You’d think that by 28, I’d have made at least one major property purchase be it a home or a vehicle of some sort. But I haven’t. My parents gave me a used Ford Focus when I left college and moved out for my first job, and I drove that car for 6 years. In early 2009, my company decided that instead of giving me a raise, they would give me a company car (it’s leased in my name, but they make the payments on it every month). Between those two cars and the fact that I’m still renting an apartment, I’ve made it through the early portion of my adult life without making a truly large purchase.
However, like all good things, this too must come to an end. Earlier this year, my fiancée’s (now wife) lease on a Ford Fusion was coming to an end, and we needed to think about what to do about getting her a replacement car. In preparation for this, we began to talk over what she would want in a replacement. New? Used? Compact? SUV? After a lot of research and discussion, we settled on the new Ford Fiesta. It’s a nice, small car with good base features and a very attractive price for a new car. Plus, between my wife getting employee pricing (her father works for Ford, so we get his discount), a discount for continuing business with the same dealer, and an additional one for pre-ordering the Fiesta, we got a pretty great deal overall.
Last week we test-drove one of the Fiestas to see if she liked how it drove, and now we’re waiting on delivery. Current estimate? Next week (1st week of August). This is pretty exciting as it’s a car she and I both like, and this marks, for me, a major “adult” milestone.
Oh, but then there’s the issue of the down payment. On a $16k car, my personal goal is to put $6,000 down at signing. This will put monthly payments into a reasonable range without breaking the bank. Right now, I have roughly $3500 in my extra-liquid accounts, and my wife has about $1000. That leaves us with a gap of $1500 to make up.
I don’t want to dip into emergency fund savings, or house savings, so the question is, where does that extra money come from? This is where the money juggling comes in. Essentially, August is going to be about being extra-frugal for us. If it’s not a necessary expense, it gets the cut for the next 30 days. By doing this, I know we’ll have excess money at the end of the month to make up for the shortfall (and then some). But that still doesn’t deal with where the $1500 comes from NEXT WEEK. The sad part is, it is coming from the high interest account with the express plan of refunding that withdrawal from the mid-month paychecks. Doable, but unfortunate.
Hopefully within a week, we’ll get the call for the car, go in, sign on the dotted line and fork over a very large check.
You knew this cost was coming since the start of the year, why didn’t you plan better?
Yes, I knew about the lease coming up since January. I also knew about the cost of the Fiesta for the last 4 months. Sometimes though, life tosses other things into the mix that demand your time, attention and money and divert things somewhat. You see, we got married in June. While our wedding was very economical (less than a third of what most weddings cost these days), we did pay it all in cash, and that’s where almost all of the savings from the year went. The result was a debt-free wedding, but not a lot of extra money left over for other purchases down the line.
Why buy instead of lease? Three years and turn the car in, no hassles!
I don’t like leasing. The idea of it just bugs the hell out of me. If you have money to burn, it may be better for you, but I don’t have vast cash reserves to essentially buy a new car every three years. Buying, while more expensive up-front, results in me owning the car at the end of the process. This is the last time I want to have to go through this for another 10 years at least. I want a car we can drive until the wheels fall off.
Why new? Used is the cheaper way to go.
Yes, you’re right. We could have picked up a used Focus or something of a comparable class for around $10k and gotten a car in good condition. However, we made the decision that this car is going to be her car for at least the next 10 years. And barring any mechanical defects, with proper care and maintenance, it will easily make it that long, if not longer. With a used car, we don’t have control over how the vehicle was treated those first few (crucial) years, and we’d likely be looking at more than just routine maintenance within the first year or two of ownership. We’re paying more now for what we think in the long run will be a cheaper overall experience.
You’re not paying it fully up-front? You’re just asking to be destroyed on interest.
Believe me, if I could have bought the whole thing cash, I would have. But that’s just not in the cards. Instead I’m putting down a significant chunk of the price in the down payment. The financing terms are 48 months at 4.99% which will result in a monthly payment around $280. Not a bad monthly payment, but the term of the loan is 4 years, a bit long overall and it’s adding about a grand to the overall cost of ownership. The plan is to make extra payments periodically throughout the year, dramatically reducing the overall length of the loan.
What are we doing to keep from having a car loan in the future?
This is an idea I have to credit my parents with. I think it’s a fantastic way to handle any large purchases that you’d otherwise have to take a loan out for with monthly payments. As soon as the loan is paid off, the money that once went to pay it off, will instead be deposited every month into a separate savings account specifically for future car purchases. The idea is, that by the time the Fiesta dies, we’ll have at least 6 years of additional car payments socked away with earned interest, ready for us when the need arises for a new vehicle. Repeat this cycle from now until forever, and we shouldn’t be looking at car loans ever again past this first one.
