As long as you are a car owner and not taking public transportation, you will have car expenses until you get rid of that vehicle. Once you are one of the lucky ones to keep your vehicle long enough to pay it off in full, next it is time to start creating a safety net.
A car, truck or SUV is a mechanical and electronic machine. Mechanical and electronic things break. Being outside in extreme heat or cold makes metals expand and contract. Things slowly start to wear out. One day you can be seemingly driving your vehicle every day and it runs flawlessly. Then the very next day you put the key in the ignition or press the push button start and now a check engine line comes on. Then you think to yourself, “That’s odd. It ran just fine yesterday.” Welcome to the world of owning a car.
If you didn’t buy an extended warranty right before your factory warranty ended, now you’ll be stuck footing the bill. But you have a choice. You can either put the repair bill on a credit card, along with high interest. Or you can pay cash. The smarter choice would be the one without interest charges.
What you need to keep in mind after you made that final car payment to the lien holder is that the car payment doesn’t end on the following month. What you need to do next is budget a small portion each month into a savings account. Put the money there and forget about it. Pretend that you spend it and that there’s no way to get the money back.
What you need to do is discipline your to make monthly payments. Let’s suppose you have a 2017 BMW X5 that you just paid off in full. You made 72 payments on that beautiful machine. You can either start the debt clock all back to zero and do another 72 months, or just keep that ride and budget money away for an unexpected repair bill. You do not need to keep buying new vehicles to try to impress people on the street that you will just pass by and never see again. Let’s say you were paying $800/mo for your vehicle. Now that you’ve made the 60th or 72nd payment and the lien-holder is paid in full, for the next month, try to budget $300 or $400/mo or whatever you can afford.
You could invest this money into the stock market, CD or treasury bill, but then if you encountered vehicle failure and you needed the money instantly, you’d be in trouble. It’s probably best to put it in a high interest saving account. One example I can think of is a Marcus account. Owned by Goldman Sachs, founded in 1869, Goldman Sachs is one of the largest financial institutions in the world. At the time of writing this article, they are offering 5.40% APR on a savings account. Instead of keeping your money in your regular bank where you do your checking or savings, you could put a portion of it into there. The moment you need the money to pay for a car repair, you could put a withdrawal request and have it returned to your checking account the very next business day. That way your money will be working for you and growing, instead of sitting in a box tucked away in your sock or underwear drawer. You could even put your repair bill on a credit card that has points or rewards, take the money from your savings and pay that credit card in full before the billing date to avoid interest.
Try to anticipate what it would cost to install an A/C evaporator, replace a transmission or engine, repair a faulty suspension component, do a brake job or even a fender bender. Do what you can to pay to have this repaired. My neighbor owned a 2015 Hyundai Elantra that had 120,000 miles on it. One day she opened the hood of her car and she was topping off the engine oil. She didn’t put the oil cap on properly and she drove to work. The oil ended up leaking out on her long drive to work and ruined the engine. He daughter told her to just go buy a whole new car. At her being over 70 years old, she did not want to make car payments all over again. Instead, she found a mechanic to put a used engine in. The used engine had 82,000 miles. They charged her $3,500 to install the replace engine in. It was far better for her to spend the money by replacing the engine instead of buying a whole new car and starting 60 or 72 months of payments again, especially at her age.
I’ve asked her numerous times, “How’s the car running?” She always tells me, “Great!” and how she loves not having car payments.
This is the mindset you need to get. KEEP THE CAR YOU HAVE. Once it’s paid off, put a portion of the car payment each month into some kind of savings account. The rest you could either invest in the stock market, or save that for your next Royal Caribbean or Norwegian Cruise or even do a home repair or take that road trip some place. Why keep making car dealers and banks rich. Life is too short. Spend the money on yourself and/or your family. Don’t keep throwing it away on a car payment. Learn to stop being bored of the car you own. Be glad that you even have one. Billions of people around the globe could only wish to have one car, let alone have financed many.