Hello Smart Money People,
Let’s talk CARS. What is a car? I googled it to see what the internet would offer as a definition and here is what I found:
- A vehicle moving on wheels (merriam-webster.com)
- A road vehicle, typically with four wheels, powered by an internal combustion engine and able to carry a small number of people (en.oxforddictionaries.com)
- An automobile (dictionary.com)
Let’s talk money. According to an article on thebalance.com in 2015, 85.9% of new cars were financed through a loan. The average monthly car payment in 2017 was a whooping $479. Actually, I know a guy that has a $700 car loan. That is literally RENT, but I digress. For a car payment that is frighteningly high, Experian reports the average term of a new car loan is 68 months and the average amount financed is $30,032, see the article from Forbes.com HERE. Yet the average American, 57%, have less than $1,000 in savings. Read more about how Americans are saving in this article.
So, what is it with CARS, people?
Well people think of cars as status symbols, possibly? The nicer the car the better the life you must have. I call BS on that. Some people claim to be “car people.” I call BS on that too. Maybe what the Joneses think of you makes you want to look better than what you can afford?
I also cannot say I get it.
I bought a mini-van when they were not cool. Actually, I am pretty sure they were never cool, but I do LOVE mine and don’t care what anyone thinks. Here is another thing, I didn’t want to be in debt. So, Bill and I saved money for a car. We didn’t go out for dinner, we didn’t buy the latest clothes and we didn’t get the latest smartphone. And we were told a LOT “we deserved nice things”. We didn’t listen. It was painful at times and it was uncomfortable often but we wanted to be in a better position than we were in. One of those decisions was purchasing cars.
So, if YOU want to buy a car here are a few tips to help you on that road to paying cash.
- MOST important, you don’t NEED to have anyone’s approval to buy what you can afford, CASH.
- DON’T BUY NEW. A new car depreciates 19% the first year of ownership. That means if you buy a car for $25,000, after one year it is worth $20,250.
- Over the next 5 years that same new car depreciates 60% of its value. What does that mean? Your $25,000 car in 5 years is worth $10,000.
- Consider your BUDGET. What can you afford today if you were going to buy a car? There is a saying “You get what you pay for.” In this case, “You get what you save for!”
- If you have to step buy a car, it is a good strategy. What that means is if you buy a cheaper car, let’s say $2,000 cash and then save more, $300 per month for the next 24 months ($7,200), and then trade in the $2,000 car it looks like this: Trade in $1500 + saved $7,200 = $8,700 and buy up, you can, over time, get a nicer car, CASH.
At the end of the day a reliable car gets you back and forth to where you need to go. Period.
Here is what you need to decide:
- What do I NEED to get where I need to go?
- How much does it mean to me to be FREE of payments?
- Am I willing to reduce my car expectations and NOT have a car payment?
- Can I save money every month in a car fund to eventually get to pay cash for a car?
- Is there anything I can sell to jump start my savings?
I will leave you with this, Bill drives a 2003 Honda Civic. The driver door lock doesn’t work. He crawls in over the passenger side to unlock the driver side door. All door handles are duck taped. Classy. Over the course of 4 years we saved up $16,000 for a replacement car. We have yet to buy a replacement car because his still works and gets him where he needs to go. You can do this. It takes a shift in priorities, hunkering down on your expenses and really being creative with your savings.
You’ve got this!
Always in your corner!
Karen & Bill