With a title like that, I know what you’re thinking. Danielle, are you really planning to save for a new car? Didn’t you spend the last 4 years paying off $63,000 of student loan debt? How can you consider going into debt again so soon? If I were you, I would…
Well…before I let you finish that sentence, here’s the deal.
Life After Paying Off My Student Loans
From day one, I knew that I’d be jumping for joy when I submitted my last student loan payment. I spent years dreaming of that big day (and I’m sure you can relate). For the first time in my adult life, I could finally pocket all of my hard-earned cash – minus Uncle Sam’s cut of course.
So in other words, I would finally be able to do all the things that I couldn’t financially afford before – Wohoooo! I was going to go on a shopping spree!
When that day finally came, I cried tears of joy and I shared my accomplishment with my friends and family. All of those sacrifices I made to pay off my student loans were worth it!
But honestly, is anyone surprised that my celebration was short-lived? I didn’t even last a week! I started to get bored and I needed to start working on my next financial goal.
One thing that I learned about myself after paying off my debt is that although I have access to more of my income, my money mindset and financial habits haven’t changed much, maybe they never will.
I’m a saver through and through, and this is what I do.
Building On My Savings Momentum
My life after debt feels exactly the same as my life during debt, but there’s one big difference. Instead of lining Great Lakes’ pocket, I’m now investing in mines.
This also means that I can consider doing something nice for myself, hence why I want to upgrade my car.
My 2001 Nissan Altima has been good to me. Although it’s over fifteen years old, besides routine maintenance, it has never given me much trouble.
Even after spending over $1,000 on repairs last month, I can’t say that repairs cost more than what my car is worth. However, since my car is starting to show its age, I think it’s worth it to start to save for a new car.
Since the average price for a new car in the U.S. costs about $34,000, I have to strategically plan for this big purchase. Even if I want to buy a cheaper new(ish) pre-owned car, I still have a lot of work to do.
My plan is to save for a new(ish) car by building on my savings momentum with my newfound financial freedom while still driving my ugly car.
If I don’t get to save enough money, I’ll have to finance the rest with an app like AutoGravity. In that case, I’ll use a car finance calculator to help me figure out a monthly payment that I can afford.
Save For A New Car With CD Laddering
One way to save for a new car is through CD laddering. CD laddering is a great savings strategy for those who are looking to invest conservatively. This is especially helpful for the easily tempted saver since you won’t have a lot of cash on hand.
A CD (certificate of deposit) is a bank account that requires you to keep your money in the bank for set periods of time, usually between 1 day and 5 years. CDs also offer higher interest rates than a traditional checking and savings account.
**You just have to be careful about withdrawing funds early because you’ll get hit with hefty penalties. Remember to choose your terms wisely.
CD laddering progressively staggers CD maturity dates. This is great for saving for a car because 1) you can earn a decent interest rate, 2) you can’t dip into your savings whenever you want and 3) you can still access your cash on a regular basis depending on your terms.
Reasons CDs Can Help Save For A New Car
- Access cash often
- Opportunities to reinvest or transfer funds
- Easy to manage
- Customizable time periods and investment amounts
Here’s an example:
3 Month CD: (Starts January 1, 2017, and matures April 1, 2017)
- Renew for 12 months: (April 1, 2017, and matures April 1, 2018)
6 Month CD: (Starts January 1, 2017, and matures June 1, 2017)
- Renew for 12 months: (June 1, 2017, and matures June 1, 2018)
12 Month CD: (Starts January 1, 2017, and matures January 1, 2018)
- Renew for 12 months: (January 1, 2018, and matures January 1, 2019)
In summary, these would be your maturity dates:
- April 2017
- June 2017
- January 2018
- April 2018
- June 2018
- January 2019
- April 2019
- June 2019 and so forth
In this example, you split your investment into three different CDs. Initial maturity dates are set 3 months apart and when they mature, you reinvest them for a full year. This means that you can access your funds three times a year. If you want more or less access, be sure to adjust your maturity terms.
Every time your CD matures, evaluate your financial situation and decide if you need to save more or withdraw your funds to purchase your new car.
Next up, here are 5 lessons I learned when buying a new car.
Planning to save for a new car? Share YOUR favorite financial strategy!
Danielle is a travel finance strategist, writer, speaker and podcaster. She paid off $63,000 of student loan debt in 4 years, bought a house at 27 and has traveled to 26 countries. She refuses to let her financial responsibilities hold her back from living life on her own terms.