How to Pay Cash for your next Car
Car expenses can be one of your largest budget items. Here’s a simple strategy to potentially save the money you might need to buy your next car without having to take out a loan. After watching this video, download The MoneyEvolution Guide to Understanding the Total Costs of Car Ownership, a Free Downloadable PDF you can find on our Resource Page here, DOWNLOAD NOW
Click The Button Below To Get Your FREE Copy of
What Every Investor Should Know About Planning And Saving For Retirement
I’m want to talk about How To Pay Cash For Your Next Car.
As you might expect, your car expenses can be one of the biggest components of your budget, and if you’re not careful, your car expenses can really eat into that budget and essentially destroy that and cut into your lifestyle and cut into your ability to save money. Obviously, you want to be smart about your car and you want to see where those car expenses fit within your overall budget and make sure that it’s not eating too much.
I like to recommend that your total car expenses, which includes not only the payment, but also your insurance, your license fees, your gas, your upkeep, your maintenance, all of that, composes no more than 10% of your take home income. If it starts getting any more than that, again, it’s going to start really eating into your budget.
Remember, your car is a depreciating asset, so one of the ways that I generally like to recommend buying cars is the way that I personally buy cars, and that is to look for a car that has a good history of longevity, a good maintenance track record, a good resale value. Look for a car that’s generally two years old or less. I like to look for cars that have 35,0000 miles or less on it generally, and one of the other things that I like to do as well is to, find a car that comes with a factory-certified warranty. You can sometimes get a warranty that takes you all the way to 100,000 miles, my last car had that. I think that helps to take some of the uncertainty out of this whole car buying process, where a lot of people don’t want to buy a used car because they’re worried about how much the maintenance and the upkeep is going to be.
So, here’s my strategy for buying your next car completely for cash. So, in this example, I’m going to use a hypothetical and say that you decide that a $20,000 car is the price range that you want to be at, and hopefully, again, you find a good deal and you do all your homework. Let’s say you put a little bit of a down payment on the car, say $3,000 down. Maybe that’s from your existing trade in, or maybe you have $3,000 to do that, which means you’re obviously going to finance $17,000. Now, according to BankRate.com, the average loan for a used car as I checked it here about a week ago, this is April 2017, was 4.84%, so if you got a 36 month loan, your monthly payment is going to be about $508 a month, and that’s generally what I would like to see most people do is to try to find something that’s going to fit into their price range where they could pay that car off in 36 months or less. If you stretch that out and you did a 60 month loan, which is five years, your payment would be $319 a month and if you do that, what I would like to see people do is even if your minimum payment is 319 or even if your minimum payment is 508, if you can afford to put more principle down as you’re making those payments, that’s generally going to be a very good thing. But let’s assume for this example here, let’s assume that you do the 36 month and you’re paying $508 a month.
If you think about this, in 36 months the car will be paid off if you’re just making that minimum payment, and in 36 months the car will also, if you did my rule of buying a car two years old, be five years old. One of the best ways I believe to get the most value out of your car is to literally drive your car until the wheels almost fall off. You know you’re going to get the most bang for your buck, so 36 months from now, you won’t have any car payment, but let’s say you took this $508 and you pretended like you still had that payment and you put this $508 into a separate account that’s going to essentially be your car replacement account. In three years, you’re going to have over $18,000, $18,288 to be exact, and depending on what kind of car you’re looking at buying, you might be able to walk into a car lot and essentially maybe even pay cash or pay for most of that car. In eight years, my car I think right now, I’m trying to do some quick math, I think my car is going on nine years old, still looks fantastic. I think I got 170,000 miles on my car. I’ve never driven a car to 200,000 miles personally, but that’s my goal is to get to 200,000 miles and knock on wood, it’s been pretty much maintenance-free. If you drive that car until the car is 10 years old, in other words, you’ve had the car for eight years, then you would have over $30,000, $30,480 saved up in that extra account. So, this is a strategy that I’ve seen a lot of people do that can get them on a path towards essentially paying cash for their cars, and 4.84% isn’t the highest interest rate in the world compared to some other things, but it still really adds up, and so this could really keep your car buying expenses low. So, anyway, wanted to share that with you here today. I hope you found some valuable information.
What I Do
I help individuals make the transition from working to retirement.
As you approach retirement you will be making some of the most important financial decisions of your life. Most of these decisions don’t get a do-over, once you’ve made them your stuck.
My goal is to help you get the most out of your retirement resources. I do this by coordinating and optimizing what I call the 7 Core Elements of Retirement Planning.
It all starts with a plan!
We use advanced financial planning software to help you understand your retirement cash flow so you know where the gaps are.
Understanding your retirement gap is the foundation to getting the most out out of your retirement resources and avoiding costly mistakes.