Saving for new car

[bada bing]

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]

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]

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]

...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]

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]

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]

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]

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]

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]

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..

 

[Out-to-Lunch]

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..

Nah, I drive nowhere near average use. I live in a place where I can walk to meet almost all of my needs. Only ~188k on the clock.

 

[ExFlyBoy5]

Depending on what interest rates are running, I might just finance it.

With rates as they are, this is probably what I would do *if* buying a new car. We recently purchased a new 4Runner and while we could have paid cash, the interest rate was low enough (less than 2%) that it made sense to finance. We also bought a used 2012 Accord as "our spare/beater" but paid cash for that; obviously it wasn't an expensive purchase and there is NO WAY I would finance an 8 year old car.

My last j*b involved the review of financials for folks that often had NWs in excess of $10M and almost ALL of then had cars that were financed, which was really surprising to me.

 

[teej1985]

With rates as they are, this is probably what I would do *if* buying a new car. We recently purchased a new 4Runner and while we could have paid cash, the interest rate was low enough (less than 2%) that it made sense to finance. We also bought a used 2012 Accord as "our spare/beater" but paid cash for that; obviously it wasn't an expensive purchase and there is NO WAY I would finance an 8 year old car.

My last j*b involved the review of financials for folks that often had NWs in excess of $10M and almost ALL of then had cars that were financed, which was really surprising to me.

What kind of job was that? Sounds moderately interesting.

 

[gerntz]

nm

 

[DrRoy]

Just pull out of savings and buy the large item.

approx +6

no buckets

 

[Venturer]

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.

You sound like my SIL's dad, he ordered his Vette last year and it finally came in in Oct. He can barely get into it and has to be pulled out but he said "I wanted one more Vette in my life and by God it is my money". I agree. My DD wants me to stop riding my motorcycle but I told her to just give it up. I stopped riding in my mid 20's to raise her. After she got out on her on we; DW & I got back into riding and as long as I can hold one up I will.My DW was talking about getting a Miata but my 6'6" frame don't fit one of those so we passed on that. If I ever decide to quit riding I'll then search for a convertible car that I can fit into, but hopefully by then I will be too unlimber to even get in and out of one.

 

[Ronstar]

Just pull out of savings and buy the large item.

+7 or so.

I bought my truck and house remodel out of my savings. No special account or bucket.

Although I tracked and categorized spending for several years before retirement, I still track but no longer categorize. So a car or big expenditure is just part of overall expenses.

 

[TheWizard]

I've purchased only new vehicles since 1975, often factory ordered to get the options I want.
Retired since 2013, I presently have a 2008 Mustang and a 2016 F-150. I bought the F-150 with mostly cash and about $10k from my HELOC.

I should order a new Mustang convertible soon, bit I want the rumored hybrid AWD version with electric motors on the front wheels. And that isn't actually in production yet.


I accumulate $$ in my taxable account and my Roth IRA via conversions, stock index funds in both.
No savings account.
So when the time comes, I'll move about $45,000 from those accounts to make the purchase.
I'll have to keep an eye on LTCGs from the taxable account withdrawal to avoid getting bumped into the next higher IRMAA tier...

 

[TheWizard]

+7 or so.

I bought my truck and house remodel out of my savings. No special account or bucket.

Although I tracked and categorized spending for several years before retirement, I still track but no longer categorize. So a car or big expenditure is just part of overall expenses.

This is sort of what I'm doing now also.
I have excess income nowadays, especially after starting age 70 SS this year.

But this year, since March, is an anomaly since I've spent very little on travel due to the pandemic...

 

[Raygun99]

I have always purchased cars cash or finance if there are some low lol low interest rates and 2 Cars usuly every 7 years staggered. It alwasy seems like my son needs a car to replace so we just let him have the one due for trade. HOWEVER.. Big mistake 2 years ago for the 1st time ever I gave my son my 8 year old Prius and I leased a ROGUE for my DW.. at 3 years 36K... Thinking technology might entice me to want to switch earlier than in the past. Now 2 and 1/2 years later with COVID that lease car with 9 more months has 12K miles..... I might just have to purchase it at the end of lease since technology has not eclipesed it yet..