No matter how well you take care of your car, it will need repairs and parts replacements during its lifespan. Taking your vehicle out on the road places stress on its components. It will degrade and depreciate as time goes on. Because major automotive repairs can cost you, it’s best to set aside an emergency fund so you can avoid unnecessary debt.
Most repairs are covered by the manufacturer’s warranty during the first years of your car’s life. If your vehicle is no longer under the original service contract, you might want to get an extended car warranty. Research on third-party providers. Read CarShield reviews and those of other reliable car warranty companies.
Even if your vehicle has an active warranty, it is still better to build an emergency fund. If saving up sounds too daunting, think back to when you saved up for a car or look at how you are paying the loan premiums now. It is certainly possible with the proper mindset and technique. Here are a few tips that will help you get started.
When saving up for a car emergency fund, remember that smaller steps lead to bigger leaps. Skip meeting the goal of saving up for the most expensive auto emergency—it will simply overwhelm you. The key is to feel a sense of accomplishment by having achievable and realistic objectives.
Baby steps mean going from small goals to bigger ones. Start with a modest weekly savings goal, say $10. If you can keep it up for several weeks, start a monthly target of $50. If you achieve this monthly goal, pat yourself on the back. You will be able to save at least $600 per year—the average cost of annual car maintenance.
Once a savings goal becomes too easy, try to take bigger steps and increase your target. If it becomes overwhelming, step back a little bit to something achievable.
Budget, Budget, Budget
A good way to run out of money is to spend it spontaneously. A budget will help you filter out excessive spending and reallocate finances to more significant items like a car emergency fund.
Budgeting does not need to be complicated. A simple list of your household income and average monthly expenses is already a good start. Look at how much money is left from your income after expenses. Allocate a part of that to your car emergency fund.
Eventually, you need to treat your savings as part of your regular expenses. Set up a separate savings account just for your automotive emergency fund. Automate transfers to this account every month.
Cut Back on Spending
When you spend less, you can save more. A good practice would be to keep your savings in categories. If you cut back on ordering out for food, the extra money can go to your rainy-day fund. When you reduce your car-related expenses, the excess should go to your automotive emergency fund.
Here are some ways to reduce spending on your car.
- Maintain Regularly – Regular maintenance will help you avoid unnecessary costly repairs. Something as simple as washing your car will help reduce the risk of corrosion, avoiding serious damage. If your car is under warranty, take advantage of the free checkup and tune-up.
- Learn How to DIY – A visit to the shop for an easy fix will cost you more than necessary. Take the time to learn basic car maintenance and repair and you can save hundreds of dollars in mechanic fees.
- Use the Car Less Often – The more you use your car, the more it experiences wear and tear. Add rising fuel costs and you have a case for saving up by driving less often. If you are in a place with good public transport, allocating two or three days for taking the bus or train can lower your automotive-related expenses.
Boost Your Savings
In addition to working with your budget and reducing expenses, you can also boost your savings. This step might take some additional work. Do it only if you already have a better grip on saving up. There are several ways to increase your savings by maximizing your sources of income. Here are a couple of easy ideas.
- Declutter and Sell – Look through your house for things you can part with and sell. Do not skip the small stuff. Multiple items worth $5 can quickly add up. If you have an expensive hobby that you are not into now, consider letting go of items related to it. A good tennis racket is better converted to savings instead of gathering dust and cobwebs.
- Adjust Your Taxes – If you get a big tax refund every year, it might be better to adjust your withholding than wait for that annual windfall. The additional monthly income you will get can go into your automotive emergency fund.
Invest in Your Future With an Emergency Fund
An expensive emergency repair may cost you more than the mechanic fees. If your car is essential to your livelihood, it will have a significant impact on your income. You possibly need to get a rental. An automotive emergency fund will help ease this financial burden on you and your family if your vehicle breaks down.
Your emergency fund can also help you transition to a new car once you decide to trade your current one. Instead of taking out a hefty car loan, you can use your savings as a down payment. This reduces your monthly premiums, which will allow you to save even larger amounts.