Car Replacement Project – Mid Year Update
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Since I've already shared our progress with increasing our savings, I wanted to quickly highlight what progress we've made so far this year with another financial goal of ours. Earlier this year I mentioned that we wanted to work on building up our savings for our next car.
We would really like to avoid taking on a car loan for our next vehicle. Did you know that the average car loan being around $26,300 ? Comerica Bank frames it as almost half of an average person’s annual income. That $26,000 car has a monthly payment of around $464. For us that would be a big obligation – we'd much rather have freedom with our monthly budget.
To do this, we know we need to sock away a sizable amount of money to get a good car and not just a beater. We specifically want to save $5,000 in 2011 to our car replacement fund. Repairs are still sparse on the VW Jetta, but they are getting to become a bit more frequent. While the labor isn't so bad, the parts for VWs seem to be more expensive than for our other car. We’d rather prepare now and have the money ready than wait until the car dies to save up.
The Car Replacement Fund Plan
Where do we stash our savings? We use ING Direct and have a sub savings account to help us keep track of our progress. If you're looking for a savings account that works for you, you can compare saving account rates right here on Couple Money.
The key to success with this goal is automating deposits straight to the car replacement fund. I’ve set up an automatic transfer of $400 to be deposited into the the joint savings account each month. This month's deposit, however, will have to be rescheduled – I had some estimated taxes to pay that threw off my budget just a bit.
Otherwise we've been doing well this year with the transfers and our goal is to continue to save until we find a car that fits our needs. I believe the VW can handle until then. We're also planning on selling the Jetta in a separate transaction to get additional funds.
Looking at Car Makes and Models
Our next step was looking at possible candidates for our next family cars. It start with listed what we need and wanted:
- Car Style: While we are looking for something bigger than what we have now, I don't want to get a minivan. I'm looking for a family sized sedan or possible a crossover vehicle.
- Gas Mileage: Getting better gas mileage is a big concern for us. We want a vehicle that gets at least 30 mpg on the highway.
- Repair Reliability: We’re buying a used vehicle so we’re hoping to minimize the chance of repairs by focusing on highly rated vehicles. We also used tools like Edmunds True Cost to Own calculator which allows us to get an idea if a car would be a good deal in the long run.
- Safety: Seeing as this will be the main family vehicle, we're looking at safety test results for all the contenders.
I then started looking at local car dealerships to get an idea of what we can expect to pay for a car that fits our needs. We're looking at some cars that are 2007-2008 modesl and are in good condition. I'm hoping that as we continue to build our savings, we can pick from more options.
Another option besides dealerships is buying a car from a private seller. If we do decide to go that route, I'd have to set aside some money to get a thorough inspection from a trusted mechanic or two. While we can potentially save some cash with this channel, I'm a bit more worried about getting a dishonest seller. With dealerships, we'd be looking for a certified used car to cover us. If you have any feedback based on your own personal experience, please let us know. It's a big purchase and we'd like to minimize the risk of getting a lemon.
Replacing Your Car
I know there are other personal finance bloggers that have already gone the car and cash route. How have you've done it? How many of you will be replacing your car in the next year or so? What's your game plan for buying?
Photo Credit: pedrosimoes7
A great information resource is also Consumer Reports magazine. It usually lists the 10 most reliable and safest vehicles on the road. I’m not in the market for a car yet since I’m still paying off my Element, but not having a loan payment is the way to go. Our car payment eats up a big chunk of our income each month that could be going to savings instead. Good luck!
Thanks for mentioning that wonderful resource! I’ll be checking their annual car review before we narrow it down. They do have a wealth of information on the topic – happy you mentioned them 🙂
Automated savings is the way to go. Nice job setting that up! I’m still carless at the moment but am thinking of signing up for zipcar to have more flexibility than the bus. Car repairs can get so expensive. I’m helping my mom start a car repair savings account which can turn into a replacement car fund if the next repair is over $1000 as at that point she’d be better off getting a “new” used car. -Sydney
I havent gone the cash – and used route, but I did learn quite a bit from my purchase about 18 months ago. I’d definitely get something used, and keep saving up for it. First though, decide when/where/how much it will be used.
No sense in buying an SUV if you dont need one, no sense in buying a really small car if you’re interested in expanding your family beyond the one you’ve got on the way.
Pretty darn ridiculous that the AVERAGE car loan is $26,000? That means the average purchase price of a car is at least $30,000? That’s nuts, unless you earn 10X that!