In the late summer of 2010 we paid off my minivan. The payment was $460 per month. Instead of just absorbing that money into our monthly budget we opened a separate savings account and continued to make that payment to ourselves.
In Feb of 2012 we had enough in that savings account to pay off my husband’s car. This made us debt free! At this point we started saving all of our previous car payments into our “car fund”. $667 per month goes into that account. It’s taken some small hits along the way with unexpected car repairs and such but for the most part we been saving, saving, saving.
If you do the math we are saving just over $8,000 per year in that account. HOLY MOLY!
Here’s what’s weird. When I tell you that we had $667 in car payments each month I assume you think “Ok, yeah, two cars… that seems about right.” Yet when I tell you that we save that same amount I feel like you are thinking “oh boy, I could never do that! They must make a lot of money!” Yet is the same money! The only thing we did was not buy a new car when we paid off our current ones. We just kept driving the same cars and paying the same money.
Anyways, moving on…
So now that’s it been a few years we have quite a bit saved! Enough to start thinking about replacing one of our cars… with cash. Our cars are getting older. My car has 80,000 miles and my husband’s has about 90,000. Since I work from home I don’t drive much. However, my husband works over an hour away. So he is thinking he will get a new car in the next year or so. If he waits one year from today, and we continue to save without any bumps in the road we will have about $23,000 saved. Plus whatever we can get out of selling his car.
That’s a good amount! I wouldn’t spend it all though. So say we spend $15,000 out of the savings account, leaving $8,000.
I can probably get an additional two years out of my van (three years from now). Maybe even more, but lets say it will last three years from today, it will be 10 years old at that point. That will give us $24,000 in savings to spend. Certainly can get something for $24K.
Then we are off an running. It’s only downhill from there. We will have many years of savings before we need new cars again. If we keep saving those car payments we should be able to get by with never having a car payment again. We will have broke the cycle!
What did we do differently than most people (and I include myself in that because I’ve had plenty of car payments in my life)? Well, first we committed to paying off my van 2 years early. Then we just held tight. We didn’t replace our cars even though we could afford the payment. We just kept on doing what we had always done. Keep making the same payment, only to ourselves now, and keep driving the same cars.
The trick is to just pretend that you do have a car payment even when you don’t. Pay the money and forget about it. Save the money and don’t touch it.
How about you? Have you ever paid cash for a car? Do you make payments to yourself? Do you think this is just a crazy scheme that will never work for you?