Saving to buy a car

Saving money to be able to make a larger down payment when you buy a car is an excellent idea: it allows you to substantially reduce the amount of your car loan.

There is, however, a tried and true way to buy a car with cash. It’s based on, you guessed it, savings. And being willing to drive used cars that are in good condition.

The reasoning:

1- A new car loses value the moment you drive it off the dealer’s lot.

And it continues to lose value rapidly the first few years of its life. Instead of taking the depreciation hit, you can, instead, benefit from it by buying slightly-used cars.

2- Take the money you would putting toward an average loan payment on a new car.

For example $300 a month.

3- Invest this amount each month.

After a few years, you’ll have accumulated enough money to be able to pay cash for your first used car.

4- During the years you drive your used car, continue to save.

Continue to save the same amount (e.g., $300 a month) towards the purchase of your next car.

5- When you’re ready to change cars, sell your 1st used car.

Put the money from the sale of your 1st used car toward the purchase of a 2nd used car.

This way you avoid getting into debt can gradually move up to better and more luxurious cars, if you feel like it.

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