What do I do once I've paid off my car? How do I avoid car payments in the future?
If you are like us, you recently made your last car payment and are living life with paid for vehicles. If you ask me, vehicles (cars, trucks, motorcycles, boats, etc) are the fastest road to financial ruin. Owning and maintaining them robs so much money from our retirement. It is always interesting to me to see a vehicle parked next to a house that is probably 50% of the value of the house.
Now that my car is paid off, it sure does drive better, as Dave would say. Each month is an extra $280 towards my student loans, and an extra $550 to the same for my wife’s vehicle, which is also paid off. My four-cylinder sedan saved me a lot of money on gas when I commuted 90 miles each day, but my wife’s vehicle was a bit of a splurge. Having them both paid off now is helping us put an extra $1500 each month towards our student loans.
The key to making this work is to keep living like you still have a car payment. Too many people, after paying off one thing like a car, simply look at this as an opportunity to take on more debt or buy new things. Avoid the temptation and simply redirect your payment to your next vehicle, or your next loan.
Before you know it your debt snowball will be picking up steam as it rolls downhill, crushing your debts under the weight of your cash flow. This is easier to see visually with a snowball calculator.
If you have paid off everything, or everything except the house, it would be wise to start setting aside $50-100 each month for future repairs and maintenance. It is also smart to begin saving to buy your next car. Both of these savings can be easily accomplished by using an automatic monthly transfer to a dedicated online savings account that allows you to have subaccounts for each goal. I use SmartyPig for this.
By saving a few hundred dollars a month in a New Car Fund, you are making a down payment on financial independence and debt avoidance.
More on this in a future post.