When money is tight, family and personal budgets have to focus on “the four walls” – food, housing, utilities, and transportation. Most people need a car to get to work, to get their kids to school, or for a number of other reasons. But private transportation is expensive, and car payments are out of control. The average car payment in North America today is nearly $500 a month. It is extremely difficult to get ahead in finance with that kind of noose around your neck. Besides being expensive, financing a car leaves you vulnerable to repossession and “harassing calls from debt collectors” (Want A Fresh Start).
This is a tough way to live life, but it doesn’t have to be this way! It turns out that there is are a few extremely sensible alternatives. This is how your grandmother used to do it and it is how we should all do it. Here are a few ways to survive without a car payment:
Go Without a Car
Some people, especially younger people in large cities, go without a car altogether. This is easier in large cities because of the abundance of public transportation, but the growth of ride-hailing services has made this move easier even in smaller cities. Going without a car altogether can also save money on insurance.
However, for most of us, not having private transportation is just not an option. The best way to live without a car payment is to save up and paying cash for a car. Here’s how it works:
- Put your $500 car payment aside in a savings account every month.
- In two months, pick yourself up a $1,000 junker. This car should be uglier than Pepe the Frog, but without too many miles on it. Don’t worry, we’re not going to drive Pepe for long.
- Drive Pepe for another six months while continuing to put $500 aside every month for an upgrade.
- After six months, sell Pepe and add the proceeds to your $3,000 and pick yourself up a $4,000 sensible little car.
- Continue this process for as long as you like until you’re buying reasonably nice vehicles – nicer than you would ever be able to afford through financing.
In the short term, saving your car payment won’t feel much different than paying a car payment to the bank, but the difference is that you’ll be able to get more bang for your buck, and you will never have to speak to a repo man!
When you save up the money to pay for your car in cash, you save money on the purchase. Putting away a few extra dollars each week can help you save up the money needed for a car in a reasonable amount of time. Get control of your money by budgeting each month! You also can make changes in your life to save money faster. These can include eating out less, reducing services like cable TV and buying used clothes instead of new ones.
Because once you have enough money in the bank to buy your junker or your upgrade, you’re going to withdraw that money in cash. Then, when you’re on the car lot and you’ve found your favorite Pepe the Pinto, you’re going to make yourself a paper fan out of Benjamins. Let the salesman see the bills. Let him know that this is exactly the amount of money you have available to spend. If he doesn’t drop the price to your satisfaction, fold the bills into a single sandwich stack and conspicuously place them back in your pocket, and turn to walk away. Let him see that those Benjamins are going bye-bye. You’d be amazed at how many deals are made on the way out the door!
Though it may seem difficult, you can live without a car payment. It takes a little discipline and some short-term sacrifice, but it is doable. Living without a car payment will make your life easier when it comes to your finances.