Are you planning on purchasing a new or used car in the future? Ever thought about paying for it in cash? To be honest, I'd always thought of that as one of those financial goals you read about, but are not likely to ever actualize - until I made it a goal of mine.
With a bit of effort and some self-discipline, I was able to accomplish it. I've saved a bundle in interest by not financing my most recent car purchase - and you can too.
Budget Your Money
The first step to paying for a new car with cash is budgeting your finances. Use a website like Mint or BudgetTracker, enter in your financial information, and analyze the resulting snapshot of your overall finances.
If you're spending less than you're making, you're off to a good start. If not, roll up your sleeves.
Reduce Monthly Bills
The next step is to reduce your monthly bills. Check out what you're currently paying for Internet service, smartphone data, and cable or satellite TV. If you can drop down to a lower tier service, you can save some money.
Look at bundling opportunities, as well, if you haven't done so already. If you don't watch a lot of TV, consider a streaming device like Roku, which gives you access to TV shows and movies at a fraction of the cost of traditional cable.
Save on Groceries
Grocery bills represent another excellent area to cut back and free up some cash. Clip coupons from the Sunday newspaper, then download apps to manage your coupons like SnipSnap and GroceryIQ if you own a smartphone.
Sign up for your grocery store's loyalty program if there's one available, so you can get additional discounts taken at checkout. Shop with a list and only go down the aisles with foods or other products you plan on buying to avoid making unnecessary purchases.
Hold off on Personal Purchases
Just because state-of-the-art curved TVs hit the market or the latest iPhone model was just released doesn't mean you have to go out and buy them.
If your current digital arsenal is functioning just fine, keep your money in your pocket. Do the same with your wardrobe, too. If it meets your needs, stick with what you've got and use the extra money on a car.
Set Up a Separate Savings Account
Once you start to build a surplus in your checking account from areas where you've cut costs, establish a separate account to store that money, so you're not tempted to spend it.
Choose an account with no fees, if possible - or at least one that offers ways to avoid fees, such as maintaining a minimum monthly balance.
Continue to Drive Your Current Vehicle
Continue to drive your current set of wheels, even after it's paid off. If you can avoid a new monthly payment of $350 for two years, that's $8,400 to put toward a new car. Forego the urge to upgrade now. Instead, direct that monthly payment to your designated bank account, and use the cash when the time comes.
Negotiate at the Dealership
Research prices at Kelley Blue Book or Edmunds, and take that research with you to the dealership. Avoid the extended warranty or service plan and don't say you're paying in cash until the end of your negotiations.
Often sales reps negotiate down on a price thinking they can "get you" with a decent interest rate, so you may be able to get an even lower price by offering to pay in cash at the end.
Be sure you have a check on hand to write out - you typically can't put the entire purchase on a credit card.
Remember, even if there is some sacrifice involved, think about the cost savings.
Pay for a $15,000 car in cash and you save yourself a little over $1,600 in interest compared to what it would have cost if you financed with a $1,000 down payment on a 48-month loan at 5.5%.
When you look at things in that light, putting the work into buying your next car with cash seems well worth the effort. Once you enjoy the benefits of life without a car payment, you'll be glad you did.
Do you think that you can pay for your next car purchase in cash? Share in the comments below!
Richard Brown writes about smart shopping and negotiation strategies, especially when it comes to large purchases like a home, cars, and appliances.