Question for People who buy Cars with Cash (versus credit)

[TiredX2]

When do you start saving for your next new car? 

Before we had a car, we knew we had to save for a car.  Then we were saving for a 2nd car.  Then we were saving to upgrade the 1st car (compact car with not enough room).  Well, we've had these two cars (the 2nd car and the upgrade to the 1st after it got totalled) for over 6.5 years now.  We don't have plans to replace either of them anytime soon and they both run fine.  It would have felt wierd to be saving for a car starting 6.5 years ago (when we had two basically new cars) but we'll need to replace them at some point... right?

So, what do you do?  Do you just save constantly and then buy a new car when you hit a magic number?  Do you save until you have enough for a car and then stop saving and just let the money sit in savings?  Do you save enough for two new cars and then just let the money sit in savings?

My biggest monetary issue, I think, is medium term savings--- I just don't know how much to have, how to grow it, etc...  I'd love any input on that issue, in general.

[betsu63]

I bought a car with no debt and then started saving again after a year. I am saving 200 every 2 weeks. It might not be enough for a new one, but my goal is to just have a big lump sum as I don't know exactly how much I will need in another couple years.

[SunRise]

This may be of interest or helpful. I have just come across it so I am not very familiar with it, but it did peak my interest in helping budget savings.

50/30/20 : Divide your money up. 50% towards needs; 30% towards wants; 20% for savings/debt. I am guessing the concept for this is to make sure you enjoy yourself while you live (opposed to spending most of your money on needs or trying to save all your extra income). In the article I read, it was more about lowering the needs money down to 50% of income and freeing up more for wants. I guess that 20% for savings would be to cover IRA and mid term savings.

I don't save for a car, but I am at the stage of no debt and saving 20+%. I do have a 7 year old car, paid off and running fine. I had a 0% loan paid over 5 years. Sometimes I think it would be nice to have a new car, but I dont need one and I dont want a monthly payment right now. When this car dies (at least 3 more years), I will have a chunk of money with the option to put towards a new car but I am also content to take a 0% interest loan on a car and pay it monthly. Or buy used.

Edited by SunRise - 11/4/11 at 10:22am

[mum4boys]

Dave Ramsey has a way of savings so I think after 12 years total you no longer ever have to save for a car again.  http://www.daveramsey.com/media/flash/elearning/drive-free/player.html

[MommyDOK]

we've never had a car payment.  We really don't save for a car, per se....but put 3 months savings in and then whatever is on top.  My car is 14 years old and I really want a newer one, but we don't have anything beyond the 3 months and the car works fine, so I can't justify taking on a payment for no reason. 

It is hard to save short term savings, bc it always seems like something comes up. 

[velochic]

Originally Posted by mum4boys 

Dave Ramsey has a way of savings so I think after 12 years total you no longer ever have to save for a car again.  http://www.daveramsey.com/media/flash/elearning/drive-free/player.html

ETChange because my immediate response was kind of harsh against DR, as much as it was deserved.

This is a farce.  People don't earn those kinds of returns over the long term even in good times.    He is skewing the figures to make people think this attainable, and it's not.  This guy and his advice are not to be trusted.  You can't guarantee any returns at all on the stock market, but you're lucky today if you don't lose money.  That being said, I think the iron is hot when it comes to the stock market and the time to strike in now if you have 20 years to wait.  You will be sitting pretty, I think.  But for short term savings, which is what car ownership is, the stock market is NOT the way to get yourself into a better position financially.  That's for retirement, college education, and other long-term goals.

Edited by velochic - 11/2/11 at 3:20pm

[velochic]

Tired - we do save long term for our vehicles.   It's like making a payment, but you don't worry if you miss a "payment".  We continue to save and when the car that needs replaced goes "kaput", we find one that we like (used).  If we have some money left over in the vehicle fund, it continues on for the next replacement.  We have several savings funds for different things, so we don't ever dip into the vehicle fund for anything else.  Everything else has it's own fund and likewise, we don't take from those funds to buy a vehicle.  The main advantages of buying used, in cash, is that you do not have the instant devaluation driving off the lot (a brand new car is worth about 20% less the day after you buy it) and you pay no interest.  We are always saving for the next car to be replaced (ours are now 15, 11, and 6 years old).  We've never *not* been saving for a vehicle.

[lilyka]

i just add it into my general savings.  I bought a car that would last and i should have 10 years to save up for the next one.  never hurts to save up for the unexpected car expense.  

[aeterna]

We don't save specifically for a vehicle... we just drive our cars until we think we shouldn't anymore, and then buy a new one at whatever price point we can afford. It seems that our comfort zone is turning into "5 years and $5k," heh... though we're intending to parcel off a bit of our tax return this year and make the pot a little bigger for the next car (probably $7k). This methods balances our desire for reliability with our frugality, although of course other people's need in either category may differ drastically.

[velochic]

Something else I thought of that is specific to our situation that makes saving and paying cash for cars more advantageous.  Dh is paid a 10-month salary.  If he doesn't get a grant to cover his summer salary, then those two months are tight.  Not having a car payment helps, but also we are not stressed about making as much of a contribution to the car fund those months, either.  If anyone has irregular income, saving up and buying with cash can seriously relieve the stress of having to make a monthly payment.

[crunchy_mommy]

We always buy our cars cash & we start rebuilding the savings as soon as we buy a car. It's part of our emergency fund, so it's not money set aside only for cars, but we like to always have the money available should we need it. One of our cars blew up one day -- completely unexpectedly, it wasn't that old and we had just spent ~$1K on maintenance/repairs a few months prior so it should have continued running well. We were glad to have money in savings so we could buy a replacement car immediately without taking on debt. We also use the money from that account to pay for repairs (as well as major household repairs & unexpected medical expenses) so we try to have a good cushion since it will often be needed!

We are not the type of people who buy new cars just to have a new car though... we only buy a car when the current vehicle is beyond repair. And our 'new cars' are usually in the $5-10K range... So I guess if you are looking to have a nice new $30K car every few years even when your old car is running well, then you might choose a different way of savings because the need/desire to replace it might be less urgent... We also don't have public transportation here so we wouldn't be able to do without a car for even a few days. If you could be carless for a long period of time then having money for a replacement probably isn't as critical...

[TiredX2]

Thanks for all of your replies.  Gives me a lot to think about.

[crunchy_mama]

Pretty soon after one is bought here is well, we should have our fund complete for the *new* van in a bit over a year but will not buy one until we have to, hopefully 3-5 yrs, better to be prepared though.

[EmsMom]

I just paid off my car loan (3 years early).  As soon as I did it, I set up a car account in ING and put what I had been paying on the loan to be deposited right to the car account in ING.  It might not be enough to buy a car outright when this one needs replacing, but I do plan on increasing the amount when I get a full-time job. In any case, it will reduce the amount of a loan if I need another one.  But if this car lasts for another three years (and it should), I will be in good shape.

[TiredX2]

Originally Posted by crunchy_mama 

Pretty soon after one is bought here is well, we should have our fund complete for the *new* van in a bit over a year but will not buy one until we have to, hopefully 3-5 yrs, better to be prepared though.

So, what are you going to do when your fund is complete?  Do you keep adding to it?  Just let the money sit in saving somewhere?  What?

[CookiePie]

Our plan is to continue to make a car payment to our savings account after our vehicles are paid off.  That way by the time we need a new car, we will have the cash on hand to pay for it interest free.  I hope to put this to good use once we have paid off both vehicles.  I know that it can be tough to do with other house projects looming, but I beleive setting it as a goal will help us considerably!  

~Maria

[EmsMom]

I would just keep adding to the fund on a regular basis.  Then when you need a car, use the fund. If there is some left, it just leaves more for next time.  I am sure there is a point when there is just too much there, but I cannot imagine ever getting there!

[crunchy_mama]

Originally Posted by TiredX2 

So, what are you going to do when your fund is complete?  Do you keep adding to it?  Just let the money sit in saving somewhere?  What?

Yes, in savings.  Last time we ended up buying a vehicle shortly thereafter due to a freak thing- lost our car in a house fire *right* after dropping to liability, which of course wasn't covered by the house insurance.  Good thing we had it saved as we had planned to drive the car another 3 yrs or so.  This time I'm not sure exactly what we are going to do.  We had 2 vehicles a van and truck for dh.  This summer we bought an old Civic for dh to save on gas(which has saved tons) the side benefit is the truck that we were planning to have to replace fairly soon will not need to be replaced for a good time(as now it is just being driven occasionally due to weather/roads or hauling) so we started work on saving for the van sooner than we had planned.  Dh's truck is 16 yrs so I figured we would have to replace it soon, the van is 10 yrs but going good but even if it continues to drive well we can only fit 2 more kids and we're not sure when we'll space out of it.

Anyway, none of that is relevant really to that question.  We are currently working on funding a few different things, e-fund, med ded and the car.  We keep changing our mind on how much each needs to be and the total amount we end up with will dictate how/where it is put.  Currently we have a good checking account that gives us 5% interest and are maxed out in it when we start to grow the savings again(we are currently finishing the basement so not adding to the savings) then I'll be establishing a new account and hopefully by the end of next year we'll have it maxed out to the total as well.  After that we'll likely start back on the fund for dh's vehicles.

[Mulvah]

I know this isn't what you're asking, but don't just hand over a check for the car.  (Well, for privacy reasons, I could see trying to avoid the below.)

If you can, wait for a 0% deal on the car.   It isn't always feasible - the dealership may not offer one and if they do, you may be unable to wait - but it's worked out really well for us and it allows us to earn interest on our money while paying off the car, interest-free.  The other thing that works is getting a 0% interest free credit card with great rewards, paying the car off in the promotional time (usually 12-24 months) and then getting money or gift cards through the credit card reward program. 

That aside, we don't have a "car fund", we simply have a main savings account for big purchases. 

[wildmonkeys]

We have a fund that is replacing things we know we will need to replace - we put in a decent amount every month - this could be for a roof, car, furnace, braces, etc.  We cross our fingers that things don't all break at once and force us to consider dipping in to our emergency fund which is a different fund altogether and one that we created 7 plus years ago before I quit my job...