Tuesday, July 17, 2007

More on Cars…

One more thought about cars…

I think that when most people hear someone say "save up and buy your car with cash," the immediate reaction is, "no way! That's too much money!"

But, remember, you have an asset to add to your cash. The trick here is getting your current car paid off. I was thinking about this as I drove to work today. My car will (hopefully) be paid off in about 6 months. I'm going to keep driving it after that while we work on our other debts, but once that car is debt-free, it now becomes a powerful asset for buying my next car.

If you think about buying a $10,000 car with saved up cash, you might feel overwhelmed. But it doesn't have to be that bad.

As an example, let's pretend my car is 5 years old and I'm ready for a new car. According to kbb.com, a 5 year old Taurus like mine is worth $6,195 in a private sale. In this example, let's also say I'm debt free except my home, and so I've been putting away $400 a month into a "new car" savings account. After just 10 months, I have $4,000 plus whatever interest I've earned in there.

I run an ad for my car and find someone to buy it from me for $6,000. I add that $6,000 to the $4,000 I've saved, and I have $10,000 to buy a car. Remember, I only buy good, reliable used cars, so finding one for about $10,000 shouldn't be too hard.

If I continue saving $400 per month, in just 10 more months, I could upgrade to a $14,000 car with cash (sell my $10,000 and add my savings). If I continue this trend, I could be driving a very nice car in just a couple of years, WITH NO CAR PAYMENTS!!!

Of course, I wouldn't do this. Once I get my new (used) car, I will drive it longer than 10 months so I can put that $400 into something other than a new car cookie jar. For example, maybe I'll put that $400 into a good growth stock mutual fund. If it grows at 10% (which it easily should) that $400 a month will turn into about $80,000 in just 10 years. In another 5 years, it would be about $160,000!!!

Wow! I'd much rather have $160,000 than that new car smell any day!!!

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