Saving for new car

[GravitySucks]

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Originally Posted by Stormy Kromer I hate debt of any kind. That said. I am going to borrow every dollar I can for my next new car in a couple years. I have enough to pay cash for the dealership, but I don't want to sell $40,000 plus in investments to pay cash for a car. I will finance it at .9% and finance it for 6 years on their dime. If I sold $40,000 in my portfolio it would generate taxes of about 25% state and federal. My income will handle the monthly payments and keep me well within the much lower tax bracket. Plus I believe the $40,000 invested in VG Balanced fund will yield a better return than the .9% the dealership is offering. This is coming from a guy who loathes debt of any kind.....

+1
I guesstimate where the next tax rate bump will be that year. Put that much down and finance the rest.
2013 was my last new car. Financing was at 1.9%, A rated corporate bonds were paying around 4%. Made more sense to finance than take the tax hit. Actually would have made more sense to finance the max, but hate debt.

[rk911]

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Originally Posted by tmitchell Question about how you all work with scheduled major purchases in retirement. For instance I'm expecting to pay around 30k for a car every 10 years. A number of people here have recommended putting into my RE budget something like $300-500/mo for this kind of thing. For those of you who hold this line in your budget, do you invest this money in a special bucket, or is it just part of your overall holdings? If the latter do you just pull out $30k for the purchase when you get there? I have some of my holdings at Betterment and they have buckets that can be set up for longer term purchases, etc. Thanks for your thoughts!

we set aside $500 p/m into a "new car" fund which is kept at an online bank. we have about a dozen other sinking finds that we fund each month as part of our budget. out-of-pocket medical, dental expenses, vacation, RV maintenance, entertainment to name but a few

[Spanky]

Quote:

Originally Posted by Stormy Kromer I hate debt of any kind. That said. I am going to borrow every dollar I can for my next new car in a couple years. I have enough to pay cash for the dealership, but I don't want to sell $40,000 plus in investments to pay cash for a car. I will finance it at .9% and finance it for 6 years on their dime. If I sold $40,000 in my portfolio it would generate taxes of about 25% state and federal. My income will handle the monthly payments and keep me well within the much lower tax bracket. Plus I believe the $40,000 invested in VG Balanced fund will yield a better return than the .9% the dealership is offering. This is coming from a guy who loathes debt of any kind.....

Good point. With such a super low interest rate, why pay cash for a new car or even a house? With mortgage rate hoovering at 2.87%, it's quite tempting not be pay too much money down on a house purchase.

[Bamaman]

The trick is paying cash for one vehicle. Then, save $300-500 every month for the next capital expenditure.

I'm fortunate not to have any house payments, so I can cash flow a payment on a low APR loan.

What really scares me is having some unknown expense come up like having to replace a roof on the house--$15K.

[bolt]

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Originally Posted by W2R Before retirement, I set aside enough for an SUV outside of my retirement portfolio. Then shortly after retiring back in 2009, I bought a brand new 2009 Venza, which I still have. That was part of my retirement plan; to retire with a new car so that I could more easily get through the first few years in case of a down market. After being retired for 10 years or so, I noticed that the market had done nothing but soar, and I had only been spending an average of about 1.7% of my portfolio each year. I was allowing myself 3.5%, but didn't spend it all and plowed the rest back into my investments. Anyway, it turns out that even without allocating money towards a new car, I can easily afford one. So, I withdrew enough of my cash dividends from my portfolio to pay for my next car and put it in my local bricks'n'mortar savings account. There it sits. A much bigger problem for me is finding a car that I actually want. None of them appeal to me very much, and I only have about 35,000-36,000 miles on my Venza so there is no urgency in replacing it. But anyway, I'm ready to jump on it if/when I figure out what I want.

Now this is the car to look for used, low miles, offering the seller considerably more value than its trade-in in cash.
Get the cash needed from your assets!

I'd never buy new unless you frown on getting your hands dirty.
In that case I'd suggest pigskin gloves

Good luck & best wishes....

[bada bing]

Quote:

Originally Posted by Stormy Kromer I hate debt of any kind. That said. I am going to borrow every dollar I can for my next new car in a couple years. I have enough to pay cash for the dealership, but I don't want to sell $40,000 plus in investments to pay cash for a car. I will finance it at .9% and finance it for 6 years on their dime. If I sold $40,000 in my portfolio it would generate taxes of about 25% state and federal. My income will handle the monthly payments and keep me well within the much lower tax bracket. Plus I believe the $40,000 invested in VG Balanced fund will yield a better return than the .9% the dealership is offering. This is coming from a guy who loathes debt of any kind.....

+1

I haven't bought my first car in retirement yet, but probably will look for one next fall. My daily driver is a 10 year old Subaru WRX that I bought new for cash. I'll probably replace it with a Subaru, but I'm thinking like you. I think I'll dealer finance. My thinking on debt has changed in the last 10 years. The arbitrage between both mortgage rates & car financing verses reasonably safe market returns is pretty attractive. I've held my 2.625% mortgage now for 10 years because I couldn't see paying off that cheap money. In the current new car market, you can't really negotiate any savings for cash, dealers are too incentivized to use financing. Having bullet proof credit is only worth something if you use it. I'll wait for a teaser rate, I'm not on foot, just wanting to freshen up the daily driver. I sort of expect some good deals next fall, both on new car prices and financing rates.

To answer the OP's question, I intend to finance and include the new payment in my monthly budget. I'll set payments up on autopay from my checking, just like all my other recurring bills.

[kitesurfer2]

i have a retail account for my new car, which won't be built for a year. So the new car is funded , times 2. but why pay cash when my fund is making 9% and new car interest is under 3%. so that is a no brainer. then the question becomes, how much to pay down... then the question becomes, how comfortible will i be with a $2,000 car payment.

[finnski1]

Quote:

Originally Posted by Stormy Kromer I hate debt of any kind. That said. I am going to borrow every dollar I can for my next new car in a couple years. I have enough to pay cash for the dealership, but I don't want to sell $40,000 plus in investments to pay cash for a car. I will finance it at .9% and finance it for 6 years on their dime. If I sold $40,000 in my portfolio it would generate taxes of about 25% state and federal. My income will handle the monthly payments and keep me well within the much lower tax bracket. Plus I believe the $40,000 invested in VG Balanced fund will yield a better return than the .9% the dealership is offering. This is coming from a guy who loathes debt of any kind.....

I hate debt of any kind as well.
It some times get to the point where it can cloud my judgement for ever using financing!
I did have a few instances where I was able to get 0% financing and that was a no brainer but even then I didn't like the monthly payments as they felt like debt. Well I suppose they were but nobody forced me to buy that new car or that new tractor.
I am searching for a vehicle right now but we have decided to just buy used this time and find a 3 or 4 year old low mileage cream puff.

[teetee]

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Originally Posted by 38Chevy454 X2, no need for special bucketing in my finances, just take out for large purchases. I don't even do the bucket method for any reason. Just asking to OP, is $30K enough for a new car? Unless you are buying small non-luxury cars, most new cars would seem to bust your $30K limit.

X3 if I have to plan to buy a car with cash, I don't think I would consider it is time for retirement tbh. OP is probably overthinking this.

That being said. I may just buy a cheap used car. Modern cars are so reliable in general if you have a good and trust-worthy mechanic do the inspection before purchase, it saves money to let others to handle the depreciation for the first 3-5 yrs from a new car purchase.

[tmitchell]

Great thanks everyone. Seems like the consensus is “no buckets.” Definitely makes life easier.

Also hear the financing argument and will take that to heart, esp if money is left in general portfolio to compound.

Also for the record I’ve purchased one new car and it wasn’t worth the price of depreciation so I’d likely buy a newer used one.

Happy holidays!

[rk911]

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Originally Posted by tmitchell ...Also for the record I’ve purchased one new car and it wasn’t worth the price of depreciation so I’d likely buy a newer used one. Happy holidays!

i guess that depends on how long one plans to keep the vehicle. we tend to keep a car for ~15-yrs so the initial depreciation is not a concern.

[OldShooter]

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Originally Posted by rk911 i guess that depends on how long one plans to keep the vehicle. we tend to keep a car for ~15-yrs so the initial depreciation is not a concern.

I don't think that way myself. Unnecessarily losing thousands is a concern, regardless of the context. We used to just buy used cars we could afford to pay cash for. Lately, older, more prosperous and more self-indulgent, we have been buying new cars one model year old or, DW's recent Mini, a never-sold year-old brass hat car with the Certified warranty added. We also keep them a long time.

[ziggy29]

Quote:

Originally Posted by tmitchell Great thanks everyone. Seems like the consensus is “no buckets.” Definitely makes life easier. Also hear the financing argument and will take that to heart, esp if money is left in general portfolio to compound. Also for the record I’ve purchased one new car and it wasn’t worth the price of depreciation so I’d likely buy a newer used one. Happy holidays!

As far as whether or not you make a separate bucket, it's mainly a matter of personal preference. The important thing is to have a cash flow that allows you to save up enough per month/year to more or less meet the occasional large expenditure, like a new (or lightly used) car, home renovation or major repairs and the like.

I've found that the "new or slightly used" decision line changes over time. There are times when the market is such that new car incentives and rebates can make a new car more of a reasonable financial decision (especially with the full warranty and no worries about how the car was treated by the previous owner). The days of a car losing 20-30% as soon as you drive it off the lot seem mostly over, but economic cycles can change these market dynamics and sometimes it is a much better choice to let others eat the depreciation when it is far from a straight line.

[teetee]

It's my principle not to take the depreciation from a new car purchase and not take in debt. The first one will save me thousands of dollars and the second one avoids headaches because I don't want to owe money to anyone and debt is a risk which I try to avoid. Yes investment is also a risk but somehow I am OK losing all my money but I am not OK losing other peoples' money.


My first car was a 96 Honda Accord I bought used when it was 6 years old. I drove it until its gas tank started leaking and replacing the tank costs more than its worth so I donated it. My second car is a 2010 Mazda, 7 years old when I bought it, which then got totaled in an accident a year later. Got insurance reparation, $1k more than my purchase price. Now I drive a 5-year-old Mazda. The total of all my car purchases was less than $15k and if I am lucky I probably won't need to think about replacing my current car for another 10 years minimum. Such insignificant expense let me believe that having a special account just for it is not necessary. I think that's the difference among different people: if you don't spend large amount of money on something, you get more freedom and less thing to worry about.

[RobbieB]

Yeah, sometimes feces happens. Sometimes feces can be fixed cheap. I've done it.

Other times a new car is needed. I've done that once. But, probably just get one off the lot next time.

[teejayevans]

Not everything is about money. I simply like buying a new car...the smell, the warranty, the fact I know how it was care for. I’m retired, life is short, if I can afford it, I will buy it.

[Out-to-Lunch]

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Originally Posted by teetee My first car was a 96 Honda Accord I bought used when it was 6 years old. I drove it until its gas tank started leaking and replacing the tank costs more than its worth so I donated it.

You must be quite young! My present car is older than your first car!

[rk911]

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Originally Posted by teejayevans Not everything is about money. I simply like buying a new car...the smell, the warranty, the fact I know how it was care for. I’m retired, life is short, if I can afford it, I will buy it.

yup!

[kitesurfer2]

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Originally Posted by teejayevans Not everything is about money. I simply like buying a new car...the smell, the warranty, the fact I know how it was care for. I’m retired, life is short, if I can afford it, I will buy it.

so agree! i have more money than i can spend for the rest of my life, if i spend like i always have. every time i get in the car, it is fun. it is the only joy in my life. smiles per mile. my car is not transportation, it's my sanity--literally.

[teetee]

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Originally Posted by Out-to-Lunch You must be quite young! My present car is older than your first car!

The assumption would have been true if I started driving early in my life.
If your present old car is a daily driver with average usage (15k miles/yr) then that is some impressive maintenance work you have done for the car over the years..