The Easiest, Laziest Way to Save More Money

The easiest, laziest way to build wealth is to invest in index funds. But where is that extra money supposed to come from? The easiest, laziest way to have extra cash available is to avoid car payments.

Neil recently commented while driving, “The more I think about it, cars are the key to having money or not. What else do people willingly throw away tens of thousands of dollars on?” Sure, maybe you get take-out a little more often than you’d like, but are you really dropping $300-500 a month on it? But some people do on cars. Without even thinking twice about it.

While transportation clocks in at #2 of the average top expenses behind mortgage/rent, real estate generally appreciates while vehicle values tank rapidly. Keeping the mortgage in check will go a long way toward financial stability. Yet people don’t upgrade homes at nearly the rate, or with as little thought, as they upgrade cars.

A common objection to avoiding car loans is that you won’t be able to afford a safe, reliable vehicle. Not everyone can fix cars like my handy husband. But taking out a car loan isn’t the only solution. The trick is to save up to pay for your next vehicle in cash. I understand that this will look differently for every budget. Perhaps you’re only able to save up $1000 for the first car you buy in cash. Hopefully, though, you can save up a few more thousand for the next one.

People tend to think those older cars will need such expensive repairs, you’d be better off buying a newer vehicle. Of course, it will all depend on the car. Have your mechanic or a knowledgeable friend look at any used vehicle before you buy it, using any necessary repairs as a bargaining chip unless the price already reflects these. Despite what panicky naysayers would have you believe, it would be hard not to come out ahead of paying $350-500 per month for a car payment or lease.

Let me illustrate the wealth-building potential of not having a car payment. If a couple both has a modest car payment of $250, that’s $500 a month or $6000 a year. You could max out an IRA each year for that amount!

If you set aside $1000 per year toward your next car, and invested the other $5000, in 30 years you’d have over $472,000! (Assuming 7% interest.) Up the payments to the average American’s $350, less $1000 per year, and you could build $700,000 in wealth!

In conversation with people, I’ve noticed that having just one car payment is seen as financially conservative. And I agree that it’s way better than having two. That brings your potential investment down to $189,000 – 302,000. But I’d still rather have the retirement savings than the newer vehicle. Wouldn’t you?

What if you can’t do your own repairs, or worry about reliability of older vehicles? If you absolutely must purchase a car with a payment, keep the loan amount as low as possible and pay it off as quickly as you can. When purchasing, try to avoid loans that will charge a penalty for early payoff. That’s just highway robbery.

Then drive that car as long as possible! Where people go wrong isn’t simply with buying a new car. If you pay it off in 5 years and then drive it for 15 more, that’s a pretty frugal way to go. The trouble starts when you upgrade every time the last vehicle is paid off. That never-ending cycle of car debt is will rob you of the flexibility to retire before 60, travel, be generous, or whatever else floats your boat.

What if you already have a car payment? Assess the situation. Can you pay it off quickly and drive that car for a long time? Then pay it off! If you over-spent on the vehicle, it’s probably wiser to sell it. There’s a sunk cost fallacy stating that once you’ve already spent so much on something, and it’s depreciated, it’s better to just keep it. But if you’re in over your head or realize the cost is more than you can justify, it really is better to sell. It’s a hard choice to make but in the long run you will thank yourself! Take some of that money from the sale and buy a car you can actually afford.

Of course, if you can get by with no car, you’re better off even still. But for those of who can’t swing that, your vehicle choices are part of the key to your financial future. Choose wisely! Start today by setting aside $50-100 per month, or whatever amount you can, toward the goal of owning your next car outright. Once you’ve reached that goal, direct your old car payment funds toward your future.

Further reading on frugal car ownership: How I Spent Less than $8k on Car in 17 Year of Commuting

What is the best, or worst, car purchase you’ve ever made? What other objections are there to buying cars in cash?

7 Responses to “The Easiest, Laziest Way to Save More Money”

  1. Dave houston says :

    If buying used set aside some money for repairs. Things like wheel bearings, ignition coils and oxygen sensors need to be replaced. But even with those repairs your still way ahead financially compared to buying new or very new. And remember to use the internet to shop for best price for parts. There are large savings to be had there.

    • Kalie says :

      All great points! Car repairs, especially for used vehicles, should be viewed as an eventuality and not an emergency. And getting parts online at places like Rock Auto can save a lot.

  2. Carrie Sullivan says :

    We have 2 paid-off cars that are 8 and 11 years old. I carefully track what we spend to fix and maintain those cars. We spent $204.08/month (averaged) in the last year for maintenance. That includes everything, oil changes, windshield wiper fluid, light bulbs, repairs. Many of the maintenance costs are similar to what you have for a new car. We had to do bearings on one of our cars this year and that accounted for a large % of our maintenance costs this year. Just over $100/month per car is much cheaper than any car payment.

    • Kalie says :

      That’s great you log expenses so carefully! We have a budgeted amount but don’t always track actual costs. And yes, that is much cheaper than a car payment.

  3. Mary in Maryland says :

    We have twice purchased from neighbors who offered their cars for what Carmax had offered them. $3500 for the 10 year old Mercedes was no bargain. Repairs were very expensive and the anti-theft device triggered itself when we’d had it three years. So we counldn’t start the car. The Mister said, “Maybe this will be an inexpensive repair.” When we stopped laughing, he suggested having it towed to a junkyard, I countered with Craigslist. He scoffed. I proclaimed that it was a matter of pricing. I got $1200 for it. Our mechanic said he had only one word of advice for car shoppers. “Toyota.” A month later we bought a ten year old Prius with 60 K miles for $3500 from another neighbor (who hated that the heater didn’t kick in on her two mile drive to work.) We have cash in hand to replace the power cells, but haven’t had any expenses beyond regular maintenance in the four years we’ve had the car.

    • Dave says :

      True Toyota’s are good my 2009 Pontiac Vibe (which is of course Toyota Matrix with a Pontiac badge). Bought at auction for 3800 with 100,000 has only had three things gone bad on it since I bought it 3 years ago. Two abs wire harnesses and an ignition coil. All easy DIY fixes. Only issue with used Toyota’s is they command a high price on the used market.

    • Kalie says :

      Yes, we’ve avoided German cars since parts and repairs are more expensive. Glad you recouped some $$ on Craigslist though. Glad to hear you’ve saved for battery replacement. Neil researched battery replacement quite a bit before buying one.

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