Buying a car with cash

toyota_highlanderI just recently bought a new car with cash. The feeling was great!

Let me fill in some details. My wife and I have been looking into another car for at least a year. We had looked at many models and had a list of features we wanted. We were also open to buying used, perhaps up to 2-3 years old, if it was in good shape and didn’t have gobs of mileage. But the key part of it was: it would be a 100% cash purchase.

Unfortunately (or fortunately), we couldn’t find anything used that didn’t have high mileage. It only cost a few thousand more to buy a 2014 new car with less than 200 miles than a used car with 70,000+ miles. (Some of these used cars, in fact, cost more than what we got). To top it, the features they include with the baseline model were WAY more than we needed. Given we have smart phones and our own DVD player, the upgrades were frankly unnecessary.

Car payments can really drag you down

Top priority: I didn’t want to take on a car payment. I’ve heard statistics say most cars you see driving down the road are dragging along a $400+ monthly car payment. If you’re reading my blog site, then I can bet you have already heard the pitch to save up and buy a car with cash instead of financing it with debt. I heartily agree with this practice.

The other piece of advice I often read but doesn’t seem to get stressed as much, is to try and make your car last a long time. Don’t get caught up with “car fever” and think about new one three years from now. That’s already burned into me. My wife’s car is eleven years old, and our minivan is seven.

Here’s some good news from the industry according to Kelley Blue Book,

“Americans are now holding onto their new vehicles for a record 71.4 months. On the used vehicle side, that interval has risen to 49.9 months, a figure that also represents a new high mark. Collectively, the ownership period currently stands at 57 months, up from about 38 months back in 2002.” — Kelly Blue Book, 2012

57 months equates to about five years. That’s good to hear! But better yet, if you can keep your car for ten years, you will be way ahead of the curve. Cars require a significant outlay of capital. The last car I bought was seven years ago, and I’m still driving it.

What if you can’t buy a car with cash?

I can certainly empathize with those that want to pay cash but simply can’t. I don’t want to get preachy. There are radio shows and forums that talk about how you CAN in fact buy a car all cash. You just have to lower your expectations, save, etc. Everyone reading this has probably heard all about it. I’m not hear to sway you in that regards.

What I want to write about is how my ability to pay all cash represented a more deep seated realization. My net worth and money making efforts have grown to the point that I CAN pay all cash for a car.

Given the current performance of my rental properties, EIUL and dividend paying stocks, I feel like the next time we buy a car, we will be even BETTER off than now.

I don’t have the data on hand to back this up, but I’m speculating that those that don’t have a solid wealth building plan in action probably tends to wards buying cars more often and using financing. Cars are nice and shiny. We all like to have them. I’ve driven through neighborhoods where things don’t look very wealthy, but people still seem able to have a couple nice, new cars. It’s probably the biggest “toy” people can buy and get it financed through the bank.

As my father told me the last time I went car shopping, “your goal is to beat the average.” That applies to building wealth, buying cars, and anything else money related.