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Saving for new car
Old 12-21-2020, 07:47 AM   #1
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Saving for new car

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!
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Old 12-21-2020, 07:58 AM   #2
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Just pull out of savings and buy the large item.
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Old 12-21-2020, 08:00 AM   #3
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I'm much more loose with my budget management than most here, but this is how I do it:

If I've budgeted $80 for all-in expenses (and I mean all in, taxes, HI, etc.), then I put a swag amount over that, about $20k per year for "bigger unplanned stuff" before I decided to retire. So, in reality spending say 80, but by SWR supports 100.

I don't do monthly budgets. We've been ER'd for over 4 years now. We tracked expenses closely, month over month, for about the first year, and found we were very comfortably under plan in our day-to-day, month-to-month stuff, so stopped bothering with that.

I don't manage strict buckets beyond keeping a few years in cash/CD's, so some years are down, some are up, and it all sort of evens out.

Earlier this year I decided it was time for a pool. DH reran firecalc because he was a bit nervous about a big cash outlay that wasn't planned at all. It made zero difference.
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Old 12-21-2020, 08:08 AM   #4
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Originally Posted by tmitchell View Post
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!
The last time I bought a car-2019, I used the funds in my taxable account that were invested conservatively for purchases of this type. Short term bond fund fit the bill. I now have decided to keep all of the taxable invested in the total US stock market index and will sell shares for a car purchase when needed. That way, I can keep the money working for me and would have gained 7000 dollars this year on the investment(35000 X 20%). Some people ask what if stocks are down? I would sell them anyway and purchase a similar investment in my IRA to replace the stock index fund the same day. That way, I have not sold low. I actually sold bonds in my IRA to fund the purchase when I replace the stock sale with a stock purchase in my IRA. I would replace with a similar fund(not identical) so I could harvest the loss in my taxable account. YMMV

VW
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Old 12-21-2020, 08:26 AM   #5
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i would says 30K div 10 years div 12 mos to get a monthly figure, do an autodraft into big savings bucket (along with everything else I do this with like property taxes into this one big savings bucket etc). I try to keep that savings in a money market account earning something. WHen it gets absurdly big then I move some to a money market mutual fund. rinse repeat. I dont really invest what I know Im going to want in cash money in 10 years. Then when I buy the thing I draft that amount back to cover to purchase. I track each month of savings into categories on a spreadsheet so I can quickly see how much i have currently saved for car, taxes, etc. And I adjust that spreadsheet and subtract it out of the column when I spend it to update that figure.

Editted to add: Im one of the people that kind of track monthly expenses by category mostly bc I want to know how much I underspent my income so I know how much to draft to savings. I label this "unallocated" and its a pot of money that grows monthly. If something unplanned comes up, or an opportunity presents itseld, or I get a wild hair and want new floors, its from this I pull it. I tracked "unallocated" on the same savings spreadsheet like i do car savings etc. I also label what I spend it on when i subtract it out by inserting a comment in the spreadsheet. Helpful to be able to go back on the same spreadsheet and know when i bought a washer/dryer and how much I spent on it etc. No pulling of receipts.
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Old 12-21-2020, 08:33 AM   #6
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Depending on what interest rates are running, I might just finance it. If I was going to pay cash for it all at once, I'd just pull the money out of my MM account, and then rebalance the rest of my portfolio, if needed, to get the asset allocation back.
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Old 12-21-2020, 09:05 AM   #7
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I would just take enough money out to buy the major purchase. I'm not interested in being in debt again. But I also would not spend $30K for new car. I wouldn't spend half that if I could. But also I probably won't buy a new car ever again. I hold my cars as long as possible. As far as saving up for a car at that rate could take awhile. If I were to want to save up, I would use the stock market to grow that money and not leave it in savings.
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Old 12-21-2020, 09:25 AM   #8
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t is just part of my overall cash allocation. Part of my 5 year plan going to retirement was to add a car and replace 2 cars, so that was factored into the amount. We no longer really "budget" for specific things, we just monitor our overall cash flow.
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Old 12-21-2020, 09:59 AM   #9
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Just pull out of savings and buy the large item.
+1
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Old 12-21-2020, 10:19 AM   #10
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In terms of planning and budgeting, I figured out my necessary expenses (day today living) and my discretionary expenses (everything else) and then I added $20K per year to that and rounded up. Then I ran all my numbers with that level of expense and all was good.

Now that I'm in retirement, I keep track just to make sure my assumptions were good. So far so good. I don't keep separate buckets for large expenses in either my budget or my financial accounts. Just deal with it as it comes. That means it's likely that some years I will be over budget, but most years I should not.

As for financing, with money so cheap, it should at least be considered. One of the considerations for me is taxes. If I pull too much money out of my IRA, it will put me in the next tax bracket. That may be one reason to take a loan. The difference between the 12% and 22% bracket times $30K (for a car) is $3,000. That's enough to get my attention even though I'd prefer to just pay cash and be done with it.
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Old 12-21-2020, 11:12 AM   #11
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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.
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Old 12-21-2020, 11:14 AM   #12
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Just pull out of savings and buy the large item.

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.
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Old 12-21-2020, 01:00 PM   #13
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+1
+ + 1. Keep it simple.

Also, unless you are bored, or worry that after 10 years, your maintenance costs will exceed the cost of a new car. Keep your old car.

More, important. Have a trusted mechanic, maintain the
car. ie. Fluid changes, and fix safety related issues.

Avoid, Dealer mechanics. Too expensive. And they are always trying to upsell.
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Old 12-21-2020, 01:17 PM   #14
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+ + 1. Keep it simple.
In defense of the OP, he is trying to figure out a “mental accounting” car-buying scheme for himself. (https://en.wikipedia.org/wiki/Mental_accounting) I am not so inclined but I think for many people the way to “keep it simple” is to work within some mental accounting rules that suit them.
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Old 12-21-2020, 01:19 PM   #15
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We do not keep separate funds/accounts for anything-including major purchased. If the money is not in current or HISA, we simply draw down from our equity accounts.

Not a big believer in buckets. Seems like a lot of busy work to me. We have three. Equity holding, HISA, and current.
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Old 12-21-2020, 06:32 PM   #16
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I put $200/mo into a sinking fund for minimal car replacement costs, not to buy a brand new car. Years later, if I want something better and more expensive than the fund can pay for, then the rest comes out of discretionary funds, so if I had allocated $50K/yr for discretionary spending, I could take some from that to buy a nicer car. These funds don't really exist - they're just figures on a budget for mental accounting.
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Old 12-21-2020, 06:39 PM   #17
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We tend to just throw about $500 a month into a sub account at my CU which is intended to more or less cover large and infrequent purchases, plus whatever mileage reimbursement my wife gets on her job (which has been almost zero in 2020). And then when we make a multi-kilobuck purchase, we pull from there.
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Old 12-21-2020, 06:53 PM   #18
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Originally Posted by 38Chevy454 View Post
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.
Usually we buy a 3-year old car. $30K is good enough for a Toyota Camry or Honda Accord.
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Old 12-21-2020, 07:35 PM   #19
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We include basic, medical, car repair, house repair, travel, property taxes, big ticket items into a yearly budget. None-yearly expenses will be calculated using the FV and PMT financial functions in Excel. For example, $30K for a new/used car every 10 years, 2% inflation, the future value of the car is $36,569.83 in 10 years (=FV(2%, 10, 0, -30000). The PMT based on 2% saving yield is $3,339.80 (=PMT(2%, 10, 0, -36570), which is the yearly budget for a new car.
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Old 12-21-2020, 08:26 PM   #20
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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.....
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