Saturday, January 13, 2007

Is your car costing you a future?

Rolling your way into the car of your dreams:

The idea is simple in its premise if not a little challenging in its implementation. You save a few thousand dollars and pay cash for a car that simply gets you from here to there. Now this car may not turn the head of anyone in your neighborhood but does reliably get you from point A to point B. At the same time you start setting aside what would have been a car payment of $250 (or there abouts) each month in a online line savings account which earns you around 5% interest. At the end of three years you will have almost ten thousand dollars in that account. Take the ten grand and the car you’re driving roll them together. With the $10,000 and the trade in you should be able to trade up for “a little nicer” car. (Caution: Don’t let your ego overreach and roll the $10,000 + the trade in + a LOAN for this “little nicer” car.) Repeat the $250 a month set aside process. In another 3 years roll the new 10 grand with the “little nicer” car and upgrade again if you must. In short if you can save $250 a month then six years and two rolls later you can be driving a paid for automobile that turns the neighbor’s heads. OR

Roll your future not the car:

After you have rolled into a “little nicer” car then perhaps you realize that this type of ride isn’t so bad after all. The next three years you continue to save as planned but at the end you don’t roll into a different car. You decide, “screw the neighbors I’m going to be cash rich not car poor.” The $10,000 gets left in the online savings account earning interest and waiting until you NEED a different car. The $250 a month now gets pushed into a less than fully funded ROTH or a less than maxed out 401(k) or a nice dividend reinvestment program.

A look at what could be:

$250 a month invested that returns 9% gets you about $10,700 in three years. For five years of focus it grows to around $19,500. For those that are disciplined, in ten years you have just shy of $50,000. For those of you starting young, twenty years rolls to just under $170,000.

Bottom-line:

As I said the idea is simple: drive a paid for car and invest what would have been a car payment. It is the implementation of that idea that is the challenge. But, for the ones who rise to that challenge, master their car emotions there is indeed a rich reward for the disciplined and focused.

That’s it for today. Here’s to paid off cars, fully funded ROTHs, and to keeping an eye on your EveryDay Money.

1 comment:

Zara said...

Good for people to know.