We’re firm believers of living within your means and paying cash. Since vehicles are such big purchases, making wise decisions when it comes to buying cars is one of the best ways to set yourself up for better financial security. Here are 7 more reasons to pay cash for your vehicles, as well as some tips for how to actually make it work.
Why you should work in cash and live below your means
Paying for your vehicles in cash is just part of the equation when it comes to living below your means. Since cars are a big investment, though, it’s a pretty big part of the equation.
Working in cash and living below your means essentially means spending less than you make. It’s not that complicated, really, but the practical outworkings can sometimes seem foreign.
When you live below your means, you’re free. You don’t owe anyone. You don’t have to do what they say when they say it. When you work in cash below your means, you have a lot more freedom to make better decisions for you and your family.
When you have payments to make (whether that be car payments, credit card payments, or other loans or bills), you’re a slave to whoever and whatever wants you to make those payments.
For example, those who are a slave to payments often can’t afford to get sick for a day. If they miss work for one day, they can’t afford their payments. We’re all for working hard, but when you’re truly sick, you should feel comfortable being able to stay home and rest without having to worry about how you’ll pay your bills this month.
This lifestyle of living within your means is about being proactive in your financial life. It means that you’re ahead rather than always trying to catch up.
You’re taking the initiative. You know what’s coming up.
And you don’t have to make a lot of money to live this way.
Let’s jump into some more reasons to pay cash specifically for your vehicles, and how you can do so.
7 reasons to pay cash for your vehicles
1. No interest
By paying cash for your vehicle, you’ll likely pay less, even though you have to pay it all up front. Working in cash means that you save up for your purchases and ultimately save money in the long run rather than always having to pay extra for interest. (Keep reading to find out how to save up specifically for vehicle purchases.)
2. Better deals
Whether you’re buying from a dealership or a private seller, you can often get a better deal when paying in cash. In private seller cases, you usually have to pay in cash, but that means that you can also find lower-than-dealership prices from the get-go.
If you’re working with a dealership, there’s a good chance that you’ll find that they don’t want to deal with the monthly payment and will give you a lower rate for paying it all up front.
3. You’ll only pay what you can afford
This is the top reason why you should pay in cash. You’ll only pay what you can afford. Paying in cash is a major safeguard. If you’re committed to paying in cash, you literally can’t exceed your budget. It’s tempting to buy a newer or shiner car, but if you want to live freely and within your means, stick to your guns – and your budget.
4. Used cars don’t depreciate as much or as quickly
According to LendingTree, “Cars lose the most value in the first year, and depreciation continues for about five years. A car can lose up to 20% of its value in the first year, and over the first five years fall to around 40% from the original price. That means it loses about 15% of the value each year after the first year.”
Paying in cash usually means buying used cars. But let’s be honest: who really needs a new car anyway? This all comes down to whether you want to look financially well-off or actually be financially well-off.
5. No monthly payment
When you pay in cash, you can pretty much pay for your car and then forget about it. You don’t have a monthly payment haunting you every month. There are some monthly payments that are unavoidable, such as your electric bill, so why add any more than necessary?
(However, we do highly recommend setting some money aside each month for the next used car you will buy – even though that will hopefully be years down the road.)
6. Freedom from the danger of losing your vehicle
Most people can’t really survive without a vehicle. When you own your car – it’s yours. If you get suddenly let go from your job or you break your leg and can’t work for two months, you don’t have to worry about losing your car, too.
If you’re making monthly payments just to keep yourself on the road, it’s going to be a lot more stressful if you lose your job or another emergency arises that puts you in danger of not being able to make those payments.
7. You probably don’t need a nice car
You know what you do need? Something that gets you where you need to go, and freedom from the constant stress of making payments.
How to pay cash for your vehicles
“Okay, but how do I save such a large chunk of money to pay for a vehicle in cash?”
Paying cash for vehicles is a sort of cycle, and once you get into it, it’s actually pretty easy to continue.
The first car might be the hardest. The best way to start is to save up before it’s time to buy the first car. Teenagers who can work hard and buy their first car, no matter how cheap or clunky, will have a great start for their future vehicles.
If you’re not a teenager, you probably still have a car. If it’s not paid off already, pay it off as quickly as possible. We think Dave Ramsey’s debt snowball method is an excellent way to do this.
Then, take that money that you were spending each month on your car payment, and start putting it in a separate envelope or account called “car savings”.
Now, simply purpose to not buy a new (to you) car until you have the funds saved up in your “car savings” envelope. Obviously, this amount will vary depending on your goal for a next car and how much money you can get from selling your current car.
You can also use these funds to pay for any needed repairs on your current car to help it last as long as possible.
Want more tips for how to buy a car with cash?
We’ve bought almost a dozen cars in cash (before age 30) and have been able to continue saving up and moving forward with the quality of cars each time.
Stay tuned for some of our favorite tips about how we research, find, and test a used car and ultimately purchase it in cash.
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