What would you do if you need a new car? Some personal finance experts advocate saving up a new car fund so you don’t have to get an auto loan. However, the interest rate is very low right now. Some automakers are offering 0% financing. It doesn’t get better than that. Unfortunately, many US consumers don’t have the perfect credit score. The interest rate would be higher if there are some blemishes on your credit record. Lastly, many of us hate debt. I haven’t had a car loan for over 10 years and I never want to have one again. It was annoying to see $500 go out every month for so many years. If I really have to buy a vehicle, I’d pay for it in cash as I did with our 2010 Mazda5.
But I don’t have a new car fund right now. Why not? Our Mazda5 is 10 years old and most people would think it is due for a replacement soon. Well, it’s a combination of hope and optimism. Let me tell you the 3 reasons why we don’t have a new car fund.
1 – Put money to work
I don’t like having a lot of cash sitting around. The interest rate is very low right now. In 2020, the average transaction price of a new vehicle in the US was $37,876. Wow, I guess new car buyers had a good year financially. Anyway, I’d rather invest that money than having it sit idle in a saving account.
My budget for a new vehicle would be around $25,000. I could get an economy car or a little nicer used car for that. We’ll use $25,000 as a study case. The current interest rate for a saving account is way below 1%. Let’s be generous and say we could get 0.5% interest rate. So the interest on $25,000 would be $125 per year. That’s below inflation! I’d rather invest in the stock market or real estate crowdfunding instead. The stock market investment would be pretty liquid and I could sell some stocks if I really need the cash. Who knows how long it’d be before we need a new vehicle. The $25,000 could be sitting in a saving account for years.
2 – Ridesharing is a lot more ubiquitous now
The last time we purchased a vehicle was in 2010. Back then, there weren’t many ridesharing services. Now, there are many more options. Last year, we didn’t drive much and we still paid at least $100/month just to have a vehicle. There are all kinds of expenses for car owners. We have to pay for car insurance, parking, cleaning, repair and maintenance, license and registration, DEQ, gasoline, and more. I don’t really want to spend this much when we rarely use our car.
I’m the primary driver of our car. The trip we take most often is to drop my son off at school. However, he only has 1.5 years left at his elementary school. After that, he can take the bus to his middle and high schools. Once we remove this trip, I won’t have to drive much at all. It’ll be pretty similar to 2020. I drove just a few times per month. These were trips to grocery stores and hardware stores. Most of these weren’t really necessary. I could go to nearby local stores instead of driving. Anyway, I don’t think we will need a dedicated vehicle once our son is done with elementary school. If we need to go somewhere, we could call an Uber or rent a car.
3 – Long term travel plan
This is a way off, but I want to travel extensively after our son goes off to college. That’s in 2029, but time will fly by. We’ll be there before we know it. I hope our Mazda 5 lasts that long, but we’ll have to see. There is a good chance it will because our mileage is quite low. The car is 10 years old and it only has 55,000 miles on it. At this rate, we’ll be under 100,000 when the car turns 20 years old.
Anyway, we won’t need a car when we travel all over the world. It’ll be another thing we’d have to worry about if we kept it. So I hope we don’t have to buy a new car before then. If we ever move back to the US after our travel, we’ll think about getting a vehicle again. By then, there probably will be plenty of self-driving cars. Maybe most people will choose to stop driving completely. You can just call a self-driving car to come to pick you up as needed. Who knows what will happen in 15-20 years?
No New Car!
Our situation is somewhat different than a normal US household. But I just want to share why I don’t have a new car fund. I prefer to invest and generate passive income instead. Hopefully, we never have to buy a new vehicle again. I’m in Chiang Mai right now and I don’t need a vehicle at all. I can take public transportation or call a Grab car (similar to Uber) whenever I need to go somewhere.
What about you? Do you have a new vehicle fund? Do you think people will stop driving once self-driving vehicles become ubiquitous?
Passive income is the key to early retirement. This year, Joe is investing in commercial real estate with CrowdStreet. They have many projects across the USA so check them out!
Joe also highly recommends Personal Capital for DIY investors. They have many useful tools that will help you reach financial independence.
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