For most American families, significant parts of their budget are consumed by car loans, only superseded by expenses for housing and food. But what if you could eliminate car loan payments and conserve more of your earnings every month? Purchasing a car outright with cash is a strategy we’ve embraced to align more closely with our goal of financial independence. How is this achievable, you may wonder. Let me explain.
PLANNING
Preparation is key. Begin by planning well in advance for your next car purchase, even if your current car is still in good shape. Eventually, it will need replacement. Here’s an example, using my own situation, of how to calculate approximately when this replacement might be required:
My current vehicle: 2009 Honda Pilot (165,000 miles)
This model’s average lifespan: 300,000 miles or more
Average yearly mileage: (165,000 miles) / 10 years = 16,500 miles per year
Predicted remaining lifespan: (300,000 miles lifespan – 165,000 current miles) = 135,000 miles left
Estimated years left: (135k remaining miles) / (16.5k miles per year) = 8.18 years.
Based on this, we predict needing to buy the same type of car in a little over 8 years. Now we must determine approximately how much this replacement would cost then, by accounting for average car price inflation. Looking at that in our current scenario :
2019 Honda Pilot (brand new) costs around $31,450 on average
$31,450 x 0.12% (auto inflation rate) x 8 years = $31,753
Lastly, calculate how much you should save every month to amass the amount needed when it’s time to buy another car:
$31,753 / 8 years = $3,969.13 per year
$3,969.13 / 12 months = $330.76 per month
Are you able to set aside this much each month given your current budget? If not, buying a used car instead of a new one could save you a considerable sum in the future.
HOW TO SAVE THE CASH
Once you know how much needs to be saved for your next car, it’s important to set aside this money properly. I’ve noticed that when I save this money with my other savings, it tends to blend in and I lose track. That’s why I’ve found creating separate savings ‘buckets’ useful. The tool “Digit” has been extremely helpful in managing these ‘buckets’. Easy to use on PC or phone, I can simply transfer funds in and out of the different buckets. It does take a couple of days for the transfers, which works as a protection against impulsive spending decisions.
CAR SEARCH
With your cash saved, now comes the exciting part – the car search. For city dwellers, buying cars locally, whether new or used, can be excessively pricey due to inflated rates. Expanding your search area to a 200 – 250 mile radius can yield better deals. I’ve found the best results using platforms like CarFax, CarGurus, Consumer Reports, and Kelley Blue Book. Using multiple sites ensures more dealer options, and setting up notifications for target vehicles makes the whole process easier and convenient.
NEGOTIATION
Despite finding great deals further afield, there’s always room for negotiation. Websites often disclose how long a car has been listed. The longer the duration, the stronger your negotiation power. With the money saved from negotiation, you can direct that into another financial goal.
With earnest planning and strategic saving, anyone can buy a car entirely with cash. This process considerably helps in reducing monthly expenditures, accelerating the journey towards financial independence. Keep these tips in mind: save systematically over time, consider used cars, extend your search radius, and never shy away from negotiations.
If you apply these strategies correctly, you’ll be in a position to buy a replacement car when needed, without financial distress. Have you bought a car outright with cash before? Share your experiences and tips to help others succeed in their car buying journey.
