Expensive noises started emanating from my (t)rusty Buick Roadmaster Estate Wagon last week. I feared it might be my beloved Roadie's death rattle, which wouldn't be a surprise for the 17-year-old car.
Fortunately, the Buick just wanted a new muffler. That makes sense, now that winter is here. I just hope it doesn't want a ski hat and mittens, too.
I plan to push the car to about 200,000 miles before I replace it, whether I need a new one or not. We'll pay off Mrs. Funny Money's Mercury Mariner, then bank the $400 a month that went to that car payment for at least a year. I had hoped that would leave a tidy down payment for a new car, but now I'm not so sure.
TrueCar.com says the average price for a new car in November totaled $30,832. Even with average dealer incentives of $2,764, that's a hefty price, not including tax and tag costs. Even if I put down a year's worth of saved payments, I'd still finance about $25,000. At 3 percent for four years, that's $553 a month. The median U.S. household income is about $3,400 a month after taxes, so that new car would eat up about 16 percent of a family's take-home pay.
The only choices seem to be saving more or spending less. But a third strategy does both. The idea is to purchase a car that you can pay off in three years, then bank that money and drive the vehicle for as long as you can. Do that twice, and you'll have lots of cash to put down on a new car the third time around.
Driving and saving add up
For example: A $400 payment at 3 percent means you can finance $13,750 for a car. That's probably going to be a 2007 model, which you'd drive for five years. It would be paid off after three, and then you could save for two, socking away $9,600 toward a replacement.
By then, interest rates should have increased, so let's say you finance the second car at 7 percent, borrowing $13,000. Add your $9,600 in savings and that's $22,600 to spend, with 42 percent down in cash.
A higher price tag ought to mean a higher quality car, which would give you four years to drive and save after paying it off. By then you've saved $19,200 and you're paying well more than half the cost of your new car in cash -- plus you've kept your payment steady at $400 for the last 12 years.
The trick is to save while driving a paid-off car for as long as possible. If you keep your car into its teens, like me, you may have to endure an occasional noisy muffler, but the low car payments will be music to your ears.
(Brian J. O'Connor is an award-winning columnist for The Detroit News. Contact him at firstname.lastname@example.org.)