Automobiles, Money Management

My Plan For Purchasing An Automobile With Cash

Currently, my wife and I own three, paid-for automobiles, a 2001 Accord, a 2000 Town and Country, and a 1994 F150.  Here’s my plan to replace our automobiles, over time, and always pay with cash.

I plan to save about $10,000 by 2009 and use that money to purchase a newer, used minivan to replace the Town and Country.  (By selling the current Town and Country for a couple thousand dollars, I will have between $10,000-$13,000 to spend on a nice, new-to-us, dependable van.)  By 2011, I will have saved an additional $10,000 so that I can replace the Accord.  (Again, I can sell the Accord for a couple thousand dollars and add that money to my savings, and then I can purchase a nice, used car.)  I plan to drive the old truck “until it falls apart” and I will only replace it if absolutely necessary.  I will continue this “saving money-selling current automobile-buying used” process over and over.

Two years ago, we purchased the minivan for less than $8,000 and we LOVE it.  I just cannot IMAGINE buying a new car.  For less than $10K, we have a very dependable, very reliable, easy-to-insure, minivan.  I have a good friend who is a mechanic, and he’s cool about giving any perspective purchase a thorough “once-over”.

I realize that the cost of automobiles (and all goods and services) will go up over time, but so will my salary.  So, instead of $10K, I might need to save $12K or $15K.  Either way, the basic plan is to save up some cash, drive my current automobile until I am ready to make a purchase, sell the current automobile, and replace it with a clean, reliable, affordable used car.

How about you?  Do you plan to pay cash for your next car?  If so, will it be a “new” car or a “used” car?

Read more about cash and cars:

Our Plan To Replace Our Old Car

The Best Thing About My Old Truck

I Just Purchased a Mini-Van WITHOUT Borrowing Any Money – Here’s How!

13 thoughts on “My Plan For Purchasing An Automobile With Cash

  1. I plan to pay cash and buy a new car. I prefer buying a new car rather than a used car.

  2. How much do you funnel to your new car fund(s) each month? We’re in the process of figuring out how we want to begin saving for our next automobile as well.

  3. Seth, after I fund my Roth’s for 2007, which I should by the end of June? July? I’ll start saving between $1000-1500 a month… something like that? Maybe a little more, or a little less… AT a MINIMUM, I’ll put back a ‘car payment’ each month… say $500

  4. I agree with the ‘car payment’ method of saving. $500 is more than I would allocate, but I’m on board with the concept. The beauty of this is that your ‘car payment’ savings is EARNING interest instead of COSTING interest.

    In addition, I would bet that there’s a good chance that you won’t use all of the savings on your next car purchase, leaving a starter fund for the following car.

  5. I hope to pay cash for my next car–a newish used car is usually what I go for (a large bulk of the depreciation has occurred, but it’s still under warantee). I’ve been pretty bad at saving in the past (never in debt, but never with a lot in savings other than 401(k), either), so now I’m working my way up to saving a car payment every month. I hope my car lasts long enough to have enough in savings to pay cash. That’s really my ultimate goal for my next car.

  6. I financed a new car about a year ago. In hindsight it was probably much more than I needed but I am well on my way to paying it off early, by Jan if all goes according to plan.

    Once I have it paid off I probably have many more years left in this car, so my plan is to put approx $300-$400 a month into a high yield savings account. This account will be used to save for a new car, but will also fund any service on my current vehicle. Once the yearly cost of maintaining my current car exceeds the amount I’m putting into the account, I will sell my current vehicle and by a slightly used one with the balance of what’s left in the account.

  7. The other problem with financing is what Matt just explained. It is very easy to buy more car than you need. If you are walking in with $1,000 down payment, and are looking at cars in the $20-$25,000 range, what’s to stop you from going straight to the top of the range, or even a bit over. When buying with cash out of a predesignated account, you have an absolute limit. “I have $10,000. Not $10,500, but $10,000.”

  8. I recently bought and sold cars on the open market to trade down. It is a lot of work and also risky.

    I have learned that the “blue book” is only a guide. And the prices will wildly fluctuate. People will offer you almost offensive amounts for your car. Likewise do not be afraid to ask for a deal. They can always say “no.”

    Remember that people are not as offensive as what a dealer offers and asks for cars.

    Remember this story the next time you walk into a dealer, buying new or used.

    I took in a great shape low miles SUV to CarMax. They had the same exact car but different color on their lot for $15k. They offer to pay me $7k cash, the lowest wholesale price they could cite for the car. Then they want to try and sell me a $5k wholesale car for $12k. I asked the sales person if he seriously thought I would give them my car and walk out with a car worth $2k less AND pay them $5k for the privilege of getting raped? That was the worst one, but not the only.

    We ended up with a Honda van still under warranty we bought through an ad in the paper for just over wholesale. It had a few dings, but it runs fine.

    My SUV? I sold it for less than I started off asking (blue book), but got way more than any dealer offered.

    Be careful with cars. Unless you have money to burn, invest as little as you can get away with. Cars are nothing but money pits.

  9. I don’t know, having owned two cars in our lives and both bought with small starter car loans, I can’t say that car loans are bad. I think they are, but without them we couldn’t have bought our cars because we didn’t get a free car from our parents. We only bought a car when we finished college, so it’s not like we were spoiled, but we both needed cars for our new jobs/lives.

    But we also had to use money for apartment deposits, etc. And while we worked in college, no CC debt, and some student loans. So we had a lot of starter debt.

    I’d like to know what you suggest for people? How to start at 20 and 22 like us without any parental help? And you used your college money for working on campus, lived at home, saved and paid tuition?

    I wouldn’t want a loan now, but I don’t know how kids who don’t get their first beater car from their parents or are allowed to buy their first car from the parents do it. I mean DH had $5k car loan, I had about $7k. Not huge but to me it made a big deal. And $10k student loans.

    I’d like to know how to start out life without any debt at all? And no parental help.

  10. There have been many generations before you that have started their lives without debt and credit. They did it the old fashioned way and they started early. Say, around 13 years old. It starts with part time jobs and saving. Saving enough for your first car by 18. Going to a (commuter)state college or community college or trade school and paying your tuition off in no-cost time payments (over the school year). It’s not very difficult to do. School is spent in tees and jeans anyway. And ramen noodles.
    Once you graduate, you work, you save for a down payment on a home. Your wedding is simple. There is no need for debt or credit. A mortgage, and some low cost student loans (2-4% are fully tax deductible) are really not considered to be bad debt. It’s up to you. If you are a child of a parent who survived the depression (as I am) you learn early on from your parents on how to make it in life, debt free.
    Pass it on.

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