Weekly Roundup: Car Payment Almost Gone Edition

My wife and I are closing in on a status we have never achieved during our married life together – without car payment.  Just a couple months after we married I leased an SUV.  The lease represented one of the dumbest finance moves I’ve ever made, and has haunted us, financially, for a decade.

When the lease was up I refinanced the balance into a traditional loan, and before that loan was up I traded in the SUV and financed our current vehicle.  We are now within one month of saying goodbye to car payments – forever.  We plan to continue to pay our car payment to ourselves by depositing the same $310.00 we’ve been paying for our curerent vehicle into an online savings account.  In a few years we’ll use what’s in savings to buy a new (used) family car and I’ll drive the old one back and forth to work.  We will continue this pattern for the rest of our driving lifetimes.

The Fab Five

Early Retirement or Meaningful Work?  Thought-provoking post which asks, would you rather “retire” early or continue meaningful work?  To me, the question is asking, would you rather hang up your current job to spend your remaining time in an endeavor that is meaningful to you.  Which begs the follow up question, why aren’t we already doing meaningful work?  Like I said, very thought-provoking.  (@ Brip Blap)

Five Ways to Make Laundry Day Easier.  My wife recently had to tend to an ill family member, leaving me alone for a couple days with the kids.  I typically help with laundry duties, but rarely do I take the lead.  I was reminded why I dislike it so much over those couple days.  The tips in this article remove much of the stress (and expense) from laundry days.  (@ On Simplicity)

Recoup Your Lost Savings.  The last time I looked at my retirement account statements I was closing in on being down 40% from the highs of last summer.  Thanks to a slight rebound, I’m hoping the most recent quarterly statements will look a little better.  Kiplinger has put together a helpful calculator to figure out how long it will take to get back to those high balances again.  I’m still depressed.  (@ Kiplinger.com)

How to Live Well on Less in Retirement.  This post goes along with the theme of my favorite personal finance book, Your Money or Your Life, which emphasizes the point that you don’t need to be a multi-millionaire to enjoy a comfortable retirement.  By making sacrifices early on, and living frugally both before and during “retirement,” you can live on less than you might think. (@ Get Rich Slowly)

The Best of the Rest

Site of the Week

Early Extreme Retirement.  I was planning to include this site in the roundup itself, but I found so many interesting posts I decided to just link to the entire blog here.  Any time I feel like I am sacrificing too much I go read a post at Jacob’s blog about how he became financially independent and I quit feeling sorry for myself.  This guy has made some incredible sacrifices, and I like that his ideas are outside of the normal personal finance advice box.

Comments

  1. FD,

    Big Congrats to you. I know it must feel really good to be this close, my wife’s car is paid off and mine will be paid off at the end of the year.

  2. Congratulations on getting out from under your car payment! That is great news! I can’t wait until the day that I am able to get my car paid off, I know it will be a great feeling. I won’t know what to do with all that extra money I will have freed up…oh, wait. Yes I will!

    Thanks for the mention, by the way!

  3. We’ve been without a car payment since last January and it is fantastic. It’s amazing the amount of money we can save without it.

    If a car payment feels this good, I can’t imagine what a paid off mortgage would be like.

  4. Congratulations, FD!

    You and your family are going to enjoy this so much. Besides having the extra cash flow, there’s a feeling of pressure that leaves you when an ongoing financial obligation goes away. Knowing that you don’t have that particular bill to pay will give you a sense of freedom.

    There’s also a feeling of accomplishment when you get the title in the mail. It’s just a piece of paper, but somehow it feels very good to have it.

  5. Bravo!! This is the advice I give all my clients. It strongly supports a key aspect of saving that too many people miss…. Save with a purpose, conserve it, don’t consume it. Open a “car” account at the bank and never, ever finance a car again ( discipline yourself to not touch that account under any circumstances until you are ready to buy your next car for cash). This also helps people understand that you can “pay yourself first’!

  6. Congrats! What a great plan to keep making the payment. This will guarantee you can repair and replace the car. Can’t wait until you are completely debt free! -Becky

  7. Hey, thanks for the mention. Might I suggest going car free instead if possible? Consider a two-wheeler like a scooter, motorcycle, or bicycle (the last is the safest option, safer than SUVs). The best option, of course, would be to move to a place where none of these are needed.

    In terms of sacrifice, it is all a matter of perspective. You can sacrifice your stuff or you can sacrifice your time. I just did the unconventional thing and sacrificed my stuff instead, because I thought the sacrifice of all the time I would need to work to pay for what I came to consider excess baggage wasn’t worth it.

  8. @Clever Dude: You win! I owe less than a third of that, but will need this month and some of next to snowball it away. Congrats to you, too!

    @Early Retirement Extreme: I don’t know; hauling a wife and two kids on the back of my scooter might be a bit extreme. Now for me personally, yes, this is certainly an option! If I can find a better bicycle to ride I may start commuting again.

    @Erin: It does feel great – even better when that title arrives from the bank. It’s funny, but getting over the debt milestones becomes a bit addictive, like a natural high. You can’t wait to take down the next one! Like Kevin M. mentions above, could you imagine how it must feel to tear up a mortgage note and own your home?! I can’t wait!

  9. It feels even better watching your payment to yourself grow. If Frugal Dad’s $310 payment to his on-line “car” account earns 2.5% interest, he will have $20,000 in it in 5 years, $33,000 in 8 years and $42,000 in 10 years. So take good care of that car and for the rest of your driving life, you’ll never have to borrow to own one again.

    FD – it’s been my recent experience that most people paying off their mortgages arent prepared for the tax consequences (losing te dduction) and their CPA’s advise them to get a new mortgage in retirement to offset 401K and IRA income taxes.

  10. Congratulations. There is nothing like the pressure relief when a debt is paid off. My wife and I paid off our two cars last August. $1,000 a month is payments, but paid off early and with relatively low mileage. I also wrote recently about my truck (paid off well over a decade ago) that is still my daily driver. I firmly believe the longer you can drive a paid off vehicle the better off you will be.

  11. @Bryan: I’ve never understand that advice. Go get a new mortgage and pay $10k a year in payments to the bank to save $3k in taxes. If you want to save $3k in taxes, donate $10k to a local charity, not a bank!

  12. Congratulations! We too will pay off our car in August. I plan to save most of that payment for a new car and put some toward retirement. Cannot wait. If you feel like trying out biking, it’s Bike to Work week now!

  13. IFD – It baffles me too. The only thing I can think of is the mortgage does 2 things, it gives you access to the equity that would otherwise not be working for you, and it’s a forced discipline vs. donating, which, until it’s a discipline could easily be forgotten.

  14. I think you and wife can splurge on a moderately priced dinner out to celebrate and then save all the rest. But do celebrate and enjoy! Congrats to both of you.

  15. @Bryan – I’m a CPA…find those people that are getting that terrible advice and send them to me. Or better yet, have them send me $10k and I’ll send them their “$3k deduction” back to them on April 15th every year.

    We couldn’t even utilize our interest deduction last year though sense we bought a sensible house and our total deductions were just below the standard deduction threshold.

    To piggyback on FD’s advice on donations – here in MO if you donate to certain charities you can get up to a 50% state tax credit for the money given. So in that case you would get a $5k state tax credit on top of your federal deduction. Not too shabby!

  16. Congratulations on getting rid of that car payment!

    I have been car payment free for 2 years and in about a year my house will be paid off! After that I am going back to school with only credit card debt to pay off. It will be sweet!

  17. Good job FD. My car payment ended March 25, 2009 and the $209.00 that was going to Toyota Motor Credit is now added to paying off my Mortgage. With the exception of my <$35k mortgage I am debt free.
    @Bryan, I’m not a CPA but I can see the sense in not having a mortgage payment. If I send my bank $4,000 in interest the government does NOT give me that money back at the end of the year. All they do is not tax me on that amount. Personally I would rather keep the $3500ish that I would otherwise have sent to the mortgage company and lose the rest to taxes. It’s been 2 years since it was worth while to itemize my deductions and now I am paying my last debt off as quickly as I can.

  18. Kevin – I agree that the advice is terrible. I’m in NY and always looking for good CPA’s to send my clients to.

    JerryB – I guess Retirement income and tax advice is very situational, based on source of income, taxability, etc. I’m not a CPA either and (no offense Kevin) they seem to be adamant about their advice.
    Speaking of keeping money that you would otherwise send to the mortgage company, you can pay your $35k mortgage off faster if you save the $209/ mth in an interest bearing account rather than giving it to the bank monthly. Assuming your loan was interest only, your savings at 5% will accumulate enough to pay off your mortgage in 8 years, whereas giving the $209 to the mortgage company will take 10 years. If you continued the $209 savings after 8 years, you’d have $10,000 in the account in 10 years. If your mortgage is amortized interest, both scenarios will happen sooner. Congratulations and Good Luck! (I’m envious)

  19. Bryan, My mortgage is 5.58%. Where can I get that guaranteed through any investment in today’s current market conditions?
    I should also note that other debt reduction snowball funds are also going toward the house payment and I’m at close to $1k a month in principal reduction. Just the knowledge that I soon will have my house paid off is a good feeling.
    I’m also fully funding my Roth IRA as quickly as I can, seeing as I am behind the curve in retirement savings.

  20. JerryB – The rate of return from where you put your money is not the key here. While it is important, what’s more important in your situation is that your money EARNS A RATE OF RETURN in a safe, accessable place . If you are contributing $1,000 per month to principal reduction, you are giving your hard earned money to the lender for free. Yes, you are ultimately saving interest , but saving interest is not the same as earning interest. Even if you put the $1,000 in a safe deposit box each month for the next 35 months and then make one big payment, you are better off than losing access to that money (this, aside from the access, is equivelant to giving it to the lender for free). And, if you already are putting that much toward pricipal, you should open a “car” account and pay yourself the $290/ mth if you plan to own more cars in the future. Do you have a sufficient emergency fund?

  21. Bryan,
    I’m having a hard time following your logic. As you said earlier each situation is different. I’ve been to several sites with pre-payment calculators and they all say in my particular case it’s better to pre-pay my mortgage. Paying down my principal isn’t giving the bank my money, paying them interest on the outstanding balance is. Last year I LOST approximately $2650.00 to the mortgage company in interest that, because I take the Standard Deduction, I don’t even have the illusion of getting back by writing it off.
    I have a well established emergency fund. Since my car is less than 3 years old, I have plenty of time to build a new car fund. My experience with Toyota’s tells me that it will be many many years before this car is driven into the ground.

  22. JerryB – sorry I bounced around a bit there. Not knowing your entire situation leaves me to generalize a bit.
    I am a big advocate of paying yourself first. In MOST situations, giving yourself the money to ultimately pay off the mortgage will fare better for you in that you have control of the money, access to the money and could be earning compound interest on that money. Whereas giving it to the bank each month you have none of the above. What I meant about giving it to them for free was that you are giving them the control and the ability to earn interest on it instead of yourself. Even if you pay yourself monthly and pay down principal once per year, you are better off than doing it monthly.
    Obviously, how much time is left on the mortgage and the original amount and term factor into selecting the right strategy, so this may or may not be right for you.
    My suggestion to continue paying yourself the car payment right away is because you already have it budgeted, so you are disciplined to conserve that money. Lie happens and things change, in the “plenty of time” you have to re-establish the good habit, anything could happen. So why wait?

    If you already have an emergency fund, are contributing nearly $1,000 per month to accelerating the final piece of your debt portfolio (mtge), you are in a great place! Seriosly consider starting the car account right away. At 2.5%, you will have $27,000 cash to buy a car in seven years or $49,000 in twelve years.

    No debt, no mortgage, paying cash for the cars, and contributing $1,000 per month to creating wealth. Jerry, you are going to sleep Real Well at night! Congrats!

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