How Much Should You Save Before Buying a Car?

Name: How Much Should You Save Before Buying a Car?
Uploaded: 2026-09-11T03:04:14+00:00
Duration: 22 min 51 s
Channel: Frank

00:10welcome back to the cash flow lab where we run experiments on our money so our money doesn't

00:14experiment on us i'm your host frank and today we are doing a deep dive an autopsy if you will

00:19on one of the biggest wealth destroyers in the modern world it's not crypto it's not day trading

00:26it's not even avocado toast it's the car specifically we are answering the question

00:34how much money should you actually have saved before you buy a car now if you've been listening

00:40to this show for a while you know i don't do surface level advice i don't do just save a

00:44little bit and you'll be fine we are going to tear this thing apart we're going to look at the

00:47math

00:47the psychology the dealership games and the exact dollar amounts you need to have in the bank

00:52before you even think about stepping onto a lot so grab a notebook grab a calculator because today

00:58we're not just talking about saving money we're talking about building a system that keeps you

01:02from making a five-figure mistake let's start with a cold hard fact a car is not an asset repeat

01:10that

01:10with me a car is not an asset it is a tool it is a liability that happens to have

01:18wheels and unless

01:19you are using it to generate income like a delivery driver or a real estate agent it is costing you

01:26money every single day even when it's parked in your driveway the average new car payment in the

01:34united states right now is over seven hundred dollars a month the average used car payment is

01:40over five hundred dollars add insurance gas maintenance and registration and you're looking at over

01:47one thousand dollars a month just to have the privilege of driving that's twelve thousand

01:51dollars a year for something that loses twenty percent of its value the moment you sign the papers

01:57and sixty percent of its value within five years now i'm not here to tell you to ride a bicycle

02:03to work

02:04i get it most of us need a car but there is a massive difference between needing transportation

02:11and using transportation as an excuse to inflate your lifestyle the problem is we've been brainwashed

02:19we've been told that a car is a reflection of who we are the dealership wants you to believe that

02:24if

02:25you don't drive a brand new suv you're failing at life your neighbor gets a new truck and suddenly

02:31your 10 year old sedan feels like a trash can it's called keeping up with the joneses and it's bankrupting

02:38an entire generation here's the truth the joneses are broke they're financing that truck for 84 months

02:46at nine percent interest they're one missed paycheck away from a repo they're not winning they're stuck

02:56so today we're going to build a wall between you and that mistake and that wall is made of saving

03:02the core principle you don't finance a lifestyle before we get to the numbers we need to establish

03:10a philosophy if you cannot pay cash for a car you are not buying a car you are financing a

03:15lifestyle

03:16that's not a judgment it's a math equation when you finance a car you are paying interest on a

03:22depreciating asset you are paying the bank for the privilege of losing money the only time financing

03:28makes sense is when the interest rate is extremely low and i mean low like under three percent and

03:33you have the cash to buy it outright but choose to keep that cash invested in something earning more

03:38than three percent that's the only scenario where a car loan is a smart financial move for everyone else

03:44debt on a car is a trap but i know what you're thinking frank i don't have 25 000 in

03:50cash lying around

03:51i need a car to get to work what am i supposed to do great question that's why we have

03:56the 24 10 rule

03:58this is the cash flow lab's official policy for anyone who must finance a vehicle it's not a

04:02suggestion it's a guardrail if you follow this rule you will never be car poor you will never be

04:08underwater you will never lose sleep over a car payment let's break it down piece by piece with

04:13real numbers real scenarios and no bs fat one the 20 the down payment

04:22you should put at least 20 down on any car you finance

04:26that means if you're buying a thirty thousand dollar car you need six thousand dollars saved

04:31up before you even talk to a salesperson why 20 because that roughly covers the first year of

04:37depreciation the moment you drive a new car off the lot it loses about 10 of its value

04:42by the end of the first year it's lost 20 or more depending on the make and model

04:47if you put 20 down you're essentially prepaying that depreciation you're not starting out underwater

04:53if something happens you lose your job you get in an accident you need to sell the car

04:58you won't owe more than it's worth you have equity

05:01now let's talk about what happens if you put zero down

05:05this is the most common mistake i see especially with first-time buyers

05:08the dealership loves zero down because it means you're financing the entire car

05:12including taxes and fees you're instantly underwater by 15 to 20 percent

05:17six months later you want to trade it in for something else and the dealer says

05:21well you owe 28 000 but the car is only worth 22 000 we'll roll that six thousand dollars to

05:27negative equity into your new loan and now you're financing 36 000 for a car that's worth 25 000

05:33it's a death spiral so 20 down is your armor it's your protection against the depreciation monster

05:40but here's the thing 20 is the minimum if you can put down 30 40 or 50 even better every

05:48extra

05:48dollar you put down reduces your monthly payment reduces the interest you pay and reduces the time

05:53you're in debt if you have the savings use them and if you're looking at a car and realizing you

05:58don't

05:58have 20 saved that's not a sign to go find a cheaper loan that's a sign you're shopping for

06:04a car that's too expensive for your current financial situation it's that simple part two the four

06:12the loan term your loan term should never exceed four years 48 months i need you to understand why

06:19this is so important the average car loan today is over 68 months that's almost six years some are 72

06:2684 even 96 months that's eight years of payments for a car that will probably need major repairs by year

06:33five dealerships push long loan terms because it lowers the monthly payment if you're looking at a

06:39thirty thousand dollar car and you finance it for 48 months at five percent interest your payment is

06:44about six hundred and ninety dollars if you stretch that to 72 months your payment drops to about

06:49483 dollars that sounds great right you're saving 200 a month

06:56but let's do the math 48 month loan total interest paid about thirty two hundred dollars you're done in

07:04four years car is yours 72 month alone total interest paid about four thousand eight hundred dollars you're

07:14paying one thousand six hundred more in interest and you're making payments for two extra years

07:19and here's the kicker in year five that car is going to start needing things

07:25tires brakes maybe a water pump if you're still making a 483 dollar payment in year five plus a

07:311212 or repair bill you're going to hate that car you might even be tempted to trade it in

07:37and if you're still underwater because you stretch the loan you're rolling negative equity into yet another

07:42loan the four-year rule forces you to buy a car you can actually afford if the payment on a

07:4848 month

07:49loan is too high the car is too expensive go cheaper buy used buy a different brand but do not

07:58stretch the

07:58loan there's one exception if you get a zero percent or pin nine percent apr promotional rate a longer loan

08:05term isn't as painful because you're not paying interest but even then i'd caution you to stick to four

08:11years if possible the goal is to be debt free not to optimize the interest rate on a liability

08:18part three the 10 total transportation costs your total transportation costs car payment insurance

08:27gas and maybe a little for maintenance should not exceed 10 of your gross monthly income

08:33let's run some numbers if you make fifty thousand dollars a year your gross monthly income is about

08:38four thousand one hundred and sixty seven dollars ten percent of that is four cent in details per month

08:44that is the absolute maximum you should spend on everything car related insurance for a newer car

08:49might be 120 dollars one gas might be 130 two that leaves 167 dollars for a car payment

08:58three do you know what kind of car you can buy with a one hundred and sixty seven dollar monthly

09:02payment

09:03a used one a reliable but older honda or toyota maybe eight thousand ton dollar car with a decent down

09:10payment and you know what that car will get you to work just fine if you make seventy five thousand

09:15dollars a year your gross monthly is six thousand two hundred fifty ten percent is six eight hundred and

09:20twenty five one insurance one hundred and forty dollars two gas one hundred and sixty

09:25three that leaves three hundred and twenty five for a payment that could get you a fifteen thousand

09:31dollar car on a 48 month loan with twenty percent down that's a really solid used car if you make

09:36hundred thousand dollars a year gross monthly eight thousand three hundred and thirty three dollars

09:41ten percent is eight hundred and thirty three dollars one insurance one hundred and fifty dollars two gas

09:48one eighty dollars three that leaves about five hundred four payment you could finance a twenty five

09:54thousand dollar car comfortably notice how the math changes with income the rule scales with you it

10:00keeps you from spending too much of your life on a car now compare this to what the dealership will

10:04tell

10:04you if you make seventy five thousand and walk into a dealership they'll say oh you can afford a forty

10:10five thousand dollar truck your payment would only be 650 a month for 84 months that's 650 for the

10:16payment alone plus insurance and gas you're at nine fifty dollars that's fifteen percent of your income

10:22you're now car poor you're working to pay for a truck that sits in a parking lot while you're at

10:26work

10:27the ten percent rule is your ceiling it protects your ability to save for retirement pay rent buy

10:32groceries and actually enjoy life do not exceed it but wait there's more the total cost of ownership

10:37the 24 10 rule is a great starting point but we're in the lab so we need to go deeper

10:43you also need

10:44to consider the total cost of ownership before you buy this includes one depreciation how much value will

10:51the car lose over the time you own it some cars hold value better than others a toyota tacoma or

10:57a

10:57subaru outback depreciate slowly a luxury sedan like a bmw 7 series or a maserati falls off a cliff

11:04if you buy a used car that's already taken the big depreciation hit you're in a much better position

11:10two maintenance and repairs european luxury cars are expensive to fix a 500 part for a honda might be

11:17two thousand dollars for a mercedes if you can't afford the maintenance you can't afford the car

11:22a good rule of thumb is to budget at least 100 a month for maintenance and repairs even if you

11:28don't

11:28spend it every month put it in a sinking fund three fuel efficiency gas prices fluctuate a v8 truck might

11:36get 15 mpg a hybrid might get 45 mpg over five years the difference can be thousands of dollars

11:43calculate your annual miles and do the math four insurance before you buy a specific car call your

11:50insurance company and get a quote a sports car will cost more to insure a tesla might be cheap to

11:56fuel but

11:56expensive to insure don't get blindsided so when you're setting your savings goal you need to account

12:02for the down payment and the first few months of these ongoing costs i recommend having an extra

12:07fifteen hundred to two thousand dollars set aside specifically for car startup costs taxes title

12:13registration a fresh oil change new wiper blades maybe a set of tires if the used car needs them

12:20that's on top of the 20 down payment the ride fund strategy practice the payment before you promise the

12:28payment now let's talk about how to actually save that money this is where most people fail they

12:35want the car now they don't want to wait six months or a year so they skip the down payment

12:39and sign a

12:40bad loan to counter that i want you to use a strategy i call the ride fund here's how it

12:45works

12:49one open a separate high yield savings account call it ride fund or future car

12:58two decide what car payment you think you can afford based on your income and the 10 rule

13:03let's say you decide 400 a month is comfortable three for the next 12 months automatically transfer

13:10four hundred dollars from your checking account to your ride fund on the first of every month just

13:15like a car payment four do not touch that money it's not for emergencies it's for the car

13:23what happens after 12 months first you've saved four to eight hundred dollars that's a solid twenty

13:30percent down payment on a twenty four thousand dollar car if you want a cheaper car you're even

13:36further ahead second you've proven to yourself that you can handle a four hundred dollar car payment

13:42without breaking a sweat if you struggle to make that transfer every month if you had to skip a month

13:47or pull money back out then you just learned a four hundred dollar payment is too high for you

13:51you just saved yourself from a repo you just saved your credit score that's a huge win

13:59if you made the transfer easily and still had money left over maybe you can afford a slightly higher

14:03payment but don't get greedy stick to the rule the ride fund also gives you a psychological advantage

14:11when you walk into the dealership with five thousand dollars in cash for a down payment you have power

14:17you're not desperate you can walk away desperate buyers make bad deals prepared buyers make good

14:24deals new versus used a quick reality check before we move on i need to address the new versus used

14:32debate

14:32because it affects how much you need to save new cars lose 20 of their value in the first year

14:38and

14:38about fifty percent in three years if you buy a thirty five thousand dollar car it's worth twenty eight

14:43thousand dollars after a year and maybe seventeen thousand five hundred dollars after three that's

14:48a seventeen thousand five hundred dollars in thirty six months that's almost five hundred dollars a

14:53month just in depreciation on top of your payment insurance and gas used cars have already taken that

15:00hit a three-year-old car with thirty thousand miles might be twenty two thousand instead of thirty five

15:05thousand you save thirteen thousand just by letting someone else eat the depreciation and modern cars are

15:11reliable a three-year-old toyota or honda will easily go 150 000 miles with basic maintenance

15:17my advice unless you are financially independent and can pay cash for a new car without caring about the

15:22depreciation buy used specifically buy a two four-year-old car with low miles preferably certified pre-owned if

15:30you want a warranty that's the sweet spot you get a nearly new car for a used car price this

15:35also means

15:36your savings goal is lower instead of needing seven thousand for a down payment on a thirty five thousand

15:41on a new car you might only need four thousand five hundred a dollar for twenty two thousand

15:45during some relative view with used car that's a lot more achievable leasing the silent wealth killer

15:53i have to mention leasing because someone out there is thinking well frank what about leasing i can get a

15:58brand new car for three hundred dollars a month and i don't need a down payment leasing is the most

16:03expensive way to drive a car period when you lease you are paying for the depreciation of the car during

16:09the lease term plus interest and fees at the end of the lease you have nothing you give the car

16:14back

16:14you have no equity you have no asset you start over if you lease a car for three years at

16:19350 a month

16:20that's twelve thousand six hundred dollars plus you typically need two thousand three thousand down

16:25so you've spent fifteen thousand dollars over three years and you have nothing to show for it

16:30repeat that for ten years and you've spent fifty thousand dollars on car payments and you own

16:34nothing compare that to buying a fifteen thousand dollar used car and driving it for ten years even

16:39with maintenance you're way ahead leasing only makes sense for businesses that can write off the expense

16:44or for people who absolutely must have a new car every three years and are willing to pay a premium

16:49for

16:49that luxury for everyone else it's a trap avoid it common excuses and why they're wrong let's address

16:59some of the excuses i hear all the time because i know they're running through your head excuse one

17:05but i need a reliable car for work i can't afford to break down you're right reliability matters but

17:12reliability does not mean brand new a well-maintained used car is extremely reliable and if you follow

17:19the 2410 rule you can afford a newer used car with low miles the answer isn't to stretch your budget

17:25for

17:25a new car it's to save a larger down payment and buy a slightly older used car that has a

17:31reputation for

17:31reliability a three-year-old corolla is not going to leave you stranded excuse two interest rates are low

17:39so financing is basically free money low interest rates are great but they don't change the fact

17:45that you're still paying interest on a depreciating asset a zero percent apr loan on a forty thousand

17:51dollar car still means you owe forty thousand dollars you're still spending forty thousand on something

17:56that will be worth twenty five thousand and four years the low interest rate might make the payment

18:01more manageable but it doesn't make the car a good investment it's still a liability excuse three i work hard

18:09i deserve a nice car yes you work hard you deserve financial freedom you deserve to not stress about

18:16money you deserve to retire with dignity a nice car is a reward but it's a reward that can delay

18:22your

18:23other goals by years if you're already maxing out your retirement accounts have a fully funded emergency fund

18:28and are on track for your other goals then sure buy a nice car but if you're choosing between a

18:34car

18:34payment and investing for the future the future wins every time excuse four my old car is dying

18:43i have to buy something now this is the urgency trap dealerships love this they want you to feel

18:50like you have no time to think but the truth is you can usually keep an old car running for

18:55a few more

18:55months with a relatively small repair even a fifteen hundred dollar repair is cheaper than a five

19:00thousand dollar down payment and a four hundred dollar monthly payment if your car truly is on its

19:05last legs then use the ride fund strategy start saving aggressively and buy a cheaper car in cash or with

19:11a

19:11large down payment don't rush into a bad loan because of a temporary emergency building your car buying

19:18savings plan a step-by-step guide all right let's put this all together here's your action plan step one

19:28determine your car budget use the 24 10 rule calculate 10 of your gross monthly income subtract

19:36estimated insurance and gas costs the remainder is your maximum monthly payment use an online auto loan

19:44calculator to see what car price that payment supports on a 48 month loan at a reasonable interest rate

19:51use five to seven percent to be safe that's your ceiling example you make sixty thousand dollars year

19:59gross monthly five thousand dollars ten percent five hundred insurance or hundred and twenty dollars gas

20:05130 doesn't remaining for payment 250 a 250 payment on a 48 month loan at six percent interest

20:13finance is about ten thousand six hundred dollars add your twenty percent down payment twenty six

20:19hundred and fifty and your total car budget is about thirteen thousand two fifty that's a solid used car

20:25step two open a ride fund start saving that monthly payment amount into a dedicated savings account now

20:33if you can save two hundred and fifty dollars a month for twelve months you'll have three thousand dollars

20:37that's more than twenty percent down on a thirteen thousand dollar car you're ready step three save for

20:45total cost of ownership in addition to the ride fund build a small buffer for taxes fees and immediate

20:51maintenance aim for an extra fifteen hundred so your total savings target might be forty five hundred for a

20:58thirteen thousand dollar car step four shop smart when you have the cash saved start looking for a two four

21:07year old used car with good reliability ratings get it inspected by an independent mechanic negotiate the

21:14price not the payment don't mention your down payment until you've agreed on the price get pre-approved for

21:20a loan from a credit union or bank so you know your interest rate before you walk in step five

21:26stick to the

21:27rules put twenty percent or more down take a forty eight month loan or shorter make sure total costs are

21:33under ten percent of your income drive the car until the wheels fall off then repeat the process

21:39final thoughts the car is not the goal look i'm not anti-car i like cars i like road trips

21:46i like the

21:46feeling of a new car smell but i like financial freedom more the goal of this podcast is to help

21:51you build

21:52wealth and one of the fastest ways to destroy wealth is to overspend on transportation the amount you

21:57should save before buying a car is not just a number it's a test of your discipline it's a sign

22:03that

22:03you're in control of your money not the other way around so here's my challenge to you go open that

22:08ride fund today even if it's just fifty dollars start practicing the payment start building the

22:14habit in six months or a year you'll walk into that dealership with confidence and you'll drive away in

22:19a car you can actually afford without the anxiety without the regret and without the 84 month prison

22:25sentence that's all for today's experiment here at the cash flow lab if this episode helped you

22:31share it with a friend who's about to make a bad decision at a car lot and if you have

22:35questions

22:35drop a comment below i read every single one i'm frank keep experimenting keep saving and keep

22:42your cash flow positive we'll see you in the next episode

How Much Should You Save Before Buying a Car?

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