Our experience of buying a used car with cash! How we budgeted, saved, and bought our newest vehicle. Inspiration and tips for living a debt-free lifestyle and avoiding car payments.
Meet our 2018 GMC Terrain and learn how we bought our first car with cash!
Did you know that the average car payment is over $500 per month?
Think of all the good financial decisions you could make with an extra 500 bucks.
That is why we decided to pay cash for our car.
Here are some of our tips and how we paid cash for a new to us vehicle.
The big secret…be out of debt so paying cash for a car is possible!
We bought used
After hearing time and time again from many sources I will probably never buy a new car again.
Unless I’m a millionaire.
That is because cars are one of the major purchases that depreciate in value.
We are paying tens of thousands of dollars for something that will never be worth what we paid for it.
A car’s value depreciates 20-30% within the first year of ownership.
By year 5 the car will only be worth a little over half of what you paid for it. That is why it is important to buy used.
Our purchase was made in September of 2020 making our new to us car just about 3 years old.
We paid $22,600 with taxes and fees.
That same car model and package brand new costs over $30,000.00.
Buying it 3 years older saved us almost $10,000.00.
Set a realistic budget
First don’t feel bad about your budget. Whether you have $2,000 or $100,000 remember a car is a mode of transportation.
It is meant to get you from point A to point B. Don’t compare your budget to someone else’s.
Second, be firm on how much cash you have. Don’t be tempted.
If what you want is more than the cash amount you have you need to save more or want less.
Patience with a purchase like this is imperative. Especially if you are spending a larger chunk of money.
We walked away from multiple cars until we found the right one for the right price.
Research types of cars so you can get a feel for what you like and how much they are worth. We used Kelley blue book as well as searching competitors’ prices.
I found the car I wanted, priced how much they were going for, and then made my budget.
I wasn’t willing to buy anything over $25,000. That’s with everything included.
Sell your car outright if it’s worth it
If you have a low mileage car or think it’s worth some cash consider selling it yourself.
Obviously, this isn’t for everyone but sometimes you can get yourself a few hundred to even thousands of dollars extra by slapping a for sale sign on it.
My previous car was still in immaculate condition with less than 70,000 miles on it.
We decided to sell it ourselves and we did so within just a few days for $8,000.
In order to get the Honda ready for sale, I gave it a good clean using products like folex and powdered tide.
Make sure to look up your state’s rules on selling a vehicle. The DMV has most of the paperwork.
Once you find the car
Make sure the quality is there.
We chose not to purchase with places like Carvana because we wanted a certified pre-owned vehicle.
We looked only at GMC dealerships who could guarantee us a Clean CARFAX and bill of health.
The car had one lease owner and was fit with all new tires and brakes upon purchase. We even got some of the paint chips repaired.
Save as you would for any other financial goal
Find out how much you need and divide it by the number of months you need to save.
Because buying a car for us wasn’t urgent we saved over a few months. We chose to save more aggressively to get the goal done but we had the ability to save at our own pace.
Being debt-free allowed us to hit our goal quickly. The best thing you can do is save for a car before you really need one.
Don’t forget hidden fees
Buying a car with cash means you can’t forget taxes, fees, and warranties if you want them.
These could easily push you over budget. Michael and I had a goal of saving $20,000.00 knowing we could cash flow the rest.
If it weren’t for Michael I’m not sure what I would have done because he did all the negotiating.
Buying a car can be a stressful process so if you don’t feel comfortable doing it on your own ask a friend or family member to accompany you.
A tip when visiting dealerships, don’t tell them your paying cash until you are in the negotiating process.
Some things to consider…
Don’t fall for 0% or low financing options.
STAY OUT OF DEBT!
Just because you can afford the payment does not mean you can afford the price tag of the car.
Remember a 72-month loan means you are still making payments on a car that has lost more than half of its value.
Do not lease a car! If you want more information on why leasing is a bad idea read The Total Money Makeover and The Millionaire Next Door.
When thinking you need a new car remember they are just status symbols.
Vehicles are for transportation and we have turned them into driving net worth assumptions.
If you think your car is unsafe/outdated/too small/big don’t let that be a temptation.
Remember the cars your family had when you were growing up?
My parents carted around 2 kids and a dog in a Ford Taurus. We never had anything bigger.
Want a new car for whatever reason? Save up and pay cash.
Maintenance costing you too much? Is it costing you $500 a month? Probably not.
A $500 fix shouldn’t be the reason you spend $25,000. Realize and budget that cars will need to be repaired.
Pay off all your debt so you can save faster. Our ability to save so quickly is because we live a debt-free lifestyle.
So what do you do if you are in debt and need a new car?
Pause your debt snowball and pile up cash.
Now this might not be the car of your dreams but it is a car that you own.
You can then continue your debt-free journey as planned without digging yourself a bigger hole.
If you are debt-free
Consider saving now. Even if you don’t need a vehicle.
You could drive your current car into the ground or want to upgrade earlier than expected.
Open a high yield savings account with your bank or capital one 360.
We also could have used our emergency fund. We have enough in our EF to buy a very decently priced car.
If Michael’s car were to break tomorrow we could buy him a nice used reliable vehicle and still have money leftover.
If this year has taught us anything it is to have extra money saved in case something bad happens.
Sometimes that amount exceeds 3-6 months of expenses.
A car payment could make you a millionaire
A $550 car payment invested in the S+P over the last 40 years at an 11.5% return would yield you over 4 million dollars.
For the amount of a car payment in 40 years, you could be a millionaire.
If you want more articles like these check:
4 years on my debt free journey
How we paid off $50,000 in debt
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