Who doesn’t love a new car?
They’re bright and shiny, and they have an intoxicating smell. They’re created in a happiness factory by happiness fairies who guarantee that—once we buy that brand-new car—everything wrong in our lives will be made right.
When we buy that new car, it seems like the best decision we ever made. Then we drive it off the car lot. The moment the rear wheels touch the pavement of the street, we might as well grab a few thousand dollars out of our wallet, roll down those brand-new windows, and toss all that money out into the wind.
Maybe you’ve heard it said that a new car is a terrible investment. That’s not true. Truth is, a new car isn’t an investment at all. The moment you drive it off the lot, its value drops like a rock—and it continues to depreciate the more mileage you put on it. New cars lose 60% of their value in the first four years.
Dave's easiest money-saving tip: See if you're over paying for car insurance.
That’s not to say there’s anything inherently wrong with wanting a new car. The point is, though, that to buy a new car, you need to be able to take the financial ding without even noticing it. Dave’s rule about new cars is simple: Don’t buy one unless you’re a millionaire.
But let’s say you have a dream car you’ve always wanted as a kid. You want that car with every ounce of your being, but right now, you’re driving an old beater—a 1988 Ford Taurus that smells like rotten onions, not new leather.
So how do you get there?
How to Move Up in Car Sooner Than You May Expect
Let’s walk through an example. We’ll say you are thinking about financing a new car with payments of $500 a month (the average car payment is $492) and you currently own an old beater worth around $1,500.
—Instead of buying a new car with payments of $500 a month, you can save that monthly amount, and in 10 short months, you’ll have enough to buy a $5,000 car with cash.
—Sell your old beater for $1,500 and combine that with your savings. You now have $6,500 for a nice, used car.
—Continue saving $500 a month, and 10 months later you will have another $5,000 saved.
—Sell your current car for $6,500 and combine that with your $5,000 in savings.
—You now have $11,500 to buy an even nicer, used car just 20 months after you started saving!
See how this works? Keep at it in 10-month intervals, and eventually you’ll have enough for a really nice luxury car.
How to Get the Best Deals
You’ll usually get the best deals from individuals, not car lots. Individuals only have one car to sell, not hundreds of them, so they will be more desperate to get the car out of their yard. Consider repo auctions as well.
And remember, come prepared. Know the Kelley Blue Book value on your car and the cars you are interested in buying. Do your research, especially if you are working with a dealer.
A dream car can be more than a dream—it can be a reality. Stay focused on beating debt and saving money while you put this plan into place, and you’ll be driving much nicer cars for the rest of your life!
When did you start driving your dream car? What will you do this year to get one step closer to owning your favorite car? Let us know!