When discussing owning a vehicle in your life, you have to accept the fact that owning a vehicle is always an expense.
This is because it is a depreciating asset that always needs upkeep. However, in this article, I will be talking about two things regarding owning a vehicle free and clear.
- It is a vehicle that is three years or less from date of manufacture
- That there is no financing on the vehicle meaning you have the title
Now to get to this point we have a few ideas. It takes some discipline, and you will have to start out owning an older vehicle first, but at some point, you will always have the newer vehicle with no finance charges.
These ideas have been espoused by many financial planning advisors and speakers. We are just going to remind you again of them.
Create your own vehicle payment plan (Vehicle Ownership Fund)
Because you never own a vehicle, it is important that you create a part of your monthly spending plan on transportation.
For this purpose, we will keep it reasonable to about $300 per month. This is your vehicle ownership fund.
This is not the maintenance or insurance part of owning a vehicle; this is your vehicle ownership fund. The nice thing here is that you are going to be paying yourself this instead of the high-interest lending companies.
So at $300 per month, at the end of the first year, you will have $3,600. At the end of the second year, you will have $7,200. This will be your vehicle ownership fund and you should keep it in separate savings account for now.
Buy the older vehicle free and clear first
With the quality of vehicles made in the last ten to fifteen years, one could actually purchase a great car that has between 150,000 to 200,000 miles on it and still has several years of life in it. A quick check of Kelly Blue Book online will bear this out.
So your second idea here is to assume that you have between $2,000 and $3,000 to pay cash for an older vehicle. You would need that to finance a vehicle in any case.
So let’s say you buy a ten-year-old vehicle for $3,000. Of course, you are also paying yourself your monthly payment of $300 per month.
At the end of two years, you will have $7,200 in your vehicle fund and you sell your now 12-year-old vehicle for $1,000. This gives you $8,200 to pay cash for your next vehicle. So you buy the six-year-old vehicle for cash at $8,200 give or take.
You keep this second vehicle for two years. In the meantime, you have saved another $7,200 and are able to sell the second vehicle for $4,100 which is half price of what you paid cash for. You now have $11,300 to pay cash for a newer vehicle and you are only 4 years into this vehicle payment plan.
So you buy a used car that is only 4 years old with the $11,300 and enjoy it for two more years. You would have saved another $ 7,200 and you sell this third vehicle for half price which is $5,540 plus your additional $7,200 you now have $12,850.
You simply pay cash for the next vehicle that is 3 years old or less and keep doing this. You will eventually have $20,000 to $30,000 to buy that almost brand new vehicle or possibly brand new for cash and it took you 7 years or less to do it!
Any other way to finance the vehicle will give you a 7-year-old vehicle with not as much value and force you to finance again. This plan keeps you in control with cash on newer vehicles.
Leasing or Financing
We realize that not everyone can implement immediately what we just suggested due to circumstances.
If you consider that a vehicle is always a monthly expense, then maybe just leasing and turning over to a new vehicle every two years makes sense. This would be feasible if you are actually driving less than 12,000 miles per year.
If you consistently drive more than that, leasing may not be the best alternative.
If you have to finance for now, then do your best to get the least expensive vehicle. One that is well maintained that a finance company will allow.
Try to keep the monthly payments at less than $250 per month. Keep the same $300 per month mentality as in your vehicle ownership fund and save the difference between your finance payment and the $300.
Eventually, you will achieve owning that vehicle free and clear. Even under this revised leasing and finance plan.
The key is to pay yourself into your vehicle purchase plan more per month than you are ever paying any leasing or finance company.