Don’t change your budget after loan payoff
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When you finally payoff that loan it is a huge accomplishment, don’t change your budget and continue to make the payments to yourself.
We purchased our first car back in October 2003 with a 5 year (60 month) loan at 0% APR. This was a great deal and looking forward to paying the loan off in the next few months. We also decided to enter into a 2-year lease for our second car due to our work commutes. Just recently, we made our final lease payment and decided to turn the car in, going from a 2-car to a single car household.
Since we no longer need a second car, we have decided to continue to save our monthly payments into a new account to be used as a down payment for the next car purchase. When we purchased a car in the past we sign up for a 5 year (60 month) loan with little or no down payment, as I think many others do. To help us with the down payment for the next car payment, I will open up an ING account and create an automatic savings plan with the 2nd car payment and the associated insurance monthly cost.
Since our budget has incorporated this expense, we are looking to use it as a secondary savings vehicle. As a quick rule of thumb, your personal budget allocation for your auto expenses should be approximately 12% of your net income (after taxes). Let’s see how many months we can go with just one car and the budget allocation at 0%….
