A relative recently bought a car. I reprise my method for getting the down payment for the next one.
(1) Recognize that a car has a certain life in time and mileage. I like to figure 80k miles and six years. After that point, and sometimes even before, big repair bills can creep in. Note the numbers used in this example are all predicated on these two assumptions.
(2) Ensure that you are not using the car faster than the 80k miles suggests. If that’s true (i.e., that you are using more miles that will not make the car last), then you need to refigure.
(3) Take 3 year financing. Note if you can’t afford the three year payments, then you can’t afford the deal. Revisit the whole decision.
(4) Now envision that you are going to make those payments for six years. The first three years you’ll be paying the financer; the second three years you’ll be paying yourself into a designated savings account. At the end of the six years, you will then have three year’s payments in the bank for your next car.
(5) Specifically, if you are paying 350$ per month, then you’ll pay off your loan in three years. And, if you stay with the program, then at the end of six years you will have 3 times 12 times 350$ or 12600$ for your next car. The theory is that with your six year old car and ~12k$, you’ll be in good shape to get a new car. If you run this program religiously after the second or third time, then you won’t need financing.
(6) After six years, you go into what I call the “bonus period”. Keep paying into the bank. Every month you can make that old car last is another month towards your next car free and clear.
(7) Clearly care and maintenance is critical for getting the most out of what is probably your second most expensive purchase. (House being number 1)
(8) Cars are a necessity. Some argue that buying used cars is a cheaper alternative. I think that buy and run until the wheels fall off is the better strategy. Leasing is advanced as an alternative for those who keep cars three years or less and have low mileage. I think that cars can be the way to the poor house or an intelligent strategy to get to wealth. Cars are NOT an investment, but they don’t have to be a drain.
IMHO
Reinke Faces Life 