3 Reasons Why I Don’t Have a New Car Fund

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.

3 Reasons Why I Don't Have a New Car Fund

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?

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Joe started Retire by 40 in 2010 to figure out how to retire early. After 16 years of investing and saving, he achieved financial independence and retired at 38.

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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23 thoughts on “3 Reasons Why I Don’t Have a New Car Fund”

  1. We up and purchased two used vehicles in the last year and, despite my constant browsing on Facebook marketplace, I need to sell a car (the old Matrix) so we get back down to two, rather than add a new one.

    I agree with your take, too: leaving a bunch of money in cash can be good for emergencies but maybe not for a new car, especially when loans are so cheap.

  2. I’ve got an old antique in our garage. 1990. It’s got about 155,000 miles on it or so. I bought it nearly a decade ago with about….152,000 miles on it if I recall correctly. 🙂

    Not exactly a good deal in the context of miles/$, but hey, it’s pretty clear I barely drive. I’ve been living this remote work life for ages! Heh.

    Jenni has a 2009 Prius that we mostly use but it doesn’t get very miles on it either. On the occasional work day she has, the pharmacy is just 2.5 miles each way.

    We walk to almost all of our day-to-day business (groceries, post office, banks, doctors, parks, theaters, events, etc.). Most of the miles we do put on the cars are for visiting friends/family who aren’t local.

    Within those confines, I feel like we’re the perfect candidates for ubiquitous automated ride-sharing services. It’d be great to not own a car. An exciting future perhaps!

    Though… I might miss the feel of those turbos spooling every now and then 😉

  3. All our cars have been paid off for a few years now. I don’t think I’ll ever go back to having a car payment even with low rates…it feels so great not having that payment.

    I’m hoping we can FIRE before the need for a new car arises. We both drive a ton out here in the Bay Area and our main Honda Civic commuter is at 200k miles. If we do end up needing a car well just sell a few shares.

  4. yeah at 0% interest that makes sense.
    Our local market is a little different, we have around 10% interest (down from 15% 10 years ago so still an improvement). The other side of the equation is that due to cars being imported, in local currency they increase in cost at around 6% per annum. So our own market it makes sense to buy cars cash, but definitely to not leave the cash sitting idle due to inflation. The cars are also probably around 30% above the price of US cars due to import taxes.

    Overall, ride-sharing or 2nd hand cars make more sense – and definitely to buy them cash. Interestingly, nobody seems to do that here, they just pay up for expensive BMWs and Mercedes on 72 month loans with 30% balloon payments. They kill any savings they’ve every accumulated – since you know, who needs savings, it’s called disposable income for a reason and what else are you going to spend it on anyway, YOLO! Huge market here for good financial education =)

  5. Honestly, 10 years is still very new for most cars… and 55k miles? That’s a baby! Your car still has a ton of life left in it!

    Most cars these days should be able to easily drive at least 200,000 miles without any major maintenance. You should be able to drive your current car for a very long time yet Joe!

    Honestly, I think most people trade up for a new car because they get bored of the old one, not because they truly wear-out the car!

  6. We are opposite. We drive a lot, probably 25-35 K miles a year spread across the three cars we own. That’s not unusual for rural America and we take several long road trips each year since we retired. I drive used luxury sports cars that I get with low mileage for about $25K. My wife buys new but keeps her car for 15 years. She’s got a Bronco Sport ordered for about $38K to replace her 2006 Nissan Exterra. Then we’ve got a 2011 4Runner we pull our boat and off road side by side with, we bought it used. It will need replacing in a couple of years with another used large SUV. We have always bought cars with cash, but we generally just bought them out of cash flow, didn’t save up to buy them. We did take the Bronco money out of stocks when the market was quite high. Cars represent a small part of our net worth.

  7. Our emergency fund has enough in it for a car if necessary (our current cars are pretty new). Or to redo the roof. Maybe both, I don’t know. With DH’s current unemployment I’m not in a hurry to put our extra cash into taxable stocks, though I did fill up our backdoor Roth IRAs last month and now that trump is out of office I switched my 403(b) back to Roth so I’m paying taxes now.

  8. I used to love driving but now could care less about it. When we bought the used Honda Pilot for our 40-day road trip last summer, Lisa drove probably all of the time except for about 8 hours.

    We haven’t owned a car in all our time living in Panama and it’s been just fine. I will say though that it was nice to borrow our neighbor’s car a couple of times to head out-of-town for some bigger shopping and going hiking.

    Regardless, I can’t wait until self-driving cars become the norm. It’s silly and inefficient that most everyone owns cars that just sit idle for probably 90% of the day. I’m curious to know when that will actually become a reality.

    • Your wife likes driving, great! My wife doesn’t mind driving much, but she hates parallel parking. 🙂 That’s why I’m the driver most of the time.
      It’d be great when self-driving cars become more ubiquitous.

  9. we paid cash for a good used VW wagon last year for mrs. smidlap. it’s a good car for 9 grand and a good hauler for artwork, which can be large. i don’t mind financing a car every 15 years or so at a low rate. i’m like you, joe, in that i prefer that money to be working for me in the markets. i bought my last one new in early ’14 and it has a lot of life left as my commute is only about 8 miles each way.

    i really do like the mobility to go and visit friends and family. 90% of our travel for vacations the past few years have been by car and we can bring the dog. i do hate paying that big insurance bill month after month for driving so little.

  10. Makes sense. I think I drove less than 3000 miles in 2020. I don’t think I’ll drive more than 4000 miles in 2021.

    My goal is to keep my car until 2025. It will be 10 years old by then. Then, i’ll reconsider depending on what other safety options there are.


  11. We don’t have a specific new car fund — we just let a big chunk of money ride in a savings account in case of job loss, surprise home maintenance, new car needs, or all of the above. It’s not the most efficient way to do it but it keeps my wife happy. Given that the amount we have in savings is just about exactly the difference between my salary and her larger one, it seems like a good battle to choose to avoid… and given sales incentives, we could get a brand new 2020 Chevy Bolt for two thirds of what’s in that account right now. We’re in good shape.

    The joke as a musician is that I put a $10k instrument into a $1k car to drive 100 miles round-trip to make a hundred bucks. It’s pretty on-the-nose for me. Good thing it’s a hobby rather than a job. The last eleven months have thrown a wrench into that — we only drive lately for groceries (to which we could easily walk, but driving is more convenient) and socially-distant outdoor family stuff.

    I guess we’ll see how things go post-pandemic.

  12. I’ve never had a car fund, always opting to have my money invested instead. Interest rates have been very low for the last 20 years, except for a brief time around 2006-2007.

    With good credit, I have always had a car loan rate that was at or below inflation (0% at times).

    It is nice not to have the $500/mo. bills coming, but I’ve budgeted for them long term. I know that I’ll have 6 years with those and 6+ years without those – so cars will cost us $200/mo. on average (plus the other costs that come with it).

    We bought our cars when our kids were born (sounds like you) and I’m hoping to pass them onto them when they turn 16. It would be a perfect time for us to get new cars and not have to worry about transportation for them.

  13. Hey, Joe, long-term lurker, first-time poster here. Newly retired as of 9/30/20, from a federal government engineering job after 34+ years. I am considering doing some car transporting, either around town, or across the United States as a way to see some sights and make a few dollars in my new-found leisure time. I have NOT yet done my due diligence on this possibility yet, but plan to soon, so if there are any caveats or helpful tips that you or your great group of friends on your site may have, it would be greatly appreciated as I start to focus on the ins-and-outs of the business. Thanks, and hope all stay safe and healthy!

  14. I really dislike cars. Only had a car when I was married. Guess with a family it gets tough without one.

    Past few years I have mastered the art of using every possible method of transportation.

    Much cheaper than a car and at times more convenient.

    Cheers and hope things are ok in Chiang Mai.


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