Here is the thing, you can buy a car with cash. It won’t happen on accident. It won’t happen without effort, but it is a realistic and worthwhile goal.
If you’re a long-time YNABer, you already know how to do this, but for those of you who are thinking, “How in the world would I ever be able to buy a car with cash?”—this one’s for you!
A Car Payment Is Not Inevitable
It may be all you’ve ever known. It may be all that was modeled to you. But you don’t have to have a car payment.
If you have one now, there are ways to get out of it. You could sell your car and downsize, or get crazy and be obsessive about paying it off aggressively.
Save With Intention
There are two primary strategies that can help you get into a place where you could buy a car with cash.
New To You Doesn’t Have To Be New
New cars are tremendously expensive and they are pretty much the worst investment ever. The minute you drive off the lot, that car is plummeting in value. And that depreciation just keeps on rolling! The first three years are particularly bad.
So when you’re buying a new car, it’s like saying, “I want to buy this stock for $100, because I know that in two years it will be worth $60. Nothing like a great deal!”
Reliability isn’t a compelling argument, because there are plenty of used cars that are perfectly reliable. So, I just want you to think about this for a second: If you are buying a new car, why are you doing that? It is not for a financial reason.
Get Ahead Of Depreciation
If you buy a used car—one that’s three, four, five, six, seven years old—suddenly, depreciation is almost a non-issue. Almost. That is rule number one: Buy a used, new-to-you car.
Otherwise, you’re just pouring cash into an investment that promises to go bust. Remember buying a stock for $100 that you know will be worth $60 in three years—you wouldn’t do that. So,….
Pay Yourself First
The second rule is to pay yourself. You have to change the way you think about it. You need to start thinking about paying yourself a car payment every month instead of paying the bank.
Essentially, it’s just saving. It’s just Rule Two. A “new” car is a True Expense, you put money away for it every month. You know you will need a new car eventually. It just happens. It’s part of life. It’s a living expense. You know you will need a new car so you start paying yourself.
Julie and I set aside $360 per month for a new car all the time. When we bought our van—five or six years ago—we immediately turned around and continued setting aside $360 every month.
Our “New Car” category went all the way down to zero, and then the next month $360. If you set aside $360 every single month, you start to save some serious money.
Do The Math
It’s not rocket science. You’re buying an asset that does not go down rapidly in value and you are able to save faster than that asset declines—way faster, way faster. All you’re doing is building up a savings of cash for a new car and you’re not letting the actual car decline so rapidly in savings. When you combine those two together, you sell that car, you have the cash for it already, then you can actually upgrade and buy a little nicer car. (Maybe a slightly newer car, I still say you should be looking for deals.)
You don’t have to have a car payment. You don’t have to buy a new car. Instead of making a payment to the bank every month, pay yourself—even if it is a small amount—and save up.
Not rocket science but it sure can change the way you feel about your daily commute.
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