Smart Reasons to Save, Use and Invest Money

Planning Ahead To Buy My Next Car

Both of the automobiles that we have are getting old and will soon need replaced!

So I don’t want to incur that cost of buying 2 cars as close together as we did the last time!  So, I decided to think through it this time around.

My plan it to replace our minivan (wife’s primary car), sometime before 2015.  My car, I’ll just keep driving until it totally disintegrates.

I don’t want to take out a loan, and had plan on going in and writing a check for our next “new” used car!  But lately, I don’t want to spend the money on the car either.  Once I spend that money, it’s gone!

What I would like to do is invest the money in dividend yielding stocks or bonds for the next 3 or 4 years, then use the money from the yield to make payments on the next car.

I would continue to invest money, building the principle, then use the money to make payments on my next car… and so on and so on…

Of course if there ever came a point where I would just be able to pay for the entire car in cash without affecting my wealth level, I would do so.

I would use the same process that I’m using for my lunch experiment.  Saving up the money, invest it, then use it to support my purchase of future vehicles.

What do you think?  Am I being delusional?  Should I just pay cash for the cars and start over each and everytime?

9 Responses to Planning Ahead To Buy My Next Car

  1. MR- That’s an interesting approach. It’s the Dave Ramsey strategy right?

    I think there’s a good balance somewhere between buying w/ 100% cash and nothing down. IMHO it’s between 20-50% down payment.

    For the financed portion, interest rates are so low right now that you can get a very good loan that is better than many other types of debt. Unless you have bad credit…if that’s the case then I definitely say finance as little as possible since you could be paying 8% or higher.

  2. I too struggle with what to do for our next car, which will need to be purchased around January. (Lease is up. Never wanted a lease, but it was tied to my husband’s job, then he changed jobs and we were stuck with the lease.) Anyway, it depends on the interest rate. Since it seems like you will be getting a used car, I don’t know if you can get a super-low interest rate. (One that would be less than your dividend yield.) If that is the case, I would pay cash if I had it lying around. If your interest rate would be less, then I would try out your plan.

  3. @Car Negotiation Coach
    I’m still one of the few pf bloggers that has not read Dave Ramsey yet. I did win the book “Total Money Makeover” from Bucksome Boomer’s giveway though. Someday, I’ll have to read it…

    I’ll see how far I get in 3 or 4 years, but most likely, initially I will have to do as you suggest. Then later I’ll try and have it fully funded…

  4. @Everyday Tips
    Ahh, I see what you are saying! I’m hoping the loan for the car will be pretty close to 0% but who know in 3 or 4 years…

    Sorry to hear about your lease! At least it will be over soon (for good or bad..)

    If it’s a reliable car, I would be tempted to buy it at the new reduced price… I bet the dealer would even bargain with you 😉

  5. I don’t know what’s best in your position, but hubby and I have a Smarty Pig account for future vehicles. It makes 2.15% and can be used as a backup emergency fund as well. I like having a lot of cash on hand though, so I am biased. 🙂

  6. @Budgeting in the Fun Stuff
    Cash in this crazy market mekes perfect sense!

    Thx, I’ve been thinking about looking into a online bank that has a higher yield than my local bank…

  7. paying cash would be my vote – it will also keep you honest in determining what car you can afford. that said, there is very good sense in investing $ you have if you are getting a relatively healthy return. not sure what prime auto loans are today – i would guess 7% at least?

  8. @Sunil from The Extra Money Blog
    This is another area that I need to get straightened out. It’s kind of like starting over. I’ll probably end up just paying with cash…