There is nothing quite so expensive as a brand-new car. There are times, rare though they be, when financing a new car might be advisable. But generally speaking, the cheapest way to own a car is to buy a late model, used, domestic car with cash.

photo credit: ericpetersautos.com

photo credit: ericpetersautos.com

How can you possibly do that when you don’t have a lot of cash to get started?  Great question. The answer is found in these two simple rules:

Rule #1: Pay Cash

Rule #2: Always Make Payments

I’ll bet you’re confused. On the one hand in Rule #1 I’m telling you to always pay cash for your cars. And in Rule #2 I am telling you to always make payments. Both principles are true.

Here’s the deal: You must adopt the attitude that as long as you intend to own a car you must anticipate the cost by making monthly payments to yourself. Unlike a home that appreciates, cars depreciate, so you must always anticipate a car’s replacement. Anticipate your automobile needs by making car payments to yourself. Treat it as a regular monthly expense that will never go away—like food or utilities. This way instead of paying interest to finance cars,  you will always be earning interest.

You make payments to yourself even when your car is fully paid for and even when you are fully satisfied with the car you are driving at the time. Why? Cars depreciate and wear out. Never forget that. You must always be anticipating your next car.

Anyone can adopt my plan to become a cash buyer, but you have to work up to it. And you must be willing to endure a certain amount of sacrifice in the beginning to achieve a greater reward later. This is where I tell you that you must let go of your pride. You stop worrying about what anyone will think about what you drive.

Start with a clunker—the very best clunker you can buy with the cash you have. Let’s say that all the cash you have is $1,200. This will not get you a pretty set of wheels, but if it runs, hey, that’s transportation.

Now, let’s say that before reading this, you believe you could cover $200 monthly payments on a new car. Great. Start making those payment to yourself now. This month. Yep, $200 every month into your car account. And for as long as you intend to own a car.

At the end of one year, sell that clunker for let’s say $900. Add that to the $2,400 you’ve saved (can you believe it? You have $2,400 in your car account after only one year) and go out and find the best $3,300 clunker you can find ($900 + $2,400 = $3,300). For cash!

Keep making those $200 payments to yourself. At the end of that year, sell the better clunker for say $3,000 and add that to the $2,400 in the bank. Now go buy the best $5,400 car (you’ve just graduated from clunker status to fairly decent automobile) you can find.

Keep doing this every year until you have enough cash to buy a brand-new car with all cash. It will happen if you are diligently following Rules #1 and #2.

But wait, you say. Isn’t that a poor use of money, to buy a brand new car that will so quickly depreciate? It sure is . . . and you would’ve never asked that question until you had $25,000 cash in your hand.

I’m going to predict that when that day comes, you won’t want to spend that much of your own cash on a new car that will be worth about $20,000 the minute you drive it home.

So I suggest that you take your cash and buy the best late model, domestic (cheaper to repair and maintain than any foreign beauty) used car you can find. Keep making those payments to yourself, and you will be an all-cash car buyer for the rest of your life.

Congratulations!

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