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How do you save for your future new/used car?
Old 08-09-2007, 10:13 AM   #1
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How do you save for your future new/used car?

I'm curious how some of you save for a car you know you'll need in four, five, six, seven, etc. years. In a few months we'll have our 2006 4Runner paid off and the other car a 2000 Saturn something-or-other has been paid off. We'd like to keep cars for ten years or until they die on the side of the road.

Do you invest in a separate account for your next car? Simply take it from cash reserves and then replenish that over the next few years? Or something else entirely.

I tried to do a search in the archives to see if this had been discussed, but couldn't find anything.

Thanks in advance,
GB
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replacement car
Old 08-09-2007, 10:33 AM   #2
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replacement car

Hi,

I tend to keep cars for a long time...10 years, if possible. So, I try to put aside $2000 or so per year in a low-risk taxable account to build up a reasonable fund to cover most of costs of replacing a car. It's not easy to do this because of all the other spending temptations.

My accountant friends say that if I was a company, this would be the purpose or theory of showing asset "depreciation". I hope I've expressed the concept correctly.

Piano
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Old 08-09-2007, 11:06 AM   #3
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Like Piano88, I tend to keep my cars a long time. I always buy used, usually at least 3 years old. Sometimes much more. I've always paid cash for my cars. The money comes out of cash reserves.
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Old 08-09-2007, 11:17 AM   #4
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As an example, if you buy a $30K car every 10 years, include $250 ($30K / 120 months) in your monthly budget for that expense and accrue those amounts on the liability side of your balance sheet.

Of course, you also want to make sure you save real dollars to support your accrued expenses.
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Old 08-09-2007, 11:48 AM   #5
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I took out a car loan for my first two cars. Then I wrecked the second one, and bought a third one with the insurance money plus an extra $3K cash.

I'm saving money now toward the next one, so I plan to pay cash.
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Old 08-09-2007, 12:36 PM   #6
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It seems that I will always be making some sort of car payment. I tend to keep a car 10 years or more. Some years ago I decided that I would always make a car payment but, instead of paying for a loan, I would prepay it into a special savings account. Now I make the interest on the loan off of my loan to myself. When I buy my next car I will have saved twice the cost of the car (I tend to buy a used car like a Camry 1-2 years old). I save about $10,000/year for car, property tax, insurance payments, etc. every year and, so far, have always found that I rarely need to tap it. I pre-saved for a new roof last year ($8,000) and, luck had it that I had enough in my cash flow to leave $7000 in the savings. This year has been much tighter. I have had to use $2000 of the savings. The best thing about the pre-savings is that when a good CD rate at PenFed comes up, I usually have at least $10,000 extra in this account to buy another CD. Prepayment to your self of the loan you won't need is always best in my view. It is no more painful than paying for a loan from the perspective of your cash flow. Obviously getting a good car and driving it for many years is key to this scheme. Also, if I took the time to save the money to a higher earning money market other than the one associated with my checking account, it would be even better.
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Old 08-09-2007, 01:07 PM   #7
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I'm considering leasing for the first time. The payments are maybe 60% of a loan payment, depending on many factors of course. But I figure this way I get a new car every 3 years and always have the full warranty.

Anyone else leasing?
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Old 08-09-2007, 01:35 PM   #8
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Cars and all the rest of the capital expenses (tires, furniture, water heaters, roof, etc) are planned at intervals that they'll be needed, and I look at the aggregate of all of it, discounted to NPV and thats how much extra I need to make every year to accommodate those costs when they materialize.

More of a planning exercise for me. I found that all this stuff costs about 5k per year in additional income or appreciation I need to create. Which sounds like a lot but when you sit down and look at your capital costs over 20 years, theres a lot of stuff to replace or maintain. If you buy cheap cars and keep them a long time, rent your house, and tend to wear things out to the point where they self-immolate...you might have a much cheaper number.
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Old 08-09-2007, 02:01 PM   #9
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I've always saved up most if not all of the cost of the new car I wanted. Up until a few years ago it was just stuck in a regular savings account (I didn't know any better). Now, I stick it in CD's until I'm ready to start looking for a 'new' used car. In the year that I'm going to make the purchase, I transfer the money to a 'high interest' savings acct as the CD's mature.

I tend to drive 'em 'til the wheels fall off....or a little longer. I drove my last car for 11 years.

I always like the funny look the car salesman gets on his face when he asks how I'd prefer to 'finance' the car, and I tell him "I'll write ya check for the balance." I guess it's an oddity for people to pay cash, and not take out a loan. Although I did take out a small loan for my current car last October, because I hadn't planned to buy one until sometime this year, and my 'car money' was still tied up in CD's. But I'd come across a very good deal that I couldn't pass by!
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Old 08-09-2007, 02:07 PM   #10
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my two-fold future car plan: at retirement (age 48 ) i bought a ~$35k vertible stang gt while i've still got the reflexes to enjoy it. fun enough for weaving between suv's around town and comfortable enough for roadtrips. planning on about 3 years or more of north american summer roadtrips, eventually extending myself overseas. if i don't take to travel, i keep this car until it is worth maybe $15 or 20k & then add small amount of cash & buy a nice practical toyota or a miata ragtop to run around town in.

if i do take to travel, then after 3 to 5 years of north american roadtripping, get rid of car and live a carless vagabond life overseas, likely southeast asia or south africa where instead of the vertible gt i can ride the ultimate convertible, elephants. i'm not sure how to work out the depreciation on that, but i hear they get great mileage.

when i'm too old to climb up on elephants i'm coming back to the states & moving aboard a comfortable trawler from where i will plow the waterways of north america and winter in the caribbean or the bahamas. the dinghy will serve as a car.

so i guess my transport plan is really a three part plan: mustang, elephant, dinghy. oh, you wanted to know how i intend to save for this plan. um, i thought that part was already done.

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I always like the funny look the car salesman gets on his face when he asks how I'd prefer to 'finance' the car, and I tell him "I'll write ya check for the balance." I guess it's an oddity for people to pay cash, and not take out a loan.
took them a bit of a while to process my payment. the business manager apologized when she came back to me saying her office had never seen such a large check before.
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Old 08-09-2007, 04:22 PM   #11
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You guys that pay cash ($10000-$35000) for a new car, do you write a personal check, or nail down the price then go get a cashier's check? If I were a car dealer, I'd be scared of taking a 5 figure personal check.

I plan on paying cash for a couple of new cars in the next few years.
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Old 08-09-2007, 05:21 PM   #12
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Quote:
Originally Posted by justin View Post
You guys that pay cash ($10000-$35000) for a new car, do you write a personal check, or nail down the price then go get a cashier's check? If I were a car dealer, I'd be scared of taking a 5 figure personal check.

I plan on paying cash for a couple of new cars in the next few years.
I wrote a 5 figure check 2 months back and they had no trouble with it. I let them run a credit check and I have exceeding good credit (same address for 29 years, no debt, no collections...).

I did tell them the check wouldn't be good until I got home and moved the money into the checking account.
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Old 08-09-2007, 06:12 PM   #13
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I have always paid cash for our new cars. Last time, the car dealer was offering 0% interest, so took that for 3 years and just before the 3 years was up just wrote a personal check for full amount and paid them.
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Old 08-09-2007, 06:35 PM   #14
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I wrote a personal check for my present car when I bought it new, back in 2000. I had never written a check that big before in my life! My hand shook and I had to void the check and write a new one. They had no problem accepting it, though.

As for how I save for a car - - I am not married, which simplifies things. I just move money from checking into savings as it accumulates, and I don't let myself touch my savings account. I spend what I budget to spend, and saving a little more than I have budgeted to save, is sort of like a game for me. It's a challenge, and I usually win.

Since last November, when I paid off my house, I have saved more than enough for my next car. I probably won't need it for a few years, though, so I will probably move that pile of money from my low interest savings account into Vanguard money market or else Ing or another one of those higher interest savings accounts.

I plan to never borrow money to buy a car, again.
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Old 08-09-2007, 07:34 PM   #15
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Quote:
Originally Posted by justin View Post
You guys that pay cash ($10000-$35000) for a new car, do you write a personal check, or nail down the price then go get a cashier's check? If I were a car dealer, I'd be scared of taking a 5 figure personal check.
The first new car that I bought back in 1977, I paid cash for......literally. I didn't have a checking account, so I went to the bank and got a fistful of $100 bills....then walked over to the dealership and counted them out!

Every time since then, I've written a personal check, and no one has ever questioned it. They gladly accept that little piece of paper with 'chicken scratch' all over it.

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I did tell them the check wouldn't be good until I got home and moved the money into the checking account.
Same here when I bought my current car, since I hadn't even planned on shopping for a car that day, let alone purchase one. I saw the car on the dealer's website, and stopped there on the way home from w*ork that day. Two hours later, it was parked in my driveway....signed, sealed, and delivered. And they had my 11yo Mitsubishi Galant and a little piece of paper with 'chicken scratch' all over it neatly written personal check. Once I got home, I went online and transferred money into my checking account.
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Old 08-09-2007, 07:48 PM   #16
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Here's a slightly different strategy. When I paid off my first "new" car, I started a savings account. The idea was that on any day I could say "The trade-in value of my old car plus the cash in my savings account will allow me to buy a new car without a loan". I checked the trade-in value a couple times a year to be sure I was on track with the savings.

Then we bought a house. After that, cars just came out of "cash reserves". When you're paying for roof, furnace, etc. your expenses aren't really smooth so it makes sense to have some cash so you're not always borrowing. OTOH, we always carried more cash than most rational people do. My wife sleeps better if we have a big (financial) cushion.
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Old 08-09-2007, 07:51 PM   #17
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I wrote a 5 figure check 2 months back and they had no trouble with it. I let them run a credit check and I have exceeding good credit (same address for 29 years, no debt, no collections...).

I did tell them the check wouldn't be good until I got home and moved the money into the checking account.
ditto, this is what I do. Never had a problem yet.
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Old 08-09-2007, 08:05 PM   #18
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Quote:
Originally Posted by justin View Post
You guys that pay cash ($10000-$35000) for a new car, do you write a personal check, or nail down the price then go get a cashier's check? If I were a car dealer, I'd be scared of taking a 5 figure personal check.

I plan on paying cash for a couple of new cars in the next few years.
i put 5k deposit on credit card and then another 5k on card when i took possession (the most they would allow me to run thru card). i put the remaining ~25k on a personal check and i refused to let them check my credit rating. i was paying them all that money so i didn't see why i should give them permission to lower my rating with a credit check.

it especially raised eyebrows that this was check #101 as i never write checks. fortunately, i have a very trusting face.
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Old 08-09-2007, 10:17 PM   #19
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1st car: Gift from Dad (Toyota) Kept it for 11 years.
2nd car: Gift from Dad (Honda) Had it 5 mos, rear ended--fixed, kept it for 4 years.
3rd car: Subaru -traded in the Honda, used the settlement proceeds to pay for car in full. Plan on keeping it forever.
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Old 08-09-2007, 10:34 PM   #20
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I bought a 2003 Subaru Outback wagon today for $14000 at a used car dealer. I just wrote a personal check on our Vanguard Money Market account for the whole amount. No credit checks or anything. I tried to pay by credit card but the sales guy told me that they would charge me an extra 2.3% if I did.
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