An automobile is a major purchase and the consumer purchase most likely to throw a major kink into your fragile financial situation. But it doesn’t have to be that way. What’s required is a little radical thinking and forethought.

Here are the three rules to follow when buying a car:

RULE 1. Pay cash. Hang on. I know you may not be able to do that right now. Just be patient and I will teach you how. This principle is so important that I will repeat it: Pay cash for your car.

RULE 2. Opt for a late model. Make sure you are not the first owner. Let someone else take that 20 percent depreciation hit. Your goal is to drive the best late-model, previously owned car you can afford paid for with the cash you have.

RULE 3. Always make payments. I hope that got your attention! On the one hand, I just told you always to pay cash for your cars. And now I am telling you always to make payments. Both principles are true. You must adopt the attitude that as long as you intend to own a car you must cover the the cost by making monthly payments to yourself ahead of time—in anticipation of your next car. This way you are always earning interest (because you hold that money in a savings account), not paying it.

Even if your current car is doing well I can promise you that car will not last forever. That’s why I want to challenge you to start today so you can pay cash for your next car. 

Open a special savings account somewhere convenient (credit union or local bank( and begin making that monthly payment into the account. Pay $300 to yourself every month and funnel it directly into that account—just the way you would have to pay that to a finance company if your current car died a  tragic death in the next week or so. That’s right, make these payment to you. Be strict with yourself—rigid and unbending! No late payments, no slacking. Continue driving the car you have now as long as you can, even if it is a real clunker. A year from now, you will have accumulated $3,600 cash plus interest in your account in the Bank of You. Not bad!

Now sell your clunker. I don’t know what you have or what it might be worth, so let’s say you can sell it for $2,000. Put that money with the $3,600 in the savings account and buy the best car you can find for $5,600 cash. By now, you’ve become used to making $300 payments to yourself. Don’t stop. Not now, not ever. It’s a habit, and a very good one at that.

At the end of another year, sell your current clunker for say $4,800 and put that money together with the $3,600 you saved during the year by making those payments to yourself. Now buy the best used car you can find for your $8,400. Then continue making those payments.

At the end of year three, sell your current car for say $7,800 and together with the $3,600 from your savings buy the best $11,400 car you can find. Your selection of good, used cars is getting better each year. You have graduated from clunkers to much more respectable automobiles.

In year four, sell your most recent car for say $11,000, add the $3,600 from savings, and buy a $14,600 used car. By year five, you have at least $17,000 cash to upgrade to an even better car. By year six, you should have at least $20,000 cash to buy a car.

Keep repeating this process once each year—upgrading and paying cash for a better car. As you become more adept, you will lose your fear of buying and selling cars. And imagine your confidence and personal power knowing you are not at the mercy of a salesman, bank, or finance company as you look for a car. You can negotiate because you have plenty of experience.

After five or six years, buying a brand-new car will certainly be an option. But I predict you won’t. Why? Because by this time you will be so good at buying late-model, low mileage cars for a fraction of the price of a new one that you will scoff at the folly of buying new and feeling that big depreciation hit on the front end.

Still, you will have that option, And who knows? You just might take it.

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