If you’re new college graduate, getting your finances squared away is a priority. I want to share a tip on how you can reach your financial goals quickly. I’m suggesting that you avoid having a car payment as long as you can.
It’s not feasible for some situations, but it can make a huge difference with one adjustment.
Advantages of No Car Payments
No car payments has freed up our monthly budget a bit and we’ve redirected the funds to other financial goals. We have fortunately had a decent track record with car repairs. Even when we had to replace the clutch and had electrical work done for my husband’s old car, the monthly average of owning the car was about $150/month, much less than the average of car payment of $479 /month.
The extra money can be reallocated to other goals:
- paying off credit card debt
- building an emergency fund
- investing more in your 401(k) and/or IRA
- saving for a vacation
- house down payment
You can also use the money to bump up your lifestyle. You’ll have a bit more to eat out for example or go on some more mini-vacations. The flexibility of having that money available is a huge advantage.
“I Don’t Want a Clunker!”
I completely understand that people don’t want to buy cash for a car because they worry about getting a beater or worse, a lemon. It is possible to find a solid used car for you. It pays to do your homework when you’re hunting for your car.
- Create a list of your must-haves and wants for the car
- Decide on your budget for the car
- Use Consumer Reports and similar sites to find a list of vehicles that are on your list
- Check Kelley Blue Book to get an idea of the cars you can afford
When you buy from a private seller, you should be careful to ask questions about their history with the car and have them provide paperwork. Anyone can say they’ve maintained the car, but having the documentation shows that they have actually done it.
Check with CarFax for the vehicle’s VIN for when you find a car that you like. Take the car to your regular mechanic to have it thoroughly checked.
Save for the Next Car
While you’re saving on car payments, don’t forget to transfer some of it into savings for your next vehicle. Depending on how long your current vehicle lasts, you may have a sizeable car fund in place. If you’re interested in seeing how you can upgrade your cars with cash, Dave Ramsey has a video explaining how it works in detail.
Buying a car with cash isn’t an option for some, but I think it’s something to seriously consider as you start off in your career. I’d like to hear your thoughts on it. Did you pay cash for your car? What are the pros and cons of it?