find that it is easier than trying to come up with the money all at once.
2. Set up a high interest savings account.
Dedicating the account especially to ‘car funds’, is effective, as it aids in segregating the money from the remainder of your income, and also deters you from spending your savings accidentally. Furthermore, a high interest savings account has the added benefit of accumulating interest that will enhance your account balance.
3. Setting up a term deposit account
This is another method of accumulating interest. Try depositing a portion of money into a term deposit for the specified term. This method is particularly beneficial to those who plan to purchase a car at a later date, with the added bonus of collecting interest at a high rate. A term deposit, however, not only accumulates interest, but it also has penalties for withdrawing the money before the ‘term’ is up. Therefore this approach is additionally beneficial to those who need a little extra help in budgetary discipline.
4. Use a mortgage offset account
Opening and using a mortgage offset account is another great way to save for your car. A mortgage offset account is simply an account which is linked to your mortgage and reduces the amount of principal on which you will be charged interest. Best of all, it’s tax free. Therefore it is a great way to save without having to apply for additional accounts, and the savings principle would work the same as depositing the money into a high interest account; simply put a certain amount into the offset account each week, and attribute it to ‘car savings’.
5. Save before you start to borrow
Finally, the most obvious savings method is to avoid using a car loan to purchase your car. Whilst these loans do ‘help you out’ by supplying money when it is not readily available, try not to use this as the first option. If purchasing the car is not immediately necessary – work in reverse; save the money before buying the car, rather than buying the car and then paying off the loan. In doing so, you will eliminate the interest and fees that are associated with a car loan and you will find that you save a significant amount as a result.
Related Links