My nephew is in college. He had the good sense to buy a car and pay in cash so he doesn’t have a car payment. Of course, he’s not immune from the costs of car maintenance, and he was just hit with a $450 bill as a result of the check engine light.

No one NEEDS a brand new car. I’ll be the first one to admit that when I was younger, I got caught up in the idea of having a brand new car. That new car smell is certainly more expensive than any cologne. The problem with buying a new car (and really any depreciating asset) is that a new car loses approximately 20% of its value as soon as you drive it off the lot. 

Some people say, “But with a new car, you don’t have to worry about car repairs.” That may be true unless you get stuck with a lemon. But you still have maintenance such as oil changes, tune-ups, tires, etc. You are better off purchasing a car that’s a few years old with relatively low mileage. This way, someone else took the hit on depreciation. However, a car that’s too old or has higher-than-average mileage (think 12K miles per year is average) will be more trouble than its worth in terms of maintenance.

Notice I said purchase a car. Not finance a car. Not lease a car. I won’t get into why leasing is a bad idea for most people. Again, you don’t NEED to have a new car every couple years. Buying your first car with cash is the hardest one because you have to save up enough money while you most likely still have a car payment.

Once you buy a car with cash, you have no car payment. Here is where discipline comes in. The first time I bought a car with cash, I did the smart thing that many people will not do. I set up an automatic savings withdrawal every month for $300. Even though I no longer had a car payment, I pretended like I had a car payment. This monthly withdrawal built up what I called the “Car Fund.” Since the car was eight years old, I knew I would have some maintenance costs. The car fund paid for these. In addition, I knew I wouldn’t have the car forever. So, when the time came to buy another car, I had the car fund ready to go to purchase the next car in cash. Rinse and repeat.

I don’t drive that much. I understand if you have hours of commute time every day, and you want a ride that is comfortable with amenities. I get it. You still don’t need a NEW car.

Once you are in the cycle, it’s hard to get out of it. Here are some practical tips.

1. Don’t lease a car.

2. Don’t buy a new car.

3. Consider an affordable, dependable car that gets you from point A to point B. More flash means more cash.

4. Pick an older car with relatively low mileage. The sweet spot for me is anywhere between 3-5 years old depending on mileage. The first car you buy with cash might have to be even older to get within the price range of what you have saved.

5. Once your emergency fund is good, consider setting up a car fund with an automatic transfer every month so you don’t have to think about it. Start small. Even $25/month is better than nothing. 

6. Work toward buying cars in cash. You’ll be amazed at how your financial situation changes when you don’t have that pesky car payment.