Category Archive: Automobiles

Saving For A Car

I drive a 2001 Honda Accord.  It’s a great little car.  Right now, it has a little over 175,000 miles on it.  Sooner or later (let’s hope, later) I’m going to need to buy a newer automobile.  Here’s my process for saving for a car – or any other major purchase.

1.  Using the super-handy You Need a Budget software, I create a budget category labeled: Automobile Replacement.

2.  I estimate the number of months between now and my plan-to-purchase date.

3.  I then estimate the cost of the replacement vehicle.

4.  I divide the estimated cost by the estimated number of of months.  This tells me how much I need to save, each month, to reach my savings goal.

In effect, I’ve created a monthly “payment”.  Instead of paying the bank or the finance company – I’m paying myself.

I like to automate the process.  I use our Ing Direct Savings Account to set up an automatic monthly withdrawal – for the “payment” amount.  I deposit my paycheck in our local bank, the automatic withdrawal occurs a few days later, and I’m one month closer to reaching my goal.

Now, obviously, there are some things to consider:

First, it’s rather difficult to estimate the exact cost of a future purchase, especially a purchase that may be several months (or even years) down the road.  My system (rather imperfect, but something to work with) is to find the average price of the automobile I want, today, and then add 5% to that price, for each year that I’ll be saving.  If the car costs $10,000 today and I plan to purchase the “same” care in 3 years, my goal will be $11,500.  Again, this is a very rough estimate and doesn’t take in to account compounding, but it’s a number to work with.

Second, it’s also difficult to tell just how much my current car will be worth, when it’s time to sell it or trade it.  So, for me personally, I just leave it out of the equation.  Why?  I would rather over-save (is that a word?) than under-save.  Plus, even if I buy something newer, I might just keep my little car.  If I knew that the future price of my current car was going to be rather significant, I might consider that when creating my savings goal.  As it stands, I’ll just save for the newer car – and decide at the time of the future purchase, whether to sell the old car or not.

Third, I might need a newer car before I’ve reached my savings goal.  Again, it’s difficult to be in the prediction-game.  My Accord is running quite well and gets me, comfortably, from place to place.  Ten months from now, this might no longer be true.  The goal is to be prepared, as much as I can, given the facts that I currently have before me.  I cannot be (overly-) concerned about things that I cannot control.  I prepare for a certain reality and adjust as needed.

Fourth, I really don’t worry too much about the interest rate that I’m getting on my savings.  Right now (as you well know) – most rates are very low.  In the past, like when I started this blog, it was fun to get 4 to 6 percent rates – and I would use them when calculating how much I’d have in x number of months.  Now, I just focus on principal and consider any interest earned as a bonus.

By creating a monthly “payment” – to myself – I do two things.  One, I am assured that I will reach my savings goal.  Two, I keep myself from spending “extra” money on frivolous things.  One of the distinct dangers, oddly associated with being consumer-debt free, is the fact that, without monthly obligations to creditors, it is easy to be wasteful.  By creating a series of budget categories, under the heading of savings, an saving for specific things, every dollar has a name, every dollar has a purpose.

There is a side-benefit to saving for specific goals and specific purchases.  We have savings categories labeled – Appliance Replacement, Furniture Replacement, Automobile Replacement, etc.  Each category is funded, monthly.  Once a category has been “fully-funded” – the money that was going into that category, is directed into another category.  In effect, we are “snowballing” our savings goals – just like we did with our debt reduction.  That 36-months goal might become a 30-months goal, or even a 24-months goal, depending on how quickly we fully-fund other categories.

One last note – We didn’t have savings categories until we paid off our last consumer debt.  Instead, we used every penny (above our emergency fund) to pay off debt.  The interest rates charged by our creditors were higher than the rate we could achieve in savings, so it made sense, mathematically and emotionally, to get out of debt.

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Planning To Replace My Old Car

I own a 2001 Honda Accord.  It’s a great little car, and even though it’s a decade old, it still gets really great gas mileage.  The paint and the interior are both in pretty decent shape, despite the fact that the right-front panel was recently damaged and repaired.  I like the car, but with growing kids and the fact that it has nearly 200,000 miles, it’s time to think about replacing it.

It never hurts to plan ahead – even years ahead – so that’s what I’m doing.

I’ve already started to compile a list of used vehicles that I might want to purchase.  I want to buy something a little bigger than the accord, maybe a small cross-over or a mid-size SUV.  I’ll be comparing gas mileage, insurance cost, safety information, etc.

I have created a budget category labeled – car replacement – and I’ll fund it each month.  Instead of making payments to a finance company, and paying interest, I’ll be making payments to myself, and earning interest.  My plan is to save up 100% of the cost of the newer car and avoid financing.

I have a good relationship with my insurance agent.  When purchasing a newer automobile, it’s very important to know how much it will cost to insure the automobile.  I’ll take a list of four or five automobiles to him.  My agent will run the numbers and let me know how much it would cost to insure each.

The Accord is in good shape and I hope to keep it for a minimum of 3 years.  At that time, I’ll consider selling it, trading it, or keeping it.  My oldest daughter is almost 11 years old.  In just over 5 years, she’ll be ready to get her license.  It would be great if the Accord makes it that long, even if she just uses it for a little while, as she learns to drive.

Obviously, if I want the Accord to last 3 (or more) years, I need to continue to maintain it.  I’ve recently had new tires put on it.  I change the oil and have it serviced on a regular schedule.  Fingers-crossed, when I’m ready for the newer car in a few years, the Accord will still be in good shape, ready to be sold, traded – or kept.

Living the debt-free life, it’s imperative that I plan – plan – and then plan some more.  There’s always something to think about, something to prepare for, something that will need replacing.  Saving enough cash to pay for the things we want keeps us out of debt – and in the long-run – save us money!

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The Best Thing About My Old Truck

I have this old truck – a 1994 Ford.  (It’s not THAT old, but at 15 years, it has its share of scrapes and dings.)  I use it, mainly, to haul off the trash, but it’s also good for towing a trailer or bringing home supplies from the lumber yard.

I bought the truck, used, almost 10 years ago.  I really like my old truck.  It’s not much to look at, but it’s fun to drive and it gets me where I need to go.

Recently, I had a couple of truck-related.  It needed some pretty major engine work, several other parts (like the brakes and belts) needed to be replaced, and it needed new tires.  I thought, very briefly, about replacing the truck with a newer model – but quickly decided not do so.

Instead of replacing the truck, I had it repaired.  A good friend of mine is a mechanic, and he fixed the engine and replaced the worn out belts and brakes.  Two days ago, I had a new set of tires put on it.  It’s now running, in my opinion, better than it has in years.

The best thing about my truck – honestly – is the fact that it’s paid for.  It’s mine.  I own it.  Sure, it’s old, a little beat up, and requires some attention, but, again, it’s paid for.  For the cost of two, maybe three, car payments, I was able to get my old truck fixed, put a good set of tires on it, and keep it road-ready for another five, maybe ten, years.

To put things in a bit of perspective, let me tell you a quick story-

Several years ago, long before No Credit Needed time, I owned a little blue car, a sedan.  It was a nice car, it handled well, and had no major mechanical issues.  One day, as I was driving down the road, I heard a strange noise.  When I arrived home and inspected the car, I found that there was a problem with the rear tire on the passenger’s side.  I also noticed that the right-rear brake-light had gone out.  Instead of fixing the tire (or just buying a whole new set) and replacing the brake-light (a 5-minute job that might have cost me $5) – I traded the car and financed the purchase of a brand new SUV.

That’s right.  I didn’t want to deal with two very minor repairs – so I went into debt – simply to avoid a little hassle.  It makes me cringe, even now, thinking about the foolishness of that decision.  Alas, I was young, convinced that I could make the payments, and looking for excuses to upgrade.  I found the excuses (very lame excuses), and I made a poor financial decision.

The good news is, after years of not-so-bright decision making, I managed to get my act together, turn things around, get out of debt, and move forward.  I don’t want to even think about where I’d be, right now, had I not come to my senses.

By the way – I’m not saying that I’ll never buy a newer (or even new) automobile.  In fact, a few years ago, I purchased a slightly used minivan for our family.  However, there was a major difference between the SUV purchase and the minivan purchase.  The SUV purchase was ill-planned, silly, and required taking on an unwise amount of debt.  The minivan purchase was well-planned, justified, and made with cash.  The day after I purchased the SUV – I felt immediate buyer’s remorse.  The day after I purchased the minivan – I felt a sense of accomplishment.

Each time I take it for a spin, I’m reminded of the fact that my old truck is paid for.  The title, tucked away safely, has my name on it.  Humble though it may be, it gets me safely from point A to point B, and that’s really what’s important.  Divorced from any notion that I-am-what-I-drive, I’m free to focus my time (and my finances) on more important things.

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