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How To Trick Yourself Into Saving For A New Car

By David Bakke

save money on a new carThe strain of a monthly car payment on your finances can be a considerable one. Personally, I had “Life Without A Car Payment” for many years until 2007, when I got married and purchased a new car for my wife. That one got paid off late last year, so now I have the luxury of not having to deal with any car payments once again. The question is whether I’ll be forced back into car payments should I want to buy another car down the road. This is the topic I want to explore in this post.

It’s a Beautiful Thing

Life without a car payment is a beautiful thing. For most, I would say that a car payment runs at least $250 if not $300 per month. This could be as much as 15% of your monthly financial picture depending on your other expenses.

Jump Right Back In?

So when the time comes that you want to purchase another new car, are you really interested in diving right back into that long term commitment of a monthly car payment? You worked so hard to pay off your current car, and you know how grand life is when you don’t have that monthly payment hanging over your head each month.

Well, I am here to tell you the there is a way that you can actually “trick” yourself into saving for a new car. And if you do it right, you can purchase your next car free and clear, or at a minimum, with a monthly payment that is nothing near 15% of your overall monthly budget.

The Trick

This is what I did. I didn’t do it after my first car was paid off, but I am certainly doing it now. My second car was paid off in November of last year. Now that I’m fully paid off, this is where I need to start preparing to avoid falling back into that car payment cycle. Now that I have “extra” money each month, instead of just using this money for other things, I got smart:

I continued to “make” my car payment, except that I deposited this money into a high yield checking account, currently earning about 4%.

Now, don’t get me wrong, I still have the “psychological” joy of knowing that I no longer have a monthly car payment. And it hasn’t happened yet, but if something comes up and I need this money for something else important, then I guess I’ll just skip a month, or worst case, use my existing checking account to supplement my emergency fund if necessary. But, if I can stay on track with this, and assuming my second car is still in good running condition, I’ll have close to $4000 saved for my next car at the end of this year.

Think about it…you’re already in the habit of cutting that check or making that payment each month…why not just continue on without thinking about it?

You might think this would be difficult to do given other “luxurious” plans you might have had for this money instead of stowing it a way in a fund.

But check this out.

This money that I am saving is money that I would be sending in to pay off a car loan had I ran right out and bought a new car. Obviously, there would be some interest involved with that loan. This way, none of my money is going to “interest.” Second, the money is gaining interest. Depending on the time frame, this could ultimately add up to hundreds or thousands of dollars that I could use towards my new car. And all I am doing is delaying buying a new car by a year or a few years.

This brings me to my next point.

The “Need” For a New Car

Just because your car note is paid off does not mean that you absolutely must go out and get a new car. Why not delay it a little? My car that I just paid off is only five years old, only has about 60,000 miles on it, and it runs great. So, there’s no need to go out and get a new car.

And, if I can stay on my plan for a new car in 2011 (I actually plan to wait longer…see my note below), I will have right around $8,000 for my next car. So let’s say I can only go for two years until I get my next car. Can you imagine the financial savings involved in putting nothing down for a new car versus putting $8,000 down? I’d say your car payment, depending on the cost of the car, would be cut in half at least. And, also, take into account how much in interest you’ll be saving over the life of that loan. And if you can wait long enough, you will have enough to fully avoid any loan at all and therefore any future interest.

Of course, the real plan is to stay on point with my “trick” until I have enough money to buy a new car outright. I only mention the two year thing because going all the way until you pay cash for your new car just may not be feasible for some. At the very least, this is a great way to set little targets. After 2 years, you might realize you can wait another 2 years for a new car, and the cycle continues until you’ve saved up enough money and truly need a car.

Go Ahead, Trick Yourself

This is a great idea. If you can get over the need to buy a new car just because your current one is paid off, and you can stay on track for a minimum of two years, then you’ll be saving yourself a bundle! Also, there’s no rule that says you can’t later decided to use this money for other stuff too like home improvements, electronics, vacation, and as a backup plan for your emergency fund.

What is your take on this idea? Have any better ones for how to save for a new car? Please share with our readers below.

(photo credit: emilio labrador)

David Bakke
David started his own personal finance blog, YourFinances101, in June of 2009 and published his first book on ways to save more and spend less called "Don't Be A Mule..." Since then he has been a regular contributor for Money Crashers. He lives just outside Atlanta, GA and most all of his free time is taken up by his amazing three year old son, Nicholas.

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  • http://www.debt-tips.com Kris

    Great advice! But for those who don’t have the money, buying a good used car is a better choice. Just make sure to check reliability ratings for the best used car, get the car inspected (even if you buy from a used car dealer), and search around for the best price.

    • david/moneycrashers


      And you could also combine the two. Use the “trick” for just two years and you’d basically have a pretty good used car paid for.

      I good used car is always a great option.

      Thnaks for commenting!

  • http://hankcoleman.net Hank

    I love this tip. You have to make sure that you keep making those payments to yourself right after paying your car loan off. It is horrible to try and start making those payments again if you stop for a few months to “celebrate” paying off your car.

    • David/moneycrashers


      You bring up a great point!

      Its like if you stop contributing to your 401k. Its really hard to get back to doing it.

      Much better off to stay in the habit.

      You can celebrate, sure, just continue to put that money aside.

      Thanks for commenting!

  • Brock

    Any tips on where you’ve found the 4% high yield checking account that you mentioned?

    • David/moneycrashers

      Viewpoint Bank.

      They’re based in TX, but I live in GA and hae not had any issues. There’s a few hoops you have to jump thru to get the 4% (if its still available). 15 debit card transactions per month and one use of bill pay per month.

      Let me know what you find out!

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