There is one final point that merits discussion before we close out this month,
and that is the logic behind paying cash for any purchases smaller than a home
How am I supposed to pay cash for a car? The next question that many
people ask is how they can possibly pay cash for a car. If you’ve followed this plan
from the beginning, the answer should be pretty clear: your emergency fund. If
you see that an auto purchase is coming, start rolling money into your emergency
fund instead of into other investments or uses, building it up to the point of
having several months of salary in it. I recommend making car payments into the
emergency fund at this point, preferably for a couple of years. Then simply walk
into the dealership, negotiate a price without saying that you’ll use their
financing, then write a check. After that, you’ll probably need to build up your
emergency fund again, but you won’t be making payments on your car.
I can’t do that right now! That’s true, you probably can’t do that immediately.
But you can set it as a goal. One big step towards achieving that goal is to stop
leasing, because auto leases as they allow you to effectively rent a more
expensive car than you can afford, but leave you with nothing in the end. If you
already don’t lease, then buy a late model used and drive it for years past
the end of the financing. While that’s happening, continue to make your car
payments into your emergency fund. Then, when the time comes, you can simply
buy a car, no questions asked.
So what can I take away? Spend some time and plan out when your next auto
purchase will be and what type of car you’re aiming to buy. Then, calculate the
numbers and see if you can put yourself in place to pay in cash. Can’t swing it?
Could you swing it if you drove that car for another year? Remember, this does fit
into your budget if you just transform your car payment into payments into your
emergency fund, and in a few years the dividends of seeing interest build up on
your car “payments†will really start to show.
Now that the month is almost complete, we’ll spend the next two days tying up
some loose ends.
