You, or someone you know, may say, “I’ll always have a car payment.” That simply is not true and today I am going to tell you how you can forever be free from the cycle of car payments.
I am going to give you some numbers that might change slightly by the time you read this; however, the numbers will be close enough to where the principles still hold true. So, don’t get hung up on the exact numbers. The point is how the numbers and math can work for you! Let’s take a look.
Did you know that the average car payment is $475 a month and lasts six years?
That means you are paying a car payment longer than the average person attends college! ????
Say you have a vehicle with a current value of $1,500. What if you took that average car payment and saved it in a good old-fashioned savings account for ten months? At the end of ten months, you would have $4,750. Add those amounts together and you could have a good quality used car for $6,250. So, ten months from today, buy that $6,250 car.
Now, what if you kept saving $475 a month for an additional ten months and added that to the value of your car bought in step 1? Your current vehicle will not depreciate as fast as a brand-new car, so you should be able to get the same amount for it that you would have ten months prior. When you add those ten months' worth of savings with the value of the now current vehicle, you can turn around the current vehicle and buy a $11,000 quality used car. So, in twenty months, you can have an $11,000 car, paid for in cash, and no one owns it but you!
Imagine this! 20 months from today you now have an $11,000 car, and continue saving $475 a month for an additional fifty-two months, which is the remainder of the average car loan length. Instead of paying a car payment to someone else, pay yourself and invest that monthly payment in a good growth stock mutual fund. By the end of fifty-two months based on stock market averages, you will have $32,000. At the end of those fifty-two months, you can take $12,000 of that money and replace the previous $11,000 car that has lived out its life by now. Keep that $12,000 car now and stop adding to the mutual fund. That mutual fund will continue to grow and at the average return of the stock market every five years will buy you a $14,000-$18,000 used car…just like that! That is the power of your money working for you.
Remember that $475 car payment you were saving and paying yourself with? If you redirect that monthly payment into another good growth stock mutual fund, in 40 years’ time it would be $5.6 million dollars! I hope you like your car payment! I suggest instead that you discipline yourself, earn those free cars for life, and continue to save in a good growth mutual stock fund. It is definitely one way to keep your wallet heavy and your heart light. Question: How much have new cars been costing you? Share in the comments below!