Vehicles are expensive. And for most of us in the United States, they are not just convenience items, they are necessary parts of our lives that allow us to get to work, school, the grocery store, etc. Most of us live our lives, at least in part, out of the reach of mass transit systems, so we need our own, independent methods of transportation. Plus, what says freedom more than hitting the open road with the windows down and the radio up? Well, for most Americans, that is not as freeing as it could be.
According to a recent study by Experian, the average new car payment in America is $503 per month for 68 months. As anyone who has been in bondage to debt can attest, monthly payments are the furthest things from freedom.
We just said that cars are expensive. We just said that cars are necessary. Doesn’t the combination of those two things mean that car payments are just a fact of life?
You can have both the freedom to travel AND the freedom from car payments. That is, if you’re willing to put in a little work.
Our Step-Up Method (SUM) requires a little work,but it is well worth it to be one step closer to Financial Freedom.
Our SUM begins with you saving as much money as you can, depending on your transportation needs to buy that first debt-free vehicle. While you are saving, be looking for the type of vehicle you want to purchase. This will educate you on what to look for and what to look out for and what you can expect to get in your price range. When you’ve saved enough – or as much as you feasibly can – start looking for the best deal on a car in that price range. Work your best deal – probably with more than one seller on more than one vehicle – and buy that vehicle. Keep saving while using (and caring for) this vehicle.
This is important: Do not make any unnecessary upgrades or customizations. No stereo systems. No tinted windows. No custom wheels and/or tires. You don’t have the money for that. Any money you have will be set aside in your car fund for necessary repairs and maintenance and/or your next vehicle.
If this vehicle does not meet your longer-term needs, keep saving. As your savings builds, start the shopping process over, looking for your next step-up vehicle. When you’ve built up enough to get you to the next level of vehicle, put your vehicle up for sale and sell it for as much as you can get for it, put that money with what you have saved, and negotiate your best deal on your next step-up vehicle.
Repeat this process until you’re driving the vehicle that is the right one for you and your situation.
If you did your homework and you negotiated shrewdly (but fairly), odds are that by the time you’ve saved enough for your next step-up one (or both) of two things has happened. Either a) you’ve managed to save enough to move up in vehicle within a few months and your vehicle has not gone down much – if any – in value or b) you have taken longer to save but have gotten significant use out of your vehicle in the meantime, which has far exceeded any additional drop in value since your purchase.
In either case, you need to make sure you do your homework and work hard to protect the money you’ve put into this vehicle. It may take more time to get the best deal, but remember: You worked hard to save the money for this car, and you’ll have to work hard to keep your money.
Sure, CarMax makes it easy to sell them your vehicle. They will give you a written offer even! The problem is, they don’t want to buy your vehicle for any more than they can buy a similar vehicle for at an auction. Given a little bit of time and effort, there is no doubt you will be able to sell your vehicle yourself for more (probably $1,000’s more) than what a dealer will pay for it.
If there is one rule here – well not only here but in life in general – it is this:
Convenience costs money
Dealers make it convenient for you to sell them your car, because they know you don’t want to put up with the hassle of selling it yourself on Craigslist. They also make it convenient to come to their lots and shop hundreds of vehicles to buy your next one, because they know you don’t want to put up with the hassle of shopping on Craigslist. Let’s be clear: These things will cost you money.
(Note about safety: I’ve done a lot of buying and selling on Craigslist, and never had a problem. However, sites like Craigslist make it easy for creeps to prey on people. Take precautions when meeting with people to buy or sell items – especially when dealing with large amounts of cash. There are plenty of resources out there on how to be safe in these situations, go check out some of them before agreeing to meet someone. Also, check fraud is becoming more common, so take caution when selling items to people. Always agree to meet in person. Never take a personal check. Never take a check for more than the purchase price and agree to give cash back to the buyer or his/her driver or delivery company – these are scams. We will write something more in-depth but take these, and other, things into account when buying and selling.)