Car Replacement Fund Underway

Over the weekend I took some time to complete a few finance tasks that have been stacking up on my to-do list for weeks. One of those tasks was to officially establish a car replacement fund.

Now that we have paid off our car, we recognize that it won’t last forever, so we might as well continue making “payments” to ourselves so we can pay cash for the next one. Since we have been in car debt our entire marriage up to this point, we are used to living without that $300-$400 we were sending to banks and finance companies over the last decade. Continuing to make a “car payment” to savings shouldn’t be that painful.

The Car Replacement Fund

As usual, I turned to ING Direct (read my ING Direct review) to handle my car replacement fund. I could get a slightly better rate with other banks, but the convenience of creating additional “sub-accounts” at ING, and seeing all my targeted savings accounts in one view, is key to my motivation.

We labeled the new account “Car Replacement” and scheduled a monthly transfer from checking for the exact amount of our most recent car payment (roughly $300). In just one year we should have around $3,600, plus a little interest. In two years we should be up around $7,500 – well within the range of replacing our car.

When the time comes we will sell the car via private sale, and put the proceeds with the cash in the car replacement fund. Based on an a depreciation estimate for our current vehicle, and the projected savings balance in two years, that should give us a solid $15,000 to look for a newer, used vehicle.

Over time we will continue this trend of upgrading every few years, but always doing it with cash. The schedule isn’t that much different than someone financing a new car, paying it off over 60 months and then financing a new one. Well, except we won’t be financing it from a bank – we’ll be using our savings.

I’m lucky; I’m not a “car guy.” I don’t drool over showroom models, and with only one exception, I’ve never really cared what I drove (there was that whole Isuzu Rodeo leasing saga). To me a car represents four tires and sheet metal with an engine to get you from point A to point B. It says nothing about who I am, my status, or my personality. Fortunately, my wife feels the same way.

Thanks to this utilitarian approach to car ownership, we simply look for the best value, not the sexiest design. Give me a beat up exterior with a solid engine and low miles any day. And driving that car without dragging a payment makes it just that much sweeter.

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