While I’m not planning to trade in my current car any time, in fact I’m planning to drive it for at least another 6 years and another 90,000+ miles although I’m hoping for another 140,000 miles and associated years but that decision will depend on what mechanical work that will be needed in the future.
When I purchased my current car I was able to buy outright but took out a loan and paid for a few months before paying it off in order to build up my then non-existent installment credit history in anticipation of a mortgage. My previous piece of crap, excuse me “car”, I also paid for outright. So it makes sense that any future car I purchase I would like to also have the ability to buy it outright.
My philosophy for life with goals is that I believe that if you’re going to plan to do anything, to make it happen in the future you’ve got to start now. This means I’ve got to start saving for a car NOW.
This boils down to needing to open up a separate account. By having a separate account I’ll be able to better keep track of it and “see” my savings grow which will motivate me to continue saving. I’ve decided to utilize a savings account for this separate account. I’m choosing a savings account as my saving vessel because stocks/mutual funds etc are too risky for a relatively short term savings, current CD rates and Money Market rates are not very high and the initial capital required to start one is greater than what I want to pull from my regular savings to start car savings. As time passes I may choose to change the savings vessel I’m using but for now a savings account looks to be the best option for me and simplest which will enable me to start saving immediately.
I’ve done a little research and my options for savings accounts are:
Emigrant Direct – %3.60 APY; $1 initial investment
HSBC Direct - %3.55 APY; $1 initial investment
ING - %3.40 APY; $1 initial investment
Alright now that I’ve most likely figured out where to start savings now I need to figure out how much to save.
I’m projecting that a future car will cost me $25,000 (okay this is a random guess since I don’t know in the future if I’ll want to buy used, new, what type of car etc. and really don’t want to invest a lot of energy and deciding this since it might sway me to start thinking of a new car before I’m financially ready.) And no I have not factored inflation into my $25,000 or title or anything else, lets just call this an allowance and my allowance of 25k has to encompass all aspects of buying a car in the future. This means I’ll just have to either make it happen for that amount or as it approaches closer to car buying time and I develop an idea adjust my savings to account for my new desires.
Since I’ve decided the amount of money I’ll need when I buy a new car I headed over to bankrate.com’s savings calculator to determine the amount of money I need to save each month and let me tell ya…I was shocked! According to this calculator to save $25,000 in six years at an interest rate of 3.6% I need to save $311 a month. Dang…I’m glad I’m starting this week or I’d be in real trouble if I waited another year to start then I’d need to save $380 a month.
Right now my current budget is tight, artificially and intentionally tight but tight just the same, so I’m going to start small and only save about $50 each month for now. I think I should be able to readjust some of my current spending to find $50 a month to put towards this goal, but I realize this will need to increase in the near future and plan to reevaluate the amount I’m saving every few months.
So my next step is on Saturday (after I’ve gotten some feedback to make sure Emigrant is a good company) I’ll open up my savings account with $50 and set up automatic transfers for each month. I feel really good now that I’m going to take action!