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This won't be a popular opinion but buying a car is not an emergency. It is something you know you have to do every so often so you should be saving for it. If your "emergency fund" is all your savings I guess it doesn't apply.
Sounds like the OP does what I do and keeps all non-taxed advantage savings in an "emergency fund". There is something to be said about following a plan for such fund but in this case the OP could just redirect some of the burgeoning account into a "car savings" plan and go with it.
And for those who say well you should save for a car, many of those who are doing just fine in the savings department just drive our cars until they die. I know a lot of people who do this. Well both of my cars died in the last six months so had to shuffle things around to buy two cars with cash. Not the best time to buy cars as many of you have heard but in the end being too rigorous to keep savings at a far greater amount than is really needed just gives you more stress IMO.
Location: East of Seattle since 1992, 615' Elevation, Zone 8b - originally from SF Bay Area
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Normally, with today's higher interest rates I would say that you have to compare the rates to determine the most cost-effective method of payment. For example, if your emergency fund is earning 1% interest and your bank would charge you 6%, you are saving a lot by using the savings to pay cash. There is risk to the future if you deplete that emergency fund too much, of course. Shop around though, because some of the manufacturers are again doing incentives such as 0% or 1% interest loans, and that makes financing equal or better. Subaru is offering 2.9% which could be balanced out buy using some of the EF for a larger down payment, leaving plenty for it's intended purpose.
We keep our cars a very long time. I have no issues with financing them, assuming a low interest rate, since once we pay them off, we'll go another 10 or so years with no payments. And if we decide to make extra payments to pay them off early, we have that option. We're looking for a new truck now.
It's just an accounting exercise for me, but I like some others have funds for different purposes:
-- My emergency fund is six months of take home pay. (I don't contribute to this unless it gets below that making monies available for other things), For me I don't feel a need to have more than six months for this. But I do have other funds besides the emergency fund.
-- I have a vacation fund (certain amount per pay) -- frivolous fun within reason that is budgeted
-- I have a car fund that I pay car repairs and my next car from (certain amount per pay) - to date I have bought all cars with cash. I am currently driving a 9 year old car with 104,000 files on it.
-- I have an HSA that is a medical fund for anything that qualifies for that supplemented with money outside of the HSA to be equal to the out of pocket max of our medical insurance plus 2K for things like dental (when it's above this I can move monies for other purposes). A certain amount per pay goes in my HSA -- My HSA is below my out of pocket max right now, so I have other monies set aside for medical outside of the HSA. Once at this level I feel empowered to move monies to other funds for other things.
-- I have an insurance/taxes fund that gets a certain amount per pay that puts me in a position to pay property taxes, insurance (car and home), and personal property taxes -- There is only enough here to pay those expenses when they come due.
-- I have a home improvement / home maintenance fund that I put a certain amount of money in for home projects. If that is above $25K (unless I am saving for a big home improvement) I can reallocate monies for other things. (I have some of this in investments rather than just in a high yield savings account), I just replaced my 23 year old roof and paid for that, so I am quite comfortable only having 25K in this fund right now.
Retirement savings is different with different monies and invested.
If I have more than what I need in one of the funds, I feel empowered to shift the monies spend it on whatever. (e.g. excess home improvement monies could go into the car fund as car prices are higher than I had planned for or I could contribute more to my son's wedding or I could help a relative who is struggling financially pay their property taxes, etc.).
I don't know enough about you and your allocation for emergencies. Looking at it like this works for me and makes me comfortable to use monies for other things if I am at the level I feel I should be for each of these needs.
Another question is what real emergencies could you envision and are there other options for you? My son who is just starting out for example, has a lot of his income going to monthly expenses like rent, keeps smaller emergency funds than we do but knows in a true emergency that we would be there to help him out. We for some of his insurance told him to get higher deductibles to keep monthly expenses down and told him we would pay for those deductibles (and he knows we would do this, keep our word). Without us he would need lower deductibles (at quite a bit higher expense) or a larger emergency fund.
Some people too if they have equity in their home, are young, and have a good job might think of a home equity loan as something that they could open if they have an emergency. This post is just me and what I like to have set aside before I would shift monies into my car fund.
Automobiles are a declining value asset. Buy used to save money.
Carefully consider total cost of both options you presented: deplete your cash assets (will the asset value recover by time the vehicle needs to be replaced?) or deplete ypur monthly income (can you maintain your desired life style on the reduced income stream?)
Automobiles are a declining value asset. Buy used to save money.
Carefully consider total cost of both options you presented: deplete your cash assets (will the asset value recover by time the vehicle needs to be replaced?) or deplete ypur monthly income (can you maintain your desired life style on the reduced income stream?)
Financing or paying cash doesn’t impact the depreciation schedule
If you are just starting your career and have no savings, then finance the new-to-you vehicle.
Once it is paid off, keep putting that same monthly amount into a next car savings account. Then pay cash for all remaining vehicles in your future.
Of course with inflation that first payment amount means less and less. But hopefully your career has given you any extra bucks you need to add in. By not financing you save a lot over the years.
It's just an accounting exercise for me, but I like some others have funds for different purposes:
-- My emergency fund is six months of take home pay. (I don't contribute to this unless it gets below that making monies available for other things), For me I don't feel a need to have more than six months for this. But I do have other funds besides the emergency fund.
-- I have a vacation fund (certain amount per pay) -- frivolous fun within reason that is budgeted
-- I have a car fund that I pay car repairs and my next car from (certain amount per pay) - to date I have bought all cars with cash. I am currently driving a 9 year old car with 104,000 files on it.
-- I have an HSA that is a medical fund for anything that qualifies for that supplemented with money outside of the HSA to be equal to the out of pocket max of our medical insurance plus 2K for things like dental (when it's above this I can move monies for other purposes). A certain amount per pay goes in my HSA -- My HSA is below my out of pocket max right now, so I have other monies set aside for medical outside of the HSA. Once at this level I feel empowered to move monies to other funds for other things.
-- I have an insurance/taxes fund that gets a certain amount per pay that puts me in a position to pay property taxes, insurance (car and home), and personal property taxes -- There is only enough here to pay those expenses when they come due.
-- I have a home improvement / home maintenance fund that I put a certain amount of money in for home projects. If that is above $25K (unless I am saving for a big home improvement) I can reallocate monies for other things. (I have some of this in investments rather than just in a high yield savings account), I just replaced my 23 year old roof and paid for that, so I am quite comfortable only having 25K in this fund right now.
Retirement savings is different with different monies and invested.
If I have more than what I need in one of the funds, I feel empowered to shift the monies spend it on whatever. (e.g. excess home improvement monies could go into the car fund as car prices are higher than I had planned for or I could contribute more to my son's wedding or I could help a relative who is struggling financially pay their property taxes, etc.).
I don't know enough about you and your allocation for emergencies. Looking at it like this works for me and makes me comfortable to use monies for other things if I am at the level I feel I should be for each of these needs.
Another question is what real emergencies could you envision and are there other options for you? My son who is just starting out for example, has a lot of his income going to monthly expenses like rent, keeps smaller emergency funds than we do but knows in a true emergency that we would be there to help him out. We for some of his insurance told him to get higher deductibles to keep monthly expenses down and told him we would pay for those deductibles (and he knows we would do this, keep our word). Without us he would need lower deductibles (at quite a bit higher expense) or a larger emergency fund.
Some people too if they have equity in their home, are young, and have a good job might think of a home equity loan as something that they could open if they have an emergency. This post is just me and what I like to have set aside before I would shift monies into my car fund.
Glad all those funds/accounts work for some people.
Personally, I don't need and fund for this, and fund for that, and a fund for this-and-that, and a fund for this-or-that.
I don't want to keep track of all of that.
Although, I'm sure it may allow people to maximize their gain.
One (what I call my) emergency fund, one "cushion account" -- whatever you want to call it -- is good enough for me. It's also the "cash" part of my portfolio. Everything else is in the market.
I'm OK with one "cash"/CD/MMA pot. If I need to pull from it, I do. If I don't, I don't.
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