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WalletPrep worksheet · Saving

How to save for a car (and how much you need)

Name ____________________ Date __________

Key ideas

  1. Your goal includes taxes and fees. Add sales tax, title, registration and dealer fees to the down payment. Chris's goal is $4,000 down plus $1,200 in fees.
  2. Divide the gap by the months left. Chris needs $4,200 more in 18 months. $4,200 ÷ 18 = $233.33, so he saves $234 a month.
  3. Every dollar down cuts the loan. Putting more down shrinks the amount you borrow, the monthly payment and the total interest you pay.

Vocabulary

Down payment
The cash you pay toward a home's price yourself at closing. A mortgage covers the rest.
Emergency fund
Cash set aside only for surprises like a job loss, a car repair or a medical bill. A common goal is 3 to 6 months of essential costs.
Windfall
A large sum of money you didn't plan on, like an inheritance, a bonus, a settlement or a prize.
APR
Annual percentage rate: the yearly cost of borrowing money, shown as a percentage. It is the number to compare on cards and loans.
High-yield savings account
A savings account that pays a much higher interest rate than a typical bank savings account, often offered by online banks.
Stock
A small piece of ownership in a company. Its price rises and falls with how investors value the business.

Work it out

Chris wants a $16,000 used car in 18 months. He plans $4,000 down and estimates $1,200 for tax, title and registration. He has $1,000 saved.

  1. Down payment
  2. Tax, title and fees
  3. Savings goal
  4. Already saved
  5. Still to save
  6. Monthly for 18 months
  7. Loan payment, $12,000 at 7%, 48 months

Check yourself

  1. You need $3,600 more for a car and plan to buy in 12 months. How much should you save each month?

    • A. $200
    • B. $300
    • C. $360
    • D. $400

  2. What does a bigger down payment usually do?

    • A. Raises the interest rate
    • B. Makes the loan longer
    • C. Lowers the loan amount and total interest

  3. Which cost belongs in your car savings goal?

    • A. Sales tax and registration
    • B. Your monthly rent
    • C. Your emergency fund
    • D. Your 401(k) contribution

Your turn

Write down the most you'd pay for your next car, add your state's sales tax and fees, and subtract what you have. Divide by the months until you want to buy, and set up that transfer to a separate savings account.

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Answer key

How to save for a car (and how much you need)

Work it out

  1. Down payment$4,000
  2. Tax, title and fees$1,200
  3. Savings goal= $5,200
  4. Already saved− $1,000
  5. Still to save= $4,200
  6. Monthly for 18 months$234
  7. Loan payment, $12,000 at 7%, 48 months$287.35
  1. His goal is $4,000 + $1,200 = $5,200. He has $1,000, so he needs $5,200 − $1,000 = $4,200 more.
  2. $4,200 ÷ 18 = $233.33, so he saves $234 a month by automatic transfer.
  3. He'll borrow $16,000 − $4,000 = $12,000. At an example 7% APR over 48 months, that is $287.35 a month and $1,793 in interest.

Check yourself

  1. B. $300 $3,600 ÷ 12 = $300 a month. Automate it for the day after payday.
  2. C. Lowers the loan amount and total interest Every dollar you put down is a dollar you don't borrow, so the payment and total interest both go down.
  3. A. Sales tax and registration Sales tax, title and registration are often due when you buy. Add them to the down payment so they don't end up in the loan.